<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                  FORM 10-QSB
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarterly Period Ended                    Commission File Number:
       June 30, 1998                                   0-24113


                      ROCKDALE NATIONAL BANCSHARES, INC.
--------------------------------------------------------------------------------
       (Exact name of small business issuer as specified in its charter)


         Georgia                                            58-2292563
--------------------------------------------------------------------------------
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

P.O. Box 82030, Conyers, Georgia                               30013
--------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)

Issuer's telephone number:     (770) 785-7880
                           -----------------------------------------------------

                                 Not Applicable
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, 
if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

          Yes        X          No
               --------------       ---------------
State the number of shares outstanding of each of the issuer=s classes of common
equity, as of the latest practicable date:

     Common Stock, $1.00 Par Value                       676,188
--------------------------------------   -------------------------------------
               Class                        Outstanding as of August 7, 1998

Transitional Small Business Disclosure Format:

          Yes                   No         X
               --------------        --------------

                                       1
<PAGE>
 
                        PART I. - FINANCIAL INFORMATION
 
 
Item 1.    Financial Statements
---------  --------------------
                      ROCKDALE NATIONAL BANCSHARES, INC.
                                AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                  June 30,
                                                                    1998                December 31,
 ASSETS                                                          (Unaudited)                1997 
 ------                                                      --------------------    --------------------
<S>                                                          <C>                   <C>
Cash and due from banks....................................          $ 4,071,921              $ 1,344,297
Federal funds sold.........................................               90,000                4,290,000
Investment securities:
     Securities available-for-sale,                                   
     at market value.......................................           10,848,586                5,325,870
Other investments..........................................              180,000                  180,000
Loans, net.................................................           11,278,126                3,599,142
Premises and equipment, net................................            1,637,227                1,663,678
Accrued interest receivable................................              269,768                  101,073
Other assets...............................................              144,090                  166,014
                                                                     -----------              -----------
     Total assets..........................................          $28,519,718              $16,670,074
                                                                     ===========              ===========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Liabilities:
Deposits
     Noninterest-bearing demand............................          $ 3,460,870              $ 1,568,410
     Interest-bearing demand and money market..............           14,869,646                6,478,310
     Savings...............................................              418,284                  629,190
     Time deposits of $100,000 or more.....................            1,860,416                1,205,719
     Other time deposits...................................            1,418,929                  511,002
                                                                     -----------              -----------
          Total deposits...................................           22,028,145               10,392,631
 
     Federal funds purchased...............................              560,000                      --
     Accrued interest payable..............................               10,571                    6,380
     Other liabilities.....................................               20,400                    6,000
                                                                     -----------              -----------
          Total liabilities................................           22,619,116               10,405,011
                                                                     -----------              -----------
</TABLE> 
 
                                                            (Continued)


      Refer to notes to the consolidated unaudited financial statements.

                                       2
<PAGE>
 
                      ROCKDALE NATIONAL BANCSHARES, INC.
                                AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEET
                                  (CONTINUED)
<TABLE> 
<CAPTION> 
 
                                                                  June 30,              
                                                                    1998                   December 31,     
Shareholders' Equity:                                            (Unaudited)                   1997
                                                             -------------------        ----------------
<S>                                                          <C>                        <C>    
Common stock, $1.00 par value,                                          
     10,000,000 shares authorized,
     676,188 shares issued and outstanding.................              676,188                  676,188
Surplus....................................................            6,051,196                6,060,196
Retained earnings (deficit)................................             (818,389)                (468,628)
Accumulated other comprehensive income (loss)..............               (8,393)                  (2,693)
                                                                     -----------              -----------
     Total Shareholders' Equity............................            5,900,602                6,265,063
Commitments and contingent liabilities.....................                   --                       --
                                                                     -----------              -----------
     Total Liabilities and                                           
          Shareholders' Equity.............................          $28,519,718              $16,670,074
                                                                     ===========              ===========
 
</TABLE>
                                 

      Refer to notes to the consolidated unaudited financial statements.

                                       3
<PAGE>
 
                      ROCKDALE NATIONAL BANCSHARES, INC.
                                AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
                    FOR THE SIX-MONTHS ENDED JUNE 30, 1998
                AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
                             THROUGH JUNE 30, 1997
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                     For the period ended
                                                                            June 30,
                                                              -----------------------------------
                                                                     1998               1997
                                                              -----------------  ----------------
<S>                                                           <C>                <C>
Interest income
     Loans, including fees..................................         $ 390,994            $    --
     Investment securities:
          U.S. Treasury Securities..........................                --                 --
          U.S. Government agencies and corporations.........           293,702                 --
          Other investments.................................                --                 --
     Federal funds sold.....................................            81,147                 --
                                                                     ---------           --------
          Total interest income.............................           765,843                 --
                                                                     ---------           --------
Interest expense
     Interest bearing demand and money market...............           300,144                 --
     Savings................................................             2,822                 --
     Time deposits of $100,000 or more......................            49,965                 --
     Other time deposits....................................            25,597                 --
     Federal Funds Purchased................................               540                 --
                                                                     ---------           --------
          Total interest expense............................           379,068                 --
                                                                     ---------           --------
          Net interest income...............................           386,775                 --

Provision for possible loan losses..........................            90,581                 --
                                                                     ---------           --------
 
Net interest income after provision                                   
     for possible loan losses...............................           296,194                 --
                                                                     ---------           --------
Other income
     Service charges on deposit accounts....................            42,391                 --
     Investment securities gains, net.......................               (12)                --
     Other income...........................................             6,017                 --
                                                                     ---------           --------
          Total other income................................            48,396                 --
                                                                     ---------           --------
Other expense
     Salaries and other compensation........................           286,747                 --
     Employee benefits......................................            20,422                 --
     Net occupancy and equipment expense....................           114,142                 --
</TABLE> 
 
                                  (Continued)

      Refer to notes to the consolidated unaudited financial statements.

                                       4
<PAGE>
 
                      ROCKDALE NATIONAL BANCSHARES, INC.
                                AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF INCOME
                    FOR THE SIX-MONTHS ENDED JUNE 30, 1998
             AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
                             THROUGH JUNE 30, 1997
                                  (UNAUDITED)
                                  (CONTINUED)
<TABLE>
<CAPTION>  
                                                                          For the period Ended
                                                                                 June 30,
                                                                     ----------------------------
                                                                        1998               1997
                                                                     ---------           --------
     <S>                                                            <C>                   <C> 
     Professional and other outside services................           253,044                 --  
     Other expense..........................................            19,985              3,831
                                                                     ---------             ------
          Total other expenses..............................           694,340              3,831
                                                                     ---------             ------
Net income (loss) before taxes..............................          (349,750)            (3,831)
                                                                                           ------
Income taxes................................................                --                 --
                                                                     ---------             ------
Net income (loss)...........................................         $(349,750)           $(3,831)
                                                                     =========            =======
Basic income (loss) per share...............................         $    (.52)           $    --
                                                                     =========            =======
</TABLE>
 
                                  
      Refer to notes to the consolidated unaudited financial statements.

                                       5
<PAGE>
 
<TABLE>
<CAPTION>

                                                ROCKDALE NATIONAL BANCSHARES, INC.
                                                          AND SUBSIDIARY
                                          CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                              FOR THE SIX-MONTHS ENDED JUNE 30, 1998
                                       AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
                                                       THROUGH JUNE 30, 1997
                                                            (UNAUDITED)
 
                                                                           For the period ended
                                                                                  June 30,
                                                                   ----------------------------------------
                                                                           1998                 1997
                                                                   -------------------  -------------------
<S>                                                                <C>                  <C>
Net Loss.........................................................        $   (349,750)            $ (3,831)
 
Other comprehensive income, before tax:
   Unrealized holding gains (losses) arising during period.......             (12,716)                  --
 
   Income tax benefit (expense)..................................               4,323                   --
                                                                         ------------             --------
 
Comprehensive Loss...............................................        $   (358,143)            $ (3,831)
                                                                         ============             ======== 
</TABLE> 



      Refer to notes to the consolidated unaudited financial statements.

                                       6
<PAGE>
 
                      ROCKDALE NATIONAL BANCSHARES, INC.
                                AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE SIX-MONTHS ENDED JUNE 30, 1998
             AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 13, 1997)
                             THROUGH JUNE 30, 1997
                                  (UNAUDITED)
                                  

<TABLE> 
<CAPTION> 

                                                                                For the period ended
                                                                                       June 30,
                                                                         ---------------------------------- 
                                                                             1998                   1997 
                                                                         ------------           -----------
<S>                                                                      <C>                     <C> 
 Cash flows from operating activities:
     Net loss....................................................        $   (349,750)            $ (3,831)
     Adjustments to reconcile net loss to net cash used
       by operating activities:
          Net (accretion) amortization of investment                          
           securities............................................              11,715                   --
          Depreciation and amortization of premises                            
          and equipment..........................................              54,228                   --
          Provision for loan losses..............................              90,581                   --
          Deferred income tax benefit............................                  --                   --
          Amortization of organization costs.....................               4,876                   --
          (Increases) decreases in other assets..................               2,337              (66,131)
          Increase in accrued interest                                       
           receivable............................................            (168,695)                  --
          Increase in accrued interest payable...................               4,191                   --
          Increase in other liabilities..........................              14,400                   --
                                                                         ------------             --------
               Net cash used by operating activities.............            (336,117)             (69,962)
                                                                         ------------             --------
Cash flows from investing activities:
     Purchases of investment securities                                    
          available-for-sale.....................................          (8,394,725)                  -- 
     Sales of investment securities AFS..........................           2,047,058                   --
     Calls of investment securities AFS..........................             607,026
     Maturities of investment securities available-for-sale......             206,210                   --
     Loans originated, net of principal repayments...............          (7,769,565)                  --
     Purchases of premises and equipment.........................             (27,777)             (10,000)
                                                                         ------------             --------
               Net cash used by investing activities.............         (13,331,773)             (10,000)
                                                                         ------------             --------
Cash flows from financing activities:
     Proceeds from loans by Organizers...........................                  --               85,000
     Repayment of loans by Organizers............................                  --                   --
     Sale of common stock........................................                  --                   --
     Increase in deposits........................................          11,635,514                   --
     Increase in federal funds purchased.........................             560,000                   --
                                                                         ------------             --------
               Net cash provided from financing activities.......          12,195,514               85,000
                                                                         ------------             --------
Net increase in cash and cash equivalents........................          (1,472,376)               5,038
Cash and cash equivalents,                                               
     beginning of period.........................................           5,634,297                   --
                                                                         ------------             --------
Cash and cash equivalents,                                               
     end of period...............................................        $  4,161,921             $  5,038
                                                                         ============             ========
 
</TABLE>

      Refer to notes to the consolidated unaudited financial statements.

                                       7
<PAGE>
 
NOTE 1 - BASIS OF PRESENTATION

     The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-QSB.  Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.  Operating results for the
six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.   For
further information, refer to the financial statements and footnotes included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.


NOTE 2 - ORGANIZATION OF THE BUSINESS

     Rockdale National Bancshares, Inc., Conyers, Georgia (the "Company"), was
incorporated under the laws of the State of Georgia on February 13, 1997, for
the purpose of becoming a bank holding company for a proposed national bank,
Rockdale National Bank (the "Bank").  On August 26, 1997, the Company completed
an initial public offering of its common stock, $1.00 par value per share.  Each
share of common stock was sold for $10.00 per share and 676,188 shares were
sold.  Proceeds from the stock offering amounted to $6,736,384, net of selling
expenses.  The Company injected $6.0 million into the Bank's capital accounts
upon opening on October 14, 1997.


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation and Reclassification.  The consolidated unaudited
     ------------------------------------------                             
financial statements include the accounts of the Company and the Bank.  All
significant intercompany accounts and transactions have been eliminated in
consolidation.

     Basis of Accounting.  The accounting and reporting policies of the Company
     -------------------                                                       
conform to generally accepted accounting principles and to general practices
within the banking industry.  The Company uses the accrual basis of accounting
by recognizing revenues when earned and expenses when incurred, without
regarding the time of receipt or payment of cash.

     Organizational Costs.  In accordance with the Financial Accounting
     --------------------                                              
Standards Board ("FASB") Statement No. 7, the Company and the Bank capitalized
all direct organizational costs that were incurred in the expectation that they
would generate future revenues or otherwise be of benefit after the Bank opened
for business.  These capitalized costs are amortized over a sixty-month period
using the straight line method.  As of June 30, 1998, total organizational
costs, net of accumulated amortization, were $74,066.

                                       8
<PAGE>
 
     Investment Securities.  The Company adopted Statement of Financial
     ---------------------                                             
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115") on February 13, 1997.  SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:

     1.   Held-to-maturity securities: These are securities which the Company
          has the ability and intent to hold until maturity.  These securities
          are stated at cost, adjusted for amortization of premiums and the
          accretion of discounts.

     2.   Trading securities: These are securities which are bought and held
          principally for the purpose of selling in the near future.  Trading
          securities are reported at fair market value, and related unrealized
          gains and losses are recognized in the income statement.

     3.   Available-for-sale securities: These are securities which are not
          classified as either held-to-maturity or as trading securities.  These
          securities are reported at fair market value.  Unrealized gains and
          losses are reported, net of tax, as separate components of
          shareholders' equity.  Unrealized gains and losses are excluded from
          the income statement.

     Federal Reserve Bank stock is reported at cost.  Earnings are reported when
interest is accrued or when dividends are received.

     Premium and discount on all investment securities are amortized (deducted)
and accredited (added), respectively, to interest income on the effective yield
method over the period to the maturity of the related securities.

     Gains or losses on disposition are computed by the specific identification
method for all securities.

     Property and Equipment.  Furniture and equipment are stated at cost, net of
     ----------------------                                                     
accumulated depreciation.  Depreciation is computed using the straight line
method over the estimated useful lives of the related assets.  Maintenance and
repairs are charged to operations, while major improvements are capitalized.
Upon retirement, sale or other disposition of property and equipment, the cost
and accumulated depreciation are eliminated from the accounts, and gain or loss
is included in income from operations.

     Income Taxes.  The consolidated unaudited financial statements have been
     ------------                                                            
prepared on the accrual basis.  When income and expenses are recognized in
different periods for financial reporting purposes and for purposes of computing
income taxes currently payable, deferred taxes are provided on such temporary
differences.

     Effective February 13, 1997, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").  Under
SFAS 109, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been recognized in the financial
statements or tax return.  Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled.

     Statement of Cash Flows.  For purposes of reporting cash flows, cash and
     -----------------------                                                 
cash equivalents include cash on hand, amounts due from banks and federal funds
sold.  Generally, federal funds are purchased or sold for one day periods.

                                       9
<PAGE>
 
     Net Income Per Share.  Net income per share was calculated using 676,188 as
     --------------------                                                       
the weighted average number of shares outstanding for the period ended June 30,
1998.  For the six-month period ended June 30, 1998 net income (loss) per share
was $(.52).

     Accounting for Transfers and Servicing of Financial Assets and
     --------------------------------------------------------------
Extinguishment of Liabilities.  SFAS 125 is effective for transfers and
-----------------------------                                          
servicing of financial assets and extinguishment of liabilities occurring after
December 31, 1996, and is to be applied prospectively.  Earlier or retroactive
application is not permitted.  However, in December 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 127 ("SFAS 127"), "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125."  This statement defers the effective date of certain
provisions for one year (December 31, 1997).  The deferred provisions relate to
repurchase agreements, dollar-roll transactions, securities lending, and similar
transactions.  The effective date for all other transfers and servicing of
financial assets is unchanged.  The adoption of SFAS 125 did not have a material
impact on the Company's financial statements.

     Earnings Per Share.  The Financial Accounting Standards Board has issued
     ------------------                                                      
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share."  This statement is effective for financial statements issued for periods
ending after December 15, 1997.  This statement supersedes Accounting Principles
Board Opinion No. 15 ("APB 15"), "Earnings Per Share," and simplifies earnings
per share computations by replacing primary earnings per share with basic
earnings per share, which shows no effects from dilutive securities.  Entities
with complex capital structures will have to show diluted earnings per share,
which is similar to the fully diluted earnings per share computation under APB
15.  The adoption of SFAS 128 did not have a significant impact on the financial
condition or results of operations of the Company.

     Disclosure of Information About Capital Structure.  The Financial
     -------------------------------------------------                
Accounting Standards Board has issued Statement of Financing Accounting
Standards No. 129 ("SFAS 129"), "Disclosure of Information About Capital
Structure."  This statement is effective for financial statements issued for
periods ending after December 15, 1997.  This statement consolidates existing
disclosure requirements on capital structure.  The adoption of SFAS 129 did not
have a significant impact on the financial condition or results of operations of
the Company.

     Reporting Comprehensive Income.  The Financial Accounting Standards Board
     ------------------------------                                           
has issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income."  SFAS 130 is effective July 1, 1998.  Under
SFAS 130, a company will begin showing changes in assets and liabilities in a
new comprehensive income statement or alternative presentation as opposed to
showing some of the items as transactions in shareholders' equity accounts.
Upon adoption, all comparative annual and interim financial statements will
present a comprehensive income statement or alternative disclosure, for all
years presented.  The adoption of SFAS 130 did not have a significant impact on
the financial condition or results of operations of the Company.

     Pending Accounting Pronouncements.  The Financial Accounting Standards
     ---------------------------------                                     
Board has issued Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures about Segments of an Enterprise and Relation Information."
SFAS 131 is effective July 1, 1998, and requires disclosure of certain financial
information by segments of a company's business.  The adoption of SFAS 131 is
not expected to have a significant impact on the financial condition or results
of operations of the Company.

                                       10
<PAGE>
 
     The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about
Pensions and other Postretirement Benefits."  SFAS 132 is effective for fiscal
years beginning after December 31, 1997.  The adoption of SFAS 132 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.

NOTE 4 - OTHER COMPREHENSIVE INCOME

     Other comprehensive income (loss) is compiled of the following:

                                                  Unrealized
                                                Gains (Losses)
                                                on Securities
                                               ---------------

          Beginning balance - January 1, 1998      $ (2,693)
          Current - period change                    (7,786)
                                                   ----------
          Ending balance - June 30, 1998           $(10,479)
                                                   ==========

                                       11
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
------   -----------------------------------------------------------------------
         of Operations
         -------------

     Rockdale National Bancshares, Inc. (the "Company") was incorporated in
Georgia on February 13, 1997 to become a bank holding company and to own and
control all of the outstanding shares of a de novo bank, Rockdale National Bank,
Conyers, Georgia (the "Bank").  In a public offering conducted during 1997, the
Company sold and issued 676,188 shares of its own $1.00 par value common stock
at $10.00 per share.  Proceeds from the stock offering amounted to $6,736,384,
net of selling expenses.  The Company purchased 100% of the Bank's common stock
by injecting $6.0 million into the Bank's capital accounts immediately prior to
commencement of banking operations on October 14, 1997.

     Total consolidated assets increased by $11,849,644 from $16,670,074 at
December 31, 1997 to $28,519,718 during the six-month period ended June 30,
1998.  The increase was generated primarily through a $11,635,514 increase in
deposits.

                                 Financial Condition
                                 -------------------

     Management continuously monitors the financial condition of the Bank in
order to protect depositors, increase retained earnings and protect current and
future earnings.  Further discussion of significant items affecting the Bank's
financial condition are discussed in detail below.

Asset Quality
-------------

     A major key to long-term earnings growth is the maintenance of a high-
quality loan portfolio.  The Bank's directive in this regard is carried out
through its policies and procedures for extending credit to the Bank's
customers.  The goal and result of these policies and procedures is to provide a
sound basis for a new credit extensions and an early recognition of problem
assets to allow the most flexibility in their timely disposition.

     Because principal banking operations commenced on October 14, 1997,
management is not yet in a position to determine the composition of non-
performing assets.  Additions to the allowance for loan losses will be made
periodically to maintain the allowance at an appropriate level based upon
management's analysis of potential risk in the loan portfolio.  The amount of
the loan loss provision is determined by an evaluation of the level of loans
outstanding, the level of non-performing loans, historical loan loss experience,
delinquency trends, the amount of actual losses charged to the reserve in a
given period, and assessment of present and anticipated economic conditions.

Liquidity and Sources of Capital
--------------------------------

     Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers.  The June
30, 1998 financial statements evidence a satisfactory liquidity position as
total cash and cash equivalents amounted to $4.1 million, representing 15% of
total assets.  Investment securities amounted to $11.0 million, representing 39%
of total assets; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner.  Note that the Company's
ability to maintain and expand its deposit base and borrowing capabilities are a
source of liquidity.  For the six-month period ended June 30, 1998, total
deposits increased from $10.4 million at December 31, 1997 to $22.6 million,
representing an annualized increase of 240%.  Note, however, that the Company
does not expect to maintain or duplicate this growth rate.  The Company's
management closely monitors and maintains appropriate levels of interest earning
assets 

                                       12
<PAGE>
 
and interest bearing liabilities so that maturities of assets are such that
adequate funds are provided to meet customer withdrawals and loan demand. There
are no trends, demands, commitments, events or uncertainties that will result
in, or are reasonably likely to result in, the Company's liquidity increasing or
decreasing in any material way.

     Management is committed to maintaining capital at a level sufficient to
protect depositors, provide for reasonable growth, and fully comply with all
regulatory requirements.  Management's strategy to achieve this goal is to
retain sufficient earnings while providing a reasonable return on equity.

     The table below illustrates the Bank's and Company's regulatory capital
ratios at June 30, 1998:

 
                                                          Minimum
                                           June 30,      regulatory
Bank                                         1998        requirement
----                                       -------      ------------
 
     Tier 1 Capital                          33.1%          4.0%
     Tier 2 Capital                            .8%           --
                                             ----           ---
                                                         
           Total risk-based capital ratio    34.1%          8.0%
                                             ====           ===
                                                         
     Leverage ratio                          19.0%          3.0%
                                             ====           ===
                                                         
                                                         
Company - Consolidated                                   
----------------------                                   
                                                         
     Tier 1 Capital                          35.6%          4.0%
     Tier 2 Capital                            --%           --
                                             ----           ---
                                                         
           Total risk-based capital ratio    35.6%          8.0%
                                             ====           ===
                                                         
     Leverage ratio                          18.7%          3.0%
                                             ====           ===

     Note that with respect to the leverage ratio, the OCC expects a minimum of
5.0 percent to 6.0 percent ratio for banks that are not rated CAMEL 1.  Although
the Bank is not rated CAMEL 1, its leverage ratio of 19.0% is well above the
required minimum.

                                 Results Of Operations
                                 ---------------------

     Since principal banking operations only commenced on October 14, 1997, a
comparison of the June 30, 1998 results (when banking operations were in
progress) to those of June 30, 1997 (when banking operations had not commenced)
is not meaningful.  This discussion will therefore concentrate on the June 30,
1998 results.

     Net income (loss) for the six-month period ended June 30, 1998 amounted to
$(349,750), or $(.52) per share.  The following is a brief discussion of the
more significant components of net income:

     a.   Net interest income represents the difference between interest
          received on interest earning assets and interest paid on interest
          bearing liabilities.  The following presents, in a tabular form, the
          main components of interest earning assets and interest bearing
          liabilities.

                                       13
<PAGE>
 
      Interest                                     Interest          
   Earning Assets/                   Average        Income/        Yield/    
 Bearing Liabilities                 Balance         Cost           Cost
 -------------------                 -------       --------       ------
 
Federal funds sold                $ 2,465,414       $ 81,147        6.58%
Securities                         10,120,254        293,702        5.80%
Loans                               7,822,588        390,994       10.00%
                                  -----------       --------       -----
  Total                           $20,408,256       $765,843        7.51%
                                  ===========       ========       =====
Deposits                          $18,157,588       $378,528        4.17%
Federal funds purchased                17,404            540        5.50%
                                  -----------       --------        ----
  Total                           $18,174,992       $379,068        4.17%
                                  ===========       ========        ====
Net interest income                                 $386,775        3.34%
                                                    ========        ====
Net yield on earning assets                                         3.79%
                                                                    ====


     b.   Other income for the six-month period ended June 30, 1998 amounted to
          $48,396.  On an annualized basis, this represents .34% of total
          assets.  This figure is relatively low because in order to attract new
          banking relationships, the Bank's fee structure and charges are low
          when compared to other banks.  The above fees and charges may increase
          in the future.

     c.   Operating expenses for the six-month period ended June 30, 1998
          amounted to $694,340.  On an annualized basis, this represents 4.87%
          of total assets.  In the future this percentage may increase due to
          costs and expenses associated with the new facility.

     At December 31, 1997, the allowance for loan losses amounted to $45,373.
By June 30, 1998, the allowance had grown to $135,954.  The allowance for loan
losses, as a percentage of total gross loans, decreased from 1.25% for the year
ended December 31, 1997 to 1.11% during the six-month period ended June 30,
1998.  Management considers the allowance for loan losses to be adequate and
sufficient to absorb possible future losses; however, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional provisions to the allowance will not be required.

     The Company is not aware of any current recommendation by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources, or results of operations.

     The Company is currently addressing a universal situation commonly referred
to as the "Year 2000 Problem."  The Year 2000 Problem relates to the inability
of certain computer software programs and equipment to properly recognize and
process date-sensitive information relative to the year 2000 and beyond.  During
1998, the Company developed a plan to devote the necessary resources to identify
and modify systems impacted by the Year 2000 Problem, or implement new systems
to become year 2000 compliant in a timely manner.  The cost of executing the
plan is not expected to have a material impact on the Company's results of
operations or financial condition.

                                       14
<PAGE>
 
Cautionary Note Regarding Forward-Looking Statements
----------------------------------------------------

     The Company may, from time to time, make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
stockholders.  Such forward-looking statements are made based on management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.  The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including governmental monetary and fiscal policies,
deposit levels, loan demand, loan collateral values, securities portfolio values
and interest rate risk management; the effects of competition in the banking
business from other commercial banks, savings and loan associations, mortgage
banking firms, consumer finance companies, credit unions, securities brokerage
firms, insurance companies, money market mutual funds and other financial
institutions operating in the Company's market area and elsewhere, including
institutions operating through the Internet; changes in government regulations
relating to the banking industry, including regulations relating to branching
and acquisitions; failure of assumptions underlying the establishment of
reserves for loan losses, including the value of collateral underlying
delinquent loans, and other factors.  The Company cautions that such factors are
not exclusive.  The Company does not undertake to update any forward-looking
statements that may be made from time to time by, or on behalf of, the Company.

                         PART II. - OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders.
------   --------------------------------------------------- 

     The 1998 Annual Meeting of Stockholders of the Company was held on May 5,
1998.  At the meeting the following persons were elected as directors to serve
for a term of three years and until their successors are elected and qualified:
C. Dean Alford, William L. Daniel and Hazel E. Durden.

     The number of votes cast for and against the election of each nominee for
director was as follows:

 
                              Votes                          Votes
                               FOR                          AGAINST
                             ------                         -------  

C. Dean Alford               460,091                          500
William L. Daniel            460,591                            0
Hazel E. Durden              460,591                            0
 

     In addition, the shareholders of the Company approved and adopted the
Company's 1998 Stock Option Plan (the "Plan").  The number of votes cast for and
against the approval of the Plan was as follows:


     Votes                     Votes                       Votes
      FOR                     AGAINST                     WITHHELD
    -------                   -------                     --------  
    416,881                   31,810                      11,900

                                       15
<PAGE>
 
     No other matters were presented or voted for at the Annual Meeting.

     The following persons did not stand for reelection to the Board at the 1998
Annual Meeting of Shareholders as their term of office continued after the
Annual Meeting: John A. Fountain, M.D., Michael P. Jones, Julia W. Morgan, R.
Flynn Nance, D.V.M., Michael R. Potts and Arthur J. Torsiglieri, Jr., M.D.

Item 5.  Other Information.
------   ----------------- 

     Proposals of shareholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received at the Company's principal
executive offices by December 17, 1998 in order to be eligible for inclusion in
the Company's proxy statement and form of proxy for that meeting.  With respect
to any such proposals received by the Company after March 3, 1999, the persons
named in the form of proxy solicited by management will vote the proxy in
accordance with their judgment of what is in the best interests of the Company.

Item 6.  Exhibits and Reports on Form 8-K.
------   -------------------------------- 

       (a)   Exhibits.  The following exhibit is filed with this Report.

             Exhibit No.  Description
             -----------  -----------

             27.1    Financial Data Schedule (for SEC use only)

       (b)   Reports on Form 8-K.  No report on Form 8-K was filed during the
             quarter ended June 30, 1998.

                                       16
<PAGE>
 
                                 SIGNATURES
                                 ----------

       Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


Date:  August 7, 1998    By:        /s/ William L. Daniel
                            ------------------------------------------------
                            William L. Daniel, President and Chief Executive
                            Officer  (principal executive officer)



Date:  August 7, 1998    By:       /s/ Sandra L. Davis
                            ------------------------------------------------
                            Sandra L. Davis, Chief Financial Officer
                            (principal financial and accounting officer)

                                       17