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     U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

For the fiscal year                                     Commission file number
ended December 31, 1997                                     033-90742
                            Georgia Bancshares, Inc.
                 (Name of small business issuer in its charter)

       Georgia                                              58-2176047
(State of Incorporation)                                (I.R.S. Employer
                                                         Identification No.)
3333 Lawrenceville Highway
Tucker, Georgia                                              30084
(Address of principal executive offices)                    (Zip Code)

                                 (770) 491-3333
                           (Issuer's telephone number)

Securities Registered pursuant to Section 12(b) of the Act:  None
Securities Registered pursuant to Section 12(g) of the Act:  Common stock,
                                                             par value $4.00

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

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year were $5,822,477.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant at March 1, 1998 was $ 6,876,960  based on an estimated  market price
of $ 15.00 per share, although there is no established trading market.

The number of shares  outstanding  of issuer's  class of common stock at
March 1, 1998 was 584,228 shares of common stock.

Documents  Incorporated  By Reference:  Portions of the Proxy  Statement for the
1998 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of the Registrant's  fiscal year end are incorporated
by reference into Part III.

                                  Page 1 of 52

                            Exhibit Index on Page 51


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                                TABLE OF CONTENTS
                                                                          Page
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.............................................1

ITEM 2.  DESCRIPTION OF PROPERTIES..........................................11

ITEM 3.  LEGAL PROCEEDINGS..................................................12

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
           SECURITY HOLDERS.................................................12

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND
           RELATED STOCKHOLDER MATTERS......................................13

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS
           OR PLAN OF OPERATION.............................................14

ITEM 7.  FINANCIAL STATEMENTS ... ..........................................32

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
           ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE.............................................50

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
           CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
           OF THE EXCHANGE ACT..............................................50

ITEM 10. EXECUTIVE COMPENSATION.............................................50

ITEM 11. SECURITY OWNERSHIP OF CERTAIN
           BENEFICIAL OWNERS AND MANAGEMENT.................................50

ITEM 12. CERTAIN RELATIONSHIPS AND
           RELATED TRANSACTIONS.............................................50

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................51

SIGNATURES..................................................................52



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                                     PART I

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain  of the  matters  discussed  under  the  caption  "Management's
Discussion  and Analysis of Financial  Condition and Result of  Operations"  and
elsewhere  in this Annual  Report on Form 10-K may  constitute  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
and as such may involve known and unknown risk,  uncertainties and other factors
which may cause the  actual  results,  performance  or  achievements  of Georgia
Bancshares,  Inc. (the "Company") to be materially different from future results
described  in  such  forward-looking  statements.   Actual  results  may  differ
materially from the results  anticipated in these forward looking statements due
to a variety of factors,  including,  without limitation:  the effects of future
economic  conditions;  governmental  monetary  and fiscal  policies,  as well as
legislative  and regulatory  changes;  the risks of changes in interest rates on
the level and  composition  of  deposits,  loan  demand,  and the values of loan
collateral,  and  interest  rate risks;  the effects of  competition  from other
commercial  banks,  thrifts,  consumer  finance  companies,  and other financial
institutions  operating in the Company's market area and elsewhere.  All forward
looking statements  attributable to the Company are expressly qualified in their
entirety by these  Cautionary  Statements.  The Company  disclaims any intent or
obligation to update these  forward-looking  statements,  whether as a result of
new information, future events or otherwise.

ITEM 1.  DESCRIPTION OF BUSINESS

(a)      Business Development

Georgia Bancshares, Inc. (the "Company"), Tucker, Georgia, was incorporated as a
Georgia business corporation on February 15, 1995, for the purpose of becoming a
bank holding  company by acquiring all of the common stock of DeKalb State Bank,
Tucker,  Georgia.  On  September  16,  1996,  the name of DeKalb  State Bank was
changed to Community  Bank of Georgia (the  "Bank").  The Company  became a bank
holding  company within the meaning of the federal Bank Holding Company Act (the
"Act") and the Georgia bank  holding  company law (the  "Georgia  Act") upon the
acquisition of all of the Common Stock of the Bank on August 5, 1995.

The Bank currently is the sole operating subsidiary of the Company. The Bank was
incorporated  under  the laws of the  State of  Georgia  on May 4,  1989 for the
purpose of conducting  the business of commercial  banking.  The Bank  commenced
commercial  banking  operations on August 5, 1991.  The deposits at the Bank are
insured by the Federal Deposit Insurance Corporation (the "FDIC").


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(b)      Business of Issuer

The Bank conducts a general  commercial  banking business in its primary service
area,  emphasizing  the banking needs of individuals  and small- to medium-sized
businesses.  The Company and the Bank conduct  business  from the main office of
the Bank located at 3333 Lawrenceville Highway,  Tucker, Georgia 30084. The Bank
also  conducts  business  from its branch  located at 4797 Highway 29,  Lilburn,
Georgia.

The  Company  is  authorized  to engage in any  activity  permitted  by law to a
corporation,  subject  to  applicable  Federal  regulatory  restrictions  on the
activities of bank holding companies. The holding company structure provides the
Company with greater flexibility than the Bank. While the Company has no present
plans to engage  actively  in any  nonbanking  business  activities,  management
anticipates  studying the feasibility of establishing or acquiring  subsidiaries
to engage in other business activities to the extent permitted by law.

The principal  business of the Bank is to accept deposits from the public and to
make loans and other  investments  in and around  DeKalb and Gwinnett  Counties,
Georgia, its primary service area.

The Bank offers a full range of deposit  services that are  typically  available
from financial institutions,  including NOW accounts,  demand, savings and other
time deposits.  In addition,  retirement accounts such as Individual  Retirement
Accounts are available.  All deposit  accounts are insured by the FDIC up to the
maximum amount currently permitted by law.

The Bank offers a full range of commercial  and personal  loans.  The Bank makes
loans to  individuals  for purposes  such as home mortgage  financing,  personal
vehicles and various  consumer  purchases,  and other personal and family needs.
The Bank makes commercial  loans to businesses  primarily in the primary service
area  for  purposes  such  as  providing  equipment  and  machinery   purchases,
commercial real estate purchases and working capital.

The Bank's lending  philosophy is to make loans,  taking into  consideration the
safety  of  the  Bank's  depositors'  funds,  the  preservation  of  the  Bank's
liquidity,  the interest of the Company's  shareholders,  and the welfare of the
community.  Interest income from the Bank's lending  operations is the principal
component of the Bank's income,  so therefore  prudent  lending is essential for
the prosperity of the Bank.

The Bank's loan  portfolio at December 31, 1997,  contains  approximately  14.5%
real  estate  construction  loans,  51.6%  real  estate  mortgage  loans,  26.9%
commercial  loans and 7.0% consumer  loans.  The Bank's loan to deposit ratio at
December 31, 1997 was  approximately  61.7% with  management's  goal to increase
this loan to deposit ratio to  approximately  72.0%  consistent  with the Bank's
lending practices.

The principal  sources of income for the Bank are interest and fees collected on
loans,  interest  on  investment  securities  and  service  charges  on  deposit

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accounts.  The  principal  expenses of the Bank are  interest  paid on deposits,
employee compensation, office expenses, and other overhead expenses.

The Bank's business plan for its initial years of operation  relies  principally
upon local  advertising and promotional  activity and upon personal  contacts by
its directors,  officers and  shareholders  to attract  business and to acquaint
potential customers with the Bank's personalized  services.  The Bank intends to
emphasize a high degree of  personalized  client  service in order to be able to
provide for each customer's  banking needs. The Bank's  marketing  approach will
emphasize  the  advantages  of dealing with an  independent,  locally-owned  and
managed  state  chartered  bank to meet the  particular  needs  of  individuals,
professionals and small-to-medium-size businesses in the community. All banking
services will be continually  evaluated with regard to their  profitability  and
efforts  will be made to modify  the Bank's  business  plan if the plan does not
prove successful.
The Bank does not currently offer trust or permissible securities services.

Supervision and Regulation

Regulation  of the Bank.  The  operations  of the Bank are  subject to state and
federal statutes  applicable to state chartered banks whose deposits are insured
by the FDIC and the  regulations  of the DBF and the  FDIC.  Such  statutes  and
regulations  relate to,  among other  things,  required  reserves,  investments,
loans,  mergers  and  consolidations,   issuances  of  securities,   payment  of
dividends, establishment of branches and other aspects of the Bank's operations.
Under the provisions of the Federal  Reserve Act, the Bank is subject to certain
restrictions  on any  extensions  of  credit to the  Company  or,  with  certain
exceptions,  other affiliates,  and on the taking of such stock or securities as
collateral on loans to any borrower.  In addition,  the Bank is prohibited  from
engaging in certain  tie-in  arrangements  in  connection  with any extension of
credit or the providing of any property or service.

The Bank,  as a state  chartered  bank,  will be permitted to branch only to the
extent that banks are  permitted to branch under  Georgia law. In January  1996,
the Georgia  legislature  passed a bill designed to eliminate  Georgia's current
intra-county branching restrictions. The legislation provided that after July 1,
1996,  banks in Georgia,  with prior  approval  of the DBF (and the  appropriate
federal regulatory authority),  may establish additional branches in up to three
new counties in the state per year. If a bank is part of a bank holding company,
all affiliates are treated as one, and the bank holding company  organization is
limited to only three  counties for branching.  On July 1, 1998,  full statewide
branching  goes into effect and Georgia  banks may establish new branches in any
county  in  the  state  with  prior  approval  of  the  appropriate   regulatory
authorities.

The FDIC adopted risk-based capital guidelines that went into effect on December
31, 1990 for all FDIC insured state  chartered banks that are not members of the
Federal Reserve System.  Beginning December 31, 1992, all banks were required to
maintain a minimum ratio of total  capital to risk weighted  assets of 8 percent
(of which at least 4 percent must consist of Tier 1 capital).  Tier 1 capital of
state chartered banks (as defined in regulations) generally consists of (i)

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common  stockholders  equity;  (ii) noncumulative  perpetual preferred stock and
related  surplus;  and  (iii)  minority  interests  in the  equity  accounts  of
consolidated subsidiaries.

In addition,  the FDIC adopted a minimum ratio of Tier 1 capital to total assets
of banks. This capital measure is generally  referred to as the leverage capital
ratio. The FDIC has established a minimum leverage capital ratio of 4 percent if
the FDIC  determines  that the  institution is not  anticipating or experiencing
significant growth and has  well-diversified  risk,  including no undue interest
rate exposure,  excellent asset quality,  high liquidity,  good earnings and, in
general,  is considered a strong banking  organization,  rated Composite 1 under
the Uniform Financial  Institutions Rating System. Other financial  institutions
are expected to maintain leverage capital at least 100 to 200 basis points above
the minimum  level.  At December 31, 1997, the Bank exceeded the minimum Tier 1,
risk-based  and  leverage  capital  ratios.  The table  which  follows set forth
certain capital information for the Bank as of December 31, 1997.

                                Capital Adequacy
                             (Dollars in thousands)

                                December 31, 1997
Leverage Ratio                           Amount                        Percent
                                         ------                        -------
     Actual                              $6,728,352                      10.3%
     Minimum Required (1)                $2,613,320                       4.0%
Risk-Based Capital:
Tier 1 Capital
     Actual                              $6,728,352                      12.0%
     Minimum Required                    $2,246.680                       4.0%
Total Capital
     Actual                              $7,421,031                      13.2%
     Minimum Required                    $4,493,360                       8.0%

(1)  Represents  the  regular   minimum   requirement.   Institution   that  are
contemplating  acquisitions or anticipating or experiencing  significant  growth
may be required to maintain a substantially  higher  leverage  ratio.  See below
regarding the consequences of failing to meet specified capital standards.

The Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991, enacted
in  December  1991  ("FDICIA"),  specifies,  among  other  things,  the
following five capital standard categories for depository institutions: (i) well
capitalized,   (ii)  adequately  capitalized,   (iii)   undercapitalized,   (iv)
significantly  undercapitalized  and  (v)  critically  undercapitalized.  FDICIA
imposes progressively more restrictive constraints on operations, management and
capital


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distributions  depending on the category in which an  institution is classified.
Each of the federal banking  agencies has issued final uniform  regulations that
became  effective  December  19, 1992,  which,  among other  things,  define the
capital  levels  described  above.  Under  the  final  regulations,  a  bank  is
considered "well  capitalized" if it (i) has a total risk-based capital ratio of
10% or greater,  (ii) has a Tier 1  risk-based  capital  ratio of 6% or greater,
(iii) has a  leverage  ratio of 5% or  greater,  and (iv) is not  subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total  risk-based  capital  ratio for 8% or greater,  (ii) a Tier 1 risk-based
capital ratio of 4% or greater and (iii) a leverage  ratio of 4% or greater.  An
"undercapitalized"  bank is defined As one that has a total  risk-based  capital
ratio of less than 8%, (ii) a Tier I risk-based  capital  ratio of less than 4%,
or  (iii)  a   leverage   ratio  of  less  than  3%,   and  it  is   "critically
undercapitalized"  if the bank has a ratio of  tangible  equity to total  assets
equal to or less than 2%. The applicable  federal  regulatory  agency for a bank
that is "well  capitalized"  may  reclassify it as "adequately  capitalized"  or
"undercapitalized"  and  subject  the  institution  to the  supervisory  actions
applicable to the next lower capital category, if it determines that the Bank is
in an unsafe or unsound  condition  or deems the bank to be engaged in an unsafe
or unsound practice and not to have corrected the deficiency. As of December 31,
1997, the Bank met the definition of a "well capitalized" institution.

"Undercapitalized"  depository  institutions,  among other things,  are subject
to growth limitations,  are prohibited,  with certain  exceptions,  from
making  capital  distributions,  are limited in their ability to obtain  funding
from a Federal  Reserve  Bank and are  required to submit a capital  restoration
plan.  The  federal  banking  agencies  may not  accept a capital  plan  without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository  institution's  capital. In
addition,  for a  capital  restoration  plan to be  acceptable,  the  depository
institution's  parent holding company must guarantee that the  institution  will
comply with such capital restoration plan and provide appropriate  assurances of
performance.  If a depository  institution  fails to submit an acceptable  plan,
including  if the  holding  company  refuses or is unable to make the  guarantee
described in the  previous  sentence,  it is treated as if it is  "significantly
undercapitalized".  Failure to submit or  implement an  acceptable  capital plan
also  is  grounds  for  the   appointment   of  a  conservator  or  a  receiver.
"Significantly  undercapitalized"  depository  institutions  may be subject to a
number  of  additional  requirements  and  restrictions  such as  orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and  cessation  of receipt of deposits  from  correspondent  banks.
"Critically undercapitalized"  institutions,  among other things, are prohibited
from making any payments of principal and interest on subordinated debt, and are
subject to the appointment of a receiver or conservator.

Under FDICIA, the FDIC is permitted to provide financial  assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance  would be the least  costly  method of meeting  the FDIC's  insurance
obligations,  (ii) grounds for  appointment of a conservator or a receiver exist
or are likely to exist,  (iii) it is unlikely that the bank can meet all capital
standards without  assistance and (iv) the bank's management has been competent,


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has complied with applicable laws, regulations, rules and supervisory directives
and has not  engaged  in any  insider  dealing,  speculative  practice  or other
abusive activity.

FDIC Insurance Assessments

The  FDIC  adopted  regulations  amending  the  deposit  insurance   assessments
applicable to the Banks. The regulations provide for a risk-based premium system
which requires higher  assessment rates for banks which the FDIC determines pose
greater risks to the BIF.

Under  the   regulations,   banks  pay  an   assessment   depending   upon  risk
classification.  Although  the  regulations  were  adopted  by the FDIC as final
regulations, the Board of the FDIC will consider whether changes in economic and
industry  conditions require  adjustments in the range of assessment rates to be
charged in future years.

To arrive at  risk-based  assessments,  the FDIC places each bank in one of nine
risk  categories  using a two step process based on capital  ratios and on other
relevant  information.  Each  bank is  assigned  to one of  three  groups  (well
capitalized,  adequately capitalized, or under capitalized) based on its capital
ratios.  The FDIC has also  assigned each bank to one of three  subgroups  based
upon an evaluation of the risk posed by the bank.  The three  subgroups  include
(i) banks  that are  financially  sound with only a few minor  weaknesses,  (ii)
those banks with weaknesses which, if not corrected, could result in significant
deterioration  of the bank and increased  risk to the BIF, and (iii) those banks
that pose a substantial  probability of loss to the BIF unless corrective action
is taken. These supervisory  evaluations modify premium rates within each of the
three  capital  groups  with the  result  being  the nine  risk  categories  and
assessment rates based on a summary multiplier.

The Bank has been  informed  by the FDIC that the Bank have been  classified  as
well  capitalized  and  in  the  lowest  risk  category  and  will  be  assessed
accordingly for 1998.

The Bank is also subject to, among other  things,  the  provisions  of the Equal
Credit  Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"),  both
of which  prohibit  discrimination  based on race or color,  religion,  national
origin,  sex,  and  familial  status in any aspect of a consumer  or  commercial
credit or residential real estate transaction.  In April 1994, the Department of
Housing and Urban Development, the Department of Justice (the "DOJ"), and all of
the  federal  banking  agencies  issued  an  Interagency   Policy  Statement  on
discrimination in Lending in order to provide guidance to financial institutions
as to what the agencies consider in determining whether  discrimination  exists,
how the agencies will respond to lending discrimination,  and what steps lenders
might take to prevent discriminatory lending practices.

Regulation  of the  Company.  The Company is a bank holding  company  within the
meaning of the Federal Bank Holding Company Act (the "Act") and the Georgia bank
holding company law (the "Georgia Act"). As a bank holding company,  the Company


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is required to file with the Federal  Reserve  Board  (the  "Federal  Reserve")
an  annual  report  and such additional  information as the Board may require
pursuant to the Act. The Board may also make  examinations  of the Company and
each of its  subsidiaries.  Bank holding  companies  are  required by the Act to
obtain  approval  from the Board prior to acquiring, directly or indirectly,
ownership or control of more than 5% of the voting shares of a bank.

The Act also prohibits bank holding  companies,  with certain  exceptions,  from
acquiring  more than 5% of the voting  shares of any company  that is not a bank
and from  engaging in any  nonbanking  business  (other than a business  closely
related to banking as determined  by the Board) or from managing or  controlling
banks and other subsidiaries authorized by the Act or furnishing services to, or
performing  services  for, its  subsidiaries  without the prior  approval of the
Board.  The Board is  empowered to  differentiate  between  activities  that are
initiated  de novo by a bank  holding  company or a  subsidiary  and  activities
commenced  by  acquisition  of a  going  concern.  The  Company  has no  present
intention to engage in nonbanking activities.

As a bank holding company, the Company is subject to capital adequacy guidelines
as established by the Board. The Board established risk based capital guidelines
for bank holding companies  effective March 15, 1989.  Beginning on December 31,
1992,  the minimum  required  ratio for total  capital to risk  weighted  assets
became 8 percent (of which at least 4 percent  must  consist of Tier 1 capital).
Tier 1 capital (as defined in regulations  of the Board)  consists of common and
qualifying  preferred  stock  and  minority  interests  in  equity  accounts  of
consolidated subsidiaries, less goodwill and other intangible assets required to
be deducted  under the Board's  guidelines.  The Board's  guidelines  apply on a
consolidated basis to bank holding companies with total  consolidated  assets of
$150 million or more. For bank holding  companies with less than $150 million in
total consolidated assets (such as the Company),  the guidelines will be applied
on a bank only basis,  unless the bank holding  company is engaged in nonbanking
activity  involving  significant  leverage  or has  significant  amount  of debt
outstanding  that is held by the general public.  The Board has stated that risk
based  capital  guidelines  establish  minimum  standards  and that bank holding
companies generally are expected to operate well above the minimum standards.

The  Company is also a bank  holding  company  within the meaning of the Georgia
Act, which provides that,  without the prior approval of the DBF, it is unlawful
(i) for any bank  holding  company to acquire  direct or indirect  ownership  or
control  of more than 5% of the  voting  shares  of any bank,  (ii) for any bank
holding  company or  subsidiary  thereof,  other than a bank,  to acquire all or
substantially all of the assets of a bank, or (iii) for any bank holding company
to merge or consolidate with any other bank holding company.

It also is unlawful for any company to acquire  direct or indirect  ownership or
control of more than 5% of the voting shares of any bank in Georgia  unless such
bank has been in existence and continuously  operating or incorporated as a bank
for a period of five years or more prior to the date of  application  to the DBF
for  approval  of  such  acquisition.  Bank  holding  companies  themselves  are
prohibited  from  acquiring  another  bank  until the  initial  bank in the bank
holding company has been incorporated for a period of twenty-four months.


<PAGE>10

The  Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of 1994 (the
"Interstate Banking Act"),  subject to certain  restrictions,  allows adequately
capitalized and managed bank holding  companies to acquire existing banks across
state lines,  regardless of state statutes that would prohibit  acquisitions  by
out-of-state  institutions.  Further, since June 1, 1997, a bank holding company
may consolidate  interstate bank subsidiaries into branches and a bank may merge
with an  unaffiliated  bank across state lines to the extent that the applicable
states  have not "opted out" of  interstate  branching  prior to that date.  The
Interstate Banking Act generally prohibits an interstate acquisition (other than
the initial  entry into a state by a bank holding  company) that would result in
either the control of more than (i) 10% of the total amount of insured  deposits
in the United  States,  or (ii) 30% of the total  insured  deposits  in the home
state of the target bank, unless such 30% limitation is waived by the home state
on a basis which does not discriminate against out-of-state  institutions.  As a
result of the  Interstate  Banking Act,  the Company may become a candidate  for
acquisition by, or may itself seek to acquire,  banking organizations located in
other states.

Bank holding companies may be compelled by bank regulatory authorities to invest
additional capital in the event a subsidiary bank experiences either significant
loan losses or rapid growth of loans or deposits.  In addition,  the Company may
be required to provide additional capital to any additional banks it acquires as
a condition to obtaining the approvals and consents of regulatory authorities in
connection with such acquisitions.

Federal  Reserve  policy  requires a bank holding  company to act as a source of
financial   strength  and  to  take   measures  to  preserve  and  protect  bank
subsidiaries in situations where  additional  investments in a troubled bank may
not  otherwise be  warranted.  In  addition,  under the  Financial  Institutions
Reform,  Recovery and Enforcement Act of 1989  ("FIRREA"),  where a bank holding
company has more than one bank or thrift  subsidiary,  each of the bank  holding
company's subsidiary  depository  institutions are responsible any losses to the
Federal  Deposit  Insurance  Corporation  ("FDIC") as a result of an  affiliated
depository  institution's  failure.  As a result,  a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or other
instruments which qualify as capital under regulatory rules.  However, any loans
from the holding company to such  subsidiary  banks likely will be unsecured and
subordinated  to such bank's  depositors  and perhaps to other  creditors of the
bank. In addition,  a bank holding company may be required to provide additional
capital  to any  additional  banks  it  acquires  as a  condition  to  obtaining
approvals  and  consents  of  regulatory  authorities  in  connection  with such
acquisitions.

On February 20, 1997, the Federal  Reserve  adopted,  effective  April 21, 1997,
amendments to its Regulation Y implementing  certain  provisions of The Economic
Growth and  Regulatory  Paperwork  Reduction Act of 1996  ("EGRPRA"),  which was
signed into law on September 30, 1996.  Among other things,  these  amendment to
Federal  Reserve  Regulation  Y reduce the notice and  application  requirements
applicable  to  bank  and  nonbank   acquisitions   and  de  novo  expansion  by
well-capitalized  and well-managed  bank holding  companies;  expand the list of
nonbanking  activities  permitted under Regulation Y; reduce certain limitations

<PAGE>11

on  previously  permitted  activities;  and  amend  Federal  Reserve  anti-tying
restrictions to allow banks greater flexibility to package products and services
with their affiliates.

The  Company  and the  Bank  are  subject  to the  provisions  of the  Community
Reinvestment  Act of 1977,  as  amended  (the  "CRA")  and the  federal  banking
agencies'  regulations issued  thereunder.  Under the CRA, all banks and thrifts
have a continuing and affirmative obligation, consistent with its safe and sound
operation to help meet the credit needs for their entire communities,  including
low- and  moderate-income  neighborhoods.  The CRA does not  establish  specific
lending requirements or programs for financial  institutions,  nor does it limit
an  institution's  discretion to develop the types of products and services that
it believes are best suited to its  particular  community,  consistent  with the
CRA. The CRA requires a depository  institution's primary federal regulator,  in
connection with its examination of the institution,  to assess the institution's
record of assessing and meeting the credit needs of the community served by that
institution,  including low- and moderate-income  neighborhoods.  The regulatory
agency's assessment of the institution's record is made available to the public.
In the case of a bank holding company applying for approval to acquire a bank or
other bank holding company,  the Federal Reserve will assess the records of each
subsidiary  depository  institution of the applicant bank holding  company,  and
such records may be the basis for denying the application.

The evaluation system used to judge an institution's CRA performance consists of
three tests:  a lending test; an investment  test;  and a service test.  Each of
these  tests will be applied by the  institution's  primary  federal  regulatory
taking into account such factors as: (i)  demographic  data about the community;
(ii) the institution's capacity and constraints; (iii) the institution's product
offerings and business  strategy;  and (iv) data on the prior performance of the
institution and similarly-situated lenders.

In  addition,  a  financial  institution  will have the option of having its CRA
performance  evaluated  based on a strategic  plan of up to five years in length
that it had developed in cooperation with local community groups. In order to be
rated under a strategic  plan,  the  institution  will be required to obtain the
prior approval of its federal regulator.

The interagency CRA  regulations  provide that an institution  evaluated under a
given test will  receive  one of five  ratings for the test:  outstanding,  high
satisfactory, low satisfactory, needs to improve, or substantial non-compliance.
An  institution  will receive a certain  number of points for its rating on each
test,  and the points are  combined  to produce an overall  composite  rating of
either   outstanding,   satisfactory,   needs   to   improve,   or   substantial
non-compliance.  Under the agencies'  rating  guidelines,  an  institution  that
receives an  "outstanding"  rating on the lending  test will  receive an overall
rating of at least  "satisfactory",  and no  institution  can receive an overall
rating  of  "satisfactory"  unless  it  receives  a  rating  of  at  least  "low
satisfactory" on its lending test. In addition,  evidence of  discriminatory  or
other illegal credit practices would adversely  affect an institution's  overall
rating. Under the new regulations, an institution's CRA rating would continue to
be taken into account by its primary  federal  regulator in considering  various
types of applications.  As a result of the Bank's most recent CRA examination in
August, 1995, the Bank received a "satisfactory" CRA rating.


<PAGE>12

The Company and the Bank are subject to the Federal Reserve Act,  Section 23A,
which limits a bank's" covered  transactions"  (generally,  any  extension  of
credit) with any single affiliate  to no  more  than  10%  of a  bank's  capital
and  surplus.  Covered transactions  with all affiliates  combined are limited
to no more than 20% of a bank's capital and surplus.  All covered and exempt
transactions  between a bank and its  affiliates  must be on terms and
conditions  consistent  with safe and sound banking  practices,  and a bank and
its  subsidiaries  are prohibited from purchasing low quality assets from the
bank's affiliates.  Finally,  Section 23A requires  that  all  of a  bank's
extensions  of  credit  to  an  affiliate  be appropriately  secured by
collateral.  The Company and the Bank are also subject to Section 23B of the
Federal  Reserve Act,  which further  limits  transactions among  affiliates.
Sections  22(g) and  22(h) of the  Federal  Reserve  Act and implementing
regulations  also  prohibit  extensions  of  credit  by  a  state non-member
bank (such as the Bank) to its  directors,  executive  officers  and controlling
shareholders  on terms which are more favorable than those afforded other
borrowers,  and  impose  limits  on the  amounts  of loans to  individual
affiliates and all affiliates as a group.

The  United  States  Congress  and the  Georgia  General  Assembly  periodically
consider and adopt  legislation  that results in, and could  further  result in,
deregulation,  among other matters,  of banks and other financial  institutions.
Such legislation could modify or eliminate geographic  restrictions on banks and
bank  holding   companies  and  current   prohibitions   with  other   financial
institutions,  including mutual funds,  securities  brokerage  firms,  insurance
companies,  banks from other states and investment  banking firms. The effect of
any such  legislation  on the  business  of the  Company  or the Bank  cannot be
accurately  predicted.  The Company  cannot  predict what  legislation  might be
enacted or what other implementing  regulations might be adopted, and if enacted
or adopted, the effect thereof.


Competition

The  banking  business  is highly  competitive.  The Bank  competes  with  other
commercial banks that conduct operations in its primary service area.

Banks generally  compete with other financial  institutions  through the banking
products and  services  offered,  the pricing of services,  the level of service
provided,  the  convenience  and  availability  of  services,  and the degree of
expertise  and the  personal  manner in which  services  are  offered.  The Bank
encounters  strong  competition  from most of the financial  institutions in the
Bank's  primary  service  area.  In the conduct of certain  areas of its banking
business, the Bank also competes with credit unions, consumer finance companies,
insurance companies, money market mutual funds and other financial institutions,
some of which are not subject to the same degree of regulation and  restrictions
imposed upon the Bank.  Many of these  competitors  have  substantially  greater
resources and lending limits than the Bank has and offer certain services,  such
as trust services, that the Bank does not provide presently.

Moreover,  many of these competitors have branch offices and other facilities in
the primary  service area, a competitive  advantage  that the Bank does not have

<PAGE>13

currently. Management believes that competitive pricing and personalized service
will  provide it with a method to compete  effectively  in the  primary  service
area.


Monetary Policy

Earnings  of  the  Company  are  affected  by  domestic  and  foreign   economic
conditions,  particularly  by the  monetary  and fiscal  policies  of the United
States government and its agencies.  The Federal Reserve has an important impact
on the operating results of banks and other financial  institutions  through its
power to  implement  national  monetary  policy.  The methods  used by the Board
include  setting the reserve  requirements of banks,  establishing  the discount
rate on bank borrowings and conducting open market transactions in United States
Government securities.


Employees

As of  December  31,  1997,  the Bank  employed  24  full-time  employees  and 5
part-time employees.  Except for the officers of the Bank who presently serve as
officers of the Company,  the Company does not have any  employees.  Neither the
Company  nor the Bank is a party to any  collective  bargaining  agreement,  and
management believes the Bank enjoys satisfactory relations with its employees.


ITEM 2.  DESCRIPTION OF PROPERTIES

The  operations  of the Company and the Bank are  conducted  in a bank  building
located at 3333 Lawrenceville Highway,  Tucker,  Georgia. The Bank owns the bank
building and the property upon which the building is located.

The Bank's  building is a traditional  style,  two-story,  brick veneer building
containing  approximately  9,700  square  feet  on  a  1.75  acre  site  at  the
intersection of Lawrenceville Highway and Cooledge Road. The Bank's offices have
six inside teller  stations,  three outside  drive-in  teller  stations,  a safe
deposit vault and one outside automatic teller machine.

On October 1, 1996,  the Bank opened its sole branch  located at 4797 Highway 29
in Lilburn,  Georgia.  The branch contains  approximately 2,800 square feet on a
1.4 acre site.  The branch  has three  inside  teller  stations,  three  outside
drive-in teller stations, and one outside automatic teller machine.

<PAGE>14

ITEM 3.  LEGAL PROCEEDINGS

Neither the Company  nor the Bank is a party to any pending  legal  proceedings,
other  than  routine  litigation  incidental  to  the  Bank's  business,   which
management  believes after consultation with legal counsel would have a material
effect upon the operations or financial condition of the Company or the Bank.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was  submitted  to a vote of  security  holders  during the  Company's
fourth quarter of the fiscal year ended December 31, 1997.


















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<PAGE>15



                                     PART II

ITEM 5.  MARKET FOR ISSUER'S COMMON EQUITY AND
                  RELATED STOCKHOLDER MATTERS

As of December 31, 1997, there were  approximately 685 shareholders of record of
the Company's common stock.  Although there is no established trading market for
the Company's  common stock,  the Company is aware of 193 private  trades during
the 1997 fiscal  year at prices  ranging  from  $12.00 to $13.00 per share.  The
Company  paid cash  dividends  to  shareholders  in the amount of $.20 per share
($116,846 in the aggregate) in the year ended December 31, 1997. The only source
of funds presently available to the Company for the payment of cash dividends is
dividends from the Bank. Certain regulatory  requirements restrict the amount of
dividends  that can be paid to the  Company by the Bank  without  obtaining  the
prior approval of the DBF. No assurance can be given that any further  dividends
will be  declared  by the  Company,  or if  declared,  what  the  amount  of the
dividends will be.











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<PAGE>16



ITEM 6.  MANAGEMENT'S DISCUSSIONS AND ANALYSIS
                  OR PLAN OF OPERATIONS

Introduction

The  Company is a one-bank  holding  company  providing  a full range of banking
services to individual and corporate  customers in DeKalb and Gwinnett  Counties
and surrounding  areas through its wholly-owned  bank subsidiary,  the Bank. The
Bank operates under a state charter  granted by the DBF and serves its customers
from its main  banking  facility in Tucker,  Georgia  and its branch  located in
Lilburn,  Georgia. The following discussion of the Company's financial condition
and  results of  operations  should be read in  conjunction  with the  Company's
consolidated financial statements and related notes presented in another section
of this Annual Report on Form 10-KSB.


Financial Condition - 1997 vs. 1996

Total assets increased by $21,005,842 (36.0%) from December 31, 1996 to December
31,  1997.  The  increase  is  primarily  due to an  increase  in net  loans  of
$13,468,312  (43.2%)  and in total  investments  of  $2,964,895  (18.7%).  These
increases were funded by growth in deposits of $20,371,474  (39.1%) during 1997.
The  composition of the deposit  portfolio  changed  significantly  during 1997.
During the year, the Company had  significant  increases in time deposits due to
management's  approach to relationship banking and increasing deposit rates. The
time deposit category  increased  $14,058,306  (50.4%) during 1997. The level of
savings accounts declined by $560,022 (10.2%) during 1997.  Non-interest bearing
and interest  bearing demand deposits grew by $2,330,903  (28.4%) and $3,422,243
(33.1%)  respectively  during  1997.  Since  the  increase  in  interest-bearing
deposits was offset by growth in loans, the net interest margin was not impacted
significantly.

The total of nonperforming assets which includes nonaccruing loans,  repossessed
collateral  and  loans  for  which  payments  are more  than 90 days  past  due,
increased  from  $159,964 at December 31, 1996 to $547,869 at December 31, 1997.
There  were no  related  party  loans  which were  considered  nonperforming  at
December 31, 1997.

The Bank was most recently examined by its primary regulatory  authority in July
1997.  There  were  no  recommendations  by the  regulatory  authority  that  in
management's opinion will have material effects on the Bank's liquidity, capital
resources or operations.

Results of Operations - 1997 vs. 1996

The results of  operations  of the Company is dependent on net interest  income,
which is the  difference  between  interest  earned on  earning  assets  and the
interest paid on interest-bearing  liabilities, and the ability to minimize loan
losses and to control operating expenses.

<PAGE>17

Net earnings before taxes increased by $199,315 (26.2%) to $960,880 in 1997 from
$761,565 in 1996. Net earnings after taxes for 1997 was $621,998, an increase of
$86,541  compared to $535,457 in 1996. The return on average assets was .94% and
1.02% for the year ended December 31, 1997 and 1996, respectively.

Net interest  income for 1997 was $2,940,320,  an increase of $647,939  (28.3%),
compared  to  $2,292,381  in 1996.  Interest  income  for  1997 was  $5,368,677,
representing an increase of $1,248,484  (30.3%) for 1996. The growth in interest
income  was  primarily  due to the  increase  of funds  available  for loans and
investments.  Interest  expense for 1997 increased  $600,545 (32.9%) compared to
1996. The growth in interest  expense was almost equal to the growth in interest
income  primarily  due to the  significant  growth  of  time  deposits.  The net
interest spread increased 18 basis points from 4.14% in 1996 to 4.32% in 1997.

The provision for loan losses for 1997 was $235,500 compared to $90,000 in 1996.
The increase is primarily  attributable  to the growth in loans  outstanding and
the increase in non-performing  loans. The allowance for loan losses represented
approximately  1.5% of total loans as of December  31,  1997.  The net amount of
recoveries  was $1,796 in 1997 compared to net  charge-offs  of $32,047 in 1996.
Management  believes  that  the  level  of the  allowance  for  loan  losses  is
appropriate based upon the Bank's portfolio and the current economic conditions.

Other  income for 1997 was  $453,800,  an increase of $80,550  from  $373,250 in
1996.  The majority of the increase was due to increased  income from cash value
life insurance  policies of $26,093 and charges such as safe deposit box rental,
merchant deposit fees and ATM surcharges. The Bank sold one SBA loan during 1997
for a gain of $14,424.

Other expenses for 1997 was $2,197,740 an increase of $383,674  (21.1%) compared
to  $1,814,066  in 1996.  Approximately  $284,535,  or 74.16% of the increase in
other expenses is related to the branch addition.

The Bank  recognized  income tax  expense of $338,882  and  $226,108 in 1997 and
1996,  respectively.  In prior  years,  the Bank had  recorded  a  deferred  tax
valuation  allowance  since the  realization  of the  deferred  tax benefits was
heavily dependent on future earnings.  The deferred tax valuation  allowance was
reduced by $35,271 and $505,071, in 1996 and 1995, respectively,  because it was
more likely than not that future  taxable  income will be  sufficient to realize
all of the tax benefits for temporary differences including loss carryfowards.

Liquidity

The Bank must maintain a certain portion of its assets in funds that are readily
available  to pay on deposit  withdrawals  and to meet  expected  loan  demands.
Additionally,  the Bank  maintains  relationships  with  correspondent  banks to
provide lines of credit for short-term funds on an as-needed  basis.  Presently,
the Bank has secured and unsecured federal funds lines available from commercial
banks of $1,500,000 and $2,400,000, respectively.


<PAGE>18

Cash and cash  equivalents  totaled  $10,963,565  and $6,583,556 at December 31,
1997 and 1996,  respectively.  Cash inflows from operations  totaled $996,732 in
1997,  while outflows from investing  activity  totaled  $16,871,351  which were
primarily a net increase in loans.  Inflows from  financing  activities  totaled
$20,254,628  which resulted from increases in deposits.  A complete  analysis of
cash flows is presented later in the audited financial statements.

Capital Resources

The Company's ratios of stockholders' equity to total assets were 8.4% and 10.4%
at December 31, 1997 and 1996, respectively. The Company is required to maintain
minimum  amounts of capital to total "risk weighted"  assets,  as defined by the
banking regulators.  At December 31, 1997, the Company was required to have Tier
I and Total Capital to "risk weighted" assets ratios of 4% and 8%, respectively.
The Company's ratios as of December 31, 1997 were 12.0% and 13.3% for Tier I and
Total Capital  ratios,  respectively.  Additionally,  the Company is required to
maintain a leverage  ratio of at least 3%. At December 31, 1997,  the  Company's
leverage ratio was 10.4%. While the current level of capital  sufficiently meets
the regulatory  requirements,  and the Company's current and foreseeable  needs,
management will continue to evaluate the capital needs of the Company.

Year 2000

The Company has  conducted a  comprehensive  review of its  computer  systems to
identify  the  systems  that  could be  affected  by the Year 2000  Issue and is
developing an  implementation  plan to resolve the issue. The Year 2000 Issue is
the result of computer  programs being written using two digits rather than four
to  define  the  applicable  year.  Any  of the  Company's  programs  that  have
time-sensitive  software may recognize a date using "00" as the year 1900 rather
than  the  year  2000.   This  could  result  in  a  major  system   failure  or
miscalculations.  The Company  presently  believes that, with  modifications  to
existing software and conversion to new software, the Year 2000 problem will not
pose significant  operational problems for the Company's computer systems or the
third parties  computer systems with whom the Company relies upon.  However,  if
such  modifications  and  conversions  are not completed  timely,  the Year 2000
problem may have a material  impact on the  operations of the Company.  A recent
assessment of the Bank's operations in regards to the Year 2000 issues indicates
the costs  associated  with  modifying  computer  systems and  converting to new
systems to be between $30,000 and $60,000.

Interest Rate Sensitivity

The objective of the Bank's asset-liability management policy is to minimize the
effect of interest rate changes on the Bank's net interest margin.  The Bank has
an Asset-Liability Committee consisting of certain officers and directors of the
Bank. The Committee's  responsibility  is to monitor the policies and procedures
that have been  formulated to ensure the  appropriate  composition of the Bank's
asset/liability  mix in order to properly  manage the interest rate risks of the
Bank's balance sheet and to ensure a consistent level of profitability.


<PAGE>19

The  following  table  summarizes  the  amounts of  interest-earning  assets and
interest-bearing  liabilities  outstanding  as of December  31, 1997 that are to
mature,  prepay or reprice in each of the future time periods  shown.  Except as
stated below,  the amount of assets or  liabilities  that mature or reprice in a
particular period was determined in accordance with the contractual terms of the
asset or  liability.  Adjustable  rate loans are included in the period in which
interest  rates are next  scheduled to adjust rather than in the period in which
they are due. The fixed rate loans are included in the periods in which they are
anticipated to be repaid based on scheduled  maturities.  Estimates of projected
repayments of loans with specified  characteristics  and  investment  securities
with  callable  features are  presented in the period of the  anticipated  call.
Community  Bank  of  Georgia's  savings  accounts  and  interest-bearing  demand
accounts  (NOW and money  market  accounts),  which  are  generally  subject  to
immediate withdrawal, are included in the "Three Months or Less" category.















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<PAGE>20
<TABLE>
<CAPTION>




                                                                   At December 31, 1997
                                                                 Maturing or Repricing in
                                                            Over 3        Over 1
                                                Three       Months         Year
                                               Months      Through        Through      Over 5
                                               or Less      1 Year        5 Years       Years        Total
                                               -------      ------        -------       -----        -----

                                                                   (Dollars in Thousand)
<S>                                        <C>                <C>        <C>           <C>         <C>
Interest-earning assets:
  Loans                                     $    24,943         3,194       16,364          845        45,346
Investment securities:
  Taxable                                         2,832         1,086        7,568        6,540        18,026
  Tax-Exempt                                         --            --           --          809           809
  Federal funds sold                              7,436            --           --           --         7,436
                                                 ------         -----       ------        -----        ------
Total interest-eaning assets                $    35,211         4,280       23,932        8,194        71,617
                                                 ======         =====       ======        =====        ======


Interest-bearing liabilities:
  Deposits:
    Interest-bearing demand                 $    13,754            --           --           --        13,754
    Savings                                       6,148            --           --           --         6,148
Time                                              7,610        27,711        6,637            8        41,966
                                                 ------        ------        -----            -        ------
Total interest-bearing liabilities          $    27,512        27,711        6,637            8        61,868
                                                 ======        ======        =====            =        ======
Interest sensitive difference per
period                                            7,699      (23,431)       17,295        8,186
                                                  -----      --------       ------        -----
Cumulative interest sensitivity
difference                                  $     7,699      (15,732)        1,563        9,749
                                                  =====      ========        =====        =====
Cumulative difference to total
assets                                            9.70%      (19.83)%        1.97%       12.29%
                                                  =====      ========        =====       ======
</TABLE>




<PAGE>21


SELECTED STATISTICAL INFORMATION

The following  section  presents  statistical  information for the Company which
supplements the financial data discussed elsewhere herein.

Index to Selected Statistical Information

Table 1           Average Balance Sheets
Table 2           Volume-Rate Analysis
Table 3           Investment Portfolio
Table 4           Loan Portfolio
Table 5           Allowance for Loan Losses
Table 6           Deposits
Table 7           Selected Financial Data


<PAGE>22



Table 1
Average Balance Sheets

The  table  below  shows  the  average  balance  sheets,  including  significant
categories of interest-earning assets and interest-bearing  liabilities for 1997
and 1996, and the average rate of interest earned or paid thereon:
<TABLE>
<CAPTION>

                                                        1997                                     1996
                                                        ----                                     ----
                                                      Interest                                 Interest
                                       Average        Income/      Yield/       Average        Income/      Yield/
                                       Balances       Expense      Rate         Balances       Expense      Rate
                                                        (Amounts are presented in Thousands)
<S>                               <C>               <C>          <C>         <C>             <C>         <C>
Assets:
Interest-earning assets:
  Loans (including loan fees)     $     38,512         4,108       10.67%     $  27,606   $     2,958       10.72%
  Investment securities:
     Taxable                            15,200           997        6.56%        14,444           922        6.38%
     Nontaxable                            145             8        5.52%             --           --          --%
  Interest earning deposits                 --            --          --%           446            10        5.26%
  Federal funds sold                     4,546           256        5.63%         4,311           230        5.34%
                                         -----         -----       ------        ------         -----        -----
  Total interest earning assets         58,403         5,369        9.19%        46,551         4,120        8.85%
Other non-interest earning
  assets                                 7,631                                    5,720
                                         -----                                    -----
  Total assets                    $     66,034                                $  52,271
                                        ======                                   ======
Liabilities and stockholders'
equity:
  Interest bearing liabilities:
     Deposits:
     Interest bearing demand
       and savings                $     15,713           461        2.94%     $  14,953           441        2.95%
     Time                               34,133         1,964        5.75%        23,821         1,386        5.81%
     Other borrowings                       40             3        7.50%            37             1        2.70%
                                        ------         -----        -----        ------         -----        -----
   Total interest bearing
     liabilities                        49,886         2,428        4.87%        38,811         1,828        4.71%

Other non-interest bearing
  liabilities                           10,180                                    7,660
Stockholders' equity                     5,968                                    5,800
                                         -----                                    -----
Total liabilities and
stockholders' equity              $     66,034                             $     52,271
                                        ======                                   ======
Excess of interest earning assets
over interest bearing liabilities $      8,517                             $      7,740
                                         =====                                    =====
Ratio of interest earning assets
to interest bearing liabilities         117.07%                                  119.94%
                                       =======                                  =======

Net interest income                                    2,941                                    2,292
                                                       =====                                    =====
Net interest spread                                                 4.32%                                    4.14%
                                                                    =====                                    =====
Net interest yield on interest
bearing assets                                                      5.03%                                    4.92%
                                                                    =====                                    =====
</TABLE>


Nonaccrual  loans and the interest which was recorded on these loans (both prior
and subsequent to the time loans were placed on nonaccrual  status,  if any) are
included in the yield calculation for all loans in all periods reported.


<PAGE>23



Table 2
Volume-Rate Analysis

The  following  table  shows a summary  of the  changes in  interest  income and
interest expense  resulting from changes in volume and changes in rates for each
major category of interest-earning  assets and interest-bearing  liabilities for
1997 over 1996:

<TABLE>
<CAPTION>

                                                                                 1997 over 1996
                                                                     Increase (decrease) due to changes in:
                                                                      (Amounts are presented in thousands)
<S>                                                        <C>                           <C>               <C>
                                                                       Volume              Rate               Total
Interest income on:
   Loans (including loan fees)                              $           1,164                (14)             1,150
   Investment securities:
       Taxable                                                             49                 26                 75
       Nontaxable                                                           8                 --                  8
   Federal funds sold                                                      13                 13                 26
   Interest on deposits in banks                                          (10)                --                (10)
                                                                       ------               ----             ------
       Total interest-earning assets                        $           1,224                 25              1,249
                                                                        =====                 ==              =====
Interest expense on:
   Deposits:
       Interest-bearing demand and savings                  $              21                 (1)                20
       Time                                                               592                (14)               578
   Other borrowings                                                         2                 --                  2
                                                                          ---               ----                ---
       Total interest-bearing liabilities                   $             615                (15)               600
                                                                          ===               ====                ===
</TABLE>


Rate/volume variances were allocated between rate variances and volume variances
using a weighted average allocation method.


<PAGE>24



Table 2
Volume-Rate Analysis, Continued

The  following  table  shows a summary  of the  changes in  interest  income and
interest expense  resulting from changes in volume and changes in rates for each
major category of interest-earning  assets and interest-bearing  liabilities for
1996 over 1995:
<TABLE>
<CAPTION>
                                                                                1996 over 1995
                                                                Increase (decrease) due to changes in:
                                                                  (Amounts are presented in thousands)
                                                                        Volume              Rate               Total
<S>                                                         <C>                           <C>                <C>
Interest income on:
                                                            $             406                (5)                401
  Loans (including loan fees) Investment securities:
                                                                          150                 21                171
    Taxable
  Federal funds sold                                                       26               (16)                 10
  Interest on deposits in banks                                          (14)                (2)               (16)
                                                                        -----              -----              -----
    Total interest-earning assets                           $             568                (2)                566
                                                                          ===                ===                ===
Interest expense on:
  Deposits:
                                                            $              13               (39)               (26)
    Interest-bearing demand and savings
    Time                                                                  327               (16)                311
  Other borrowings                                                        (7)                 --                (7)
                                                                        -----               ----              -----
    Total interest-bearing liabilities                      $             333               (55)                278
                                                                        =====               ====              =====
</TABLE>

Rate/volume variances were allocated between rate variances and volume variances
using a weighted average allocation method.


<PAGE>25



Table 3
Investment Portfolio

The following  table  presents the  investments by category at December 31, 1997
and 1996 (amounts are represented in thousands):
<TABLE>
<CAPTION>

                                                            1997                                  1996
                                                            ----                                  ----
                                              Amortized          Estimated          Amortized          Estimated
                                                Cost            Fair Value            Cost            Fair Value
<S>                                         <C>                   <C>              <C>               <C>
U.S. Treasury                                 $    881                 891              1,415              1,413
U.S. Government agencies                        10,799              10,790             12,457             12,388
Obligations of state and
  political subdivisions                           804                 809                 --                 --

Mortgage-backed securities                       6,372               6,345              2,100              2,069
                                                 -----               -----             ------             ------
      Totals                                  $ 18,856              18,835             15,972             15,870
                                                ======              ======             ======             ======

</TABLE>



The amortized   costs  and   weighted average yields for investments at
December 31, 1997 are shown below (amounts are represented in thousands):

<TABLE>
<CAPTION>
                                                                       Obligations
                                                                      of states and                             Weighted
                                       U.S.               U.S.          political              Mortgage          Average
                                     Treasury           Agencies        subdivions              Backed            Yields
<S>                                 <C>                <C>             <C>                     <C>              <C>

Within 1 year                           $ 200                400             --                    --             5.33%
After 1 through 5 years                   200              6,158             --                 1,700             6.56%
After 5 through 10 years                   --              4,241             --                   336             6.54%
After 10 years                            481                 --            804                 4,336             6.19%
                                         ----                ---            ---                   ---             -----
      Totals                           $  881             10,799            804                 6,372             6.40%
                                          ===             ======            ===                 =====             ====

</TABLE>


<PAGE>26



Table 4

Loan Portfolio

The following table presents loans by type at the end of 1997 and 1996 (amounts
are presented  in thousands):
<TABLE>
<CAPTION>

                                                                                          December 31,

                                                                                         1997             1996
                                                                                         ----             ----
<S>                                                                              <C>                 <C>
Commercial, financial and
agricultural                                                                      $     12,181            8,423
Real estate - construction                                                               6,587            3,597
Real estate - mortgage                                                                  23,393           17,331
Installment loans to
individuals                                                                              3,185            2,289
                                                                                         -----            -----
                                                                                  $     45,346           31,640
                                                                                        ======           ======
</TABLE>

As  of  December  31,  1997,   the   maturities   of  loans  in  the   indicated
classifications were as follows (amounts are presented in thousands):

<TABLE>
<CAPTION>
                      Commercial,
                      Financial and       Real Estate          Real Estate
Maturity              Agricultural        Construction         Mortgage           Consumer      Total
--------              ------------        ------------         --------           --------      -----
<S>                      <C>             <C>                 <C>                <C>           <C>
Within 1 yr           $    6,271               6,587               4,651              998       18,507
1 to 5 yrs                 4,324                  --               2,846            2,187        9,357
After 5 yrs                1,586                  --              15,896               --       17,482
                           -----                ----              ------            -----       ------
   Totals             $   12,181               6,587              23,393            3,185       45,346
                          ======               =====              ======            =====       ======

</TABLE>

<PAGE>27



Table 4

Loan Portfolio, Continued



As of  December  31,  1997,  the  interest  terms  of  loans  in  the  indicated
classifications  for the indicated  maturity ranges are as follows  (amounts are
presented in thousands):

<TABLE>
<CAPTION>


                                                                 Fixed               Variable

                                                            Interest Rates        Interest Rates         Total
<S>                                                          <C>                 <C>                <C>
Commercial, financial and agricultural:
  Less than one year                                     $        1,969                 4,302           6,271
  1 to 5 years maturity                                           2,906                 1,418           4,324
  After 5 years maturity                                            112                 1,474           1,586
                                                                    ---                 -----           -----
                                                                  4,987                 7,194          12,181
                                                                  -----                 -----          ------
Real estate - construction:
  Less than one year                                                 --                 6,587           6,587
  1 to 5 years maturity                                              --                    --              --
  After 5 years maturity                                             --                    --              --
                                                                   ----                  ----            ----
                                                                     --                 6,587           6,587
                                                                   ----                 -----           -----
Real estate - mortgage:
  Less than one year                                                909                 3,742           4,651
  1 to 5 years maturity                                           1,745                 1,101           2,846
  After 5 years maturity                                            578                15,318          15,896
                                                                    ---                ------          ------
                                                                  3,232                20,161          23,393
                                                                  -----                ------          ------
Consumer:
  Less than one year                                                834                   164             998
  1 to 5 years maturity                                           2,068                   118           2,187
  After 5 years maturity                                             --                    --              --
                                                                   ----                  ----            ----
                                                                  2,902                   282           3,185
                                                                  -----                   ---           -----
                                                          $      11,121                34,224          45,346
                                                                 ======                ======          ======

</TABLE>




<PAGE>28

Table 4

Loan Portfolio, Continued

The following summarizes past due and non-accrual loans and other real estate as
of December 31, 1997 and 1996 (amounts are presented in thousands):

<TABLE>
<CAPTION>

                                                                                     1997               1996
<S>                                                                             <C>                     <C>
Other real estate and repossessions                                              $    310                148
Accruing loans 90 days or more past due                                                24                 --
Non-accrual loans                                                                     214                 11
</TABLE>


A loan is placed on  non-accrual  status when,  in  management's  judgment,  the
collection of interest  appears  doubtful.  As a result of management's  ongoing
review of the loan portfolio, loans are classified as non-accrual generally when
they are past due in principal or interest  payments for more than 90 days or it
is otherwise not reasonable to expect collection of principal and interest under
the original  terms.  Exceptions are allowed for 90-day past due loans when such
loans are well secured and in process of collection.


<PAGE>29



Table 5
Allowance for Loan Losses

The following  table  summarizes  information  concerning the allowance for loan
losses (amounts are presented in thousands):

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                   1997            1996
                                                                                   ----            ----
<S>                                                                         <C>                           <C>
Balance at beginning of year                                                $      459                 401
Charge-offs:
  Commercial, financial and agricultural                                            --                  10
  Real estate                                                                       --                  40
  Installment loans to individuals                                                   4                  --
                                                                                   ---                ----
                                                                                     4                  50
                                                                                   ---                ----
Recoveries:
  Commercial, financial and agricultural                                            --                  11
  Real estate                                                                       --                  --
  Installment loans to individuals                                                   6                   7
                                                                                  ----                ----
                                                                                     6                  18
                                                                                  ----                ----
  Net charge-offs                                                                   (2)                 32
  Additions charged to operations                                                  236                  90
                                                                                   ---                 ---
  Balance at end of year                                                    $      697                 459
                                                                                   ===                 ===

Ration of net charge-offs during the period to average
loans outstanding during the period                                               .(01)%               .12%

</TABLE>

<PAGE>30




Table 6
Allocation of the Allowance for Loan Losses

The following  tables  summarizes  information  concerning the allocation of the
allowance for loan losses as of December 31, 1997:
<TABLE>
<CAPTION>

Balance at End of Period                                                           Percent of Loans in Each
Applicable to :                                                  Amount            Category to Total Loans
<S>                                                       <C>                          <C>
Domestic
  Commercial, financial                                      $      29                    26.9%
    and agricultural
   Real Estate - Construction                                       39                    14.5%
   Real Estate - Mortgage                                          108                    51.6%
   Installment loans to individuals                                  9                     7.0%
Unallocated                                                        512                     N/A
                                                                   ---                   -----
                                                             $     697                   100.0%
                                                                  ====                   ======


</TABLE>


Management's policy is to assign a risk rating based upon underlying collateral,
the borrower's  ability to repay, and the economic  conditions and other factors
relevant to the loan.  The allowance for loan losses is provided  based upon the
risk  ratings  assigned or specific  losses  identified.  An  assessment  of the
adequacy of the allowance for loan losses is made monthly.


<PAGE>31



Table 7
Deposits

The average  balance of deposits and the average rates paid on such deposits are
summarized  for the  periods  indicated  in the  following  table  (amounts  are
presented in thousands):

<TABLE>
<CAPTION>

                                                              1997                                  1996
                                                              ----                                  ----
                                                   Amount               Rate             Amount               Rate
<S>                                            <C>                    <C>               <C>                <C>
Demand deposits:
      Non-interest bearing               $           9,409               --%               7,267                --%
      Interest-bearing
        demand and savings                          15,713              2.94%             14,953              2.95%
Time deposits                                       34,133              5.75%             23,821              5.81%
                                                    ------                                ------
               Totals                    $          59,255                                46,041
                                                    ======                                ======
</TABLE>

Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1997 are summarized as follows (amounts are presented in
thousands):

<TABLE>
<CAPTION>
<S>                                                                                                           <C>

Within 3 months                                                                                         $     2,334
After 3 through 6 months                                                                                      9,277
After 6 through 12 months                                                                                     2,918
After 12 months                                                                                               1,932
                                                                                                             ------
               Totals                                                                                   $    16,461
                                                                                                             ======

</TABLE>

<PAGE>32



Table 7


Selected Financial Data
(Dollars in thousands, except per share amounts)

The following  represents  selected  financial data for the years ended December
31, 1997, 1996 and 1995.  This  information  should be read in conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the financial statements and related notes included elsewhere in
this report.
<TABLE>
<CAPTION>

                                                                                      1997          1996           1995
                                                                                      ----          ----           ----
<S>                                                                          <C>                <C>            <C>
Interest income                                                               $      5,368         4,120          3,554
Interest expense                                                              $      2,428         1,828          1,550
Net interest expense                                                          $      2,940         2,292          2,004
Provision for loan losses                                                     $        236            90            127
Net earnings                                                                  $        622           535            955
Net earnings per share                                                        $       1.06           .92           1.63
Total average stockholders' equity                                            $      5,968         5,800          5,019
Total average assets                                                          $     66,034        52,271         44,007
Total assets at end of year                                                   $     79,356        58,350         47,389
Ratios:
    Net earnings to average assets                                                    .94%         1.02%          2.17%
    Net earnings to average
         stockholders' equity                                                       10.42%         9.22%         19.03%
    Average stockholders' equity to
         average assets                                                              9.04%        11.10%         11.41%


</TABLE>

<PAGE>33




ITEM 7.   FINANCIAL STATEMENTS

The consolidated  financial statements,  notes thereto and independent auditors'
report  thereon  included  on the  following  pages are  incorporated  herein by
reference.


                   Index to Consolidated Financial Statements
                                                                        Page

Report of Certified Public Accountants...................................F-1

Consolidated Balance Sheets - December 31, 1997 and 1996.................F-2

Consolidated Statements of Earnings for the
Years Ended December 31, 1997, 1996 and 1995.............................F-3

Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............................F-4

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995...................................F-5

Notes to Consolidated Financial Statements ..............................F-6

















<PAGE>34














               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS







The Board of Directors and Stockholders
Georgia Bancshares, Inc. and Subsidiary

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Georgia
Bancshares,  Inc.  and  subsidiary  as of December  31,  1997 and 1996,  and the
related statements of earnings,  changes in stockholders'  equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Georgia Bancshares,
Inc. and  subsidiary as of December 31, 1997 and 1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.



                                                   \s\PORTER KEADLE MOORE, LLP



Atlanta, Georgia
March 4, 1998





<PAGE>35

<TABLE>
<CAPTION>


                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets

                           December 31, 1997 and 1996

                                     Assets

                                                                                               1997               1996
                                                                                               ----               ----
<S>                                                                                <C>                    <C>
 Cash and due from banks, including reserve requirements
     of $269,000 and $197,000                                                           $   3,527,565          1,443,556
 Federal funds sold                                                                         7,436,000          5,140,000
                                                                                           ----------        -----------

       Cash and cash equivalents                                                           10,963,565          6,583,556

 Investment securities available for sale                                                  18,834,981         15,870,086
 Loans, net                                                                                44,648,905         31,180,593
 Premises and equipment, net                                                                2,853,414          2,980,313
 Accrued interest receivable and other assets                                               2,055,454          1,735,929
                                                                                           ----------        -----------

                                                                                        $  79,356,319         58,350,477
                                                                                           ==========         ==========
                      Liabilities and Stockholders' Equity

 Deposits:
   Demand                                                                               $  10,547,045          8,216,142
   Interest-bearing demand                                                                 13,753,667         10,331,424
   Savings                                                                                  6,147,558          5,587,536
   Time                                                                                    41,966,229         27,907,923
                                                                                           ----------         ----------

       Total deposits                                                                      72,414,499         52,043,025

 Accrued interest payable and other liabilities                                               291,043            211,684
                                                                                             --------            -------
       Total liabilities                                                                   72,705,542         52,254,709
                                                                                           ----------         ----------

 Commitments

 Stockholders' equity:
   Common stock, $4 par value; authorized 3,000,000
     shares; 584,228 issued and outstanding                                                 2,336,912          2,336,912
   Additional paid-in capital                                                               3,536,659          3,536,659
   Retained earnings                                                                          896,291            391,139
   Net unrealized losses on securities
     available for sale, net of tax                                                          (119,085)         (168,942)
                                                                                             --------          --------

       Total stockholders' equity                                                           6,650,777          6,095,768
                                                                                           ----------         ----------

                                                                                        $  79,356,319         58,350,477
                                                                                           ==========         ==========





</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>36
<TABLE>
<CAPTION>



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                       Consolidated Statements of Earnings

              For the Years Ended December 31, 1997, 1996 and 1995

                                                                         1997           1996            1995
                                                                         ----           ----            ----
<S>                                                                  <C>            <C>            <C>
 Interest income:
     Interest and fees on loans                                   $    4,107,629      2,957,699      2,557,559
     Interest on federal funds sold                                      256,095        229,793        220,168
     Interest on deposits in other banks                                       -         10,721         25,954
     Interest and dividends on investment securities:
       U.S. Treasuries and Government agencies                           785,352        785,191        524,968
       Mortgage backed securities and collateralized
         mortgage obligations                                            211,568        136,789        225,595
       Obligations of state and political subdivisions                     8,033           -           -
                                                                        --------      ---------      ---------
           Total interest income                                       5,368,677      4,120,193      3,554,244
                                                                       ---------      ---------      ---------

 Interest expense:
     Interest-bearing demand                                             264,759        227,149        196,244
     Savings                                                             196,754        213,720        270,703
     Time                                                              1,963,919      1,385,576      1,074,854
     Other                                                                 2,925          1,367          8,196
                                                                       ---------      ---------      ---------

           Total interest expense                                      2,428,357      1,827,812      1,549,997
                                                                       ---------      ---------      ---------

           Net interest income                                         2,940,320      2,292,381      2,004,247

 Provision for loan losses                                               235,500         90,000        126,900
                                                                       ---------    -----------     ----------

           Net interest income after provision for                     2,704,820      2,202,381      1,877,347
                                                                       ---------    -----------     ----------
             Losses

 Other income:
     Service charges and fees on deposits                                305,965        296,890        247,415
     Gain (loss) on sales of investment securities                        (2,774)             -        (10,941)
     Other                                                               150,609         76,360         64,926
                                                                       ---------    -----------    -----------

           Total other income                                            453,800        373,250        301,400
                                                                       ---------     ----------     ----------

 Other expenses:
     Salaries and employee benefits                                    1,098,957        924,253        758,628
     Occupancy                                                           323,592        265,856        278,207
     Other                                                               775,191        623,957        496,525
                                                                       ---------     ----------     ----------

           Total other expenses                                        2,197,740      1,814,066      1,533,360
                                                                       ---------      ---------      ---------

           Earnings before income taxes                                  960,880        761,565        645,387

 Income tax expense (benefit)                                            338,882        226,108       (309,447)
                                                                       ---------     ----------      ---------

           Net earnings                                           $      621,998        535,457        954,834
                                                                       =========     ==========     ==========

 Earnings per common share                                        $         1.06            .92           1.63
                                                                            ====            ===           ====

 Earnings per common share - assuming dilution                    $         1.05            .91           1.63
                                                                            ====            ===           ====

See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>37

<TABLE>
<CAPTION>





                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

           Consolidated Statements of Changes in Stockholders' Equity

              For the Years Ended December 31, 1997, 1996 and 1995


                                                                                                    Net
                                                                                                Unrealized
                                                                                                   Gains
                                                                                                 (Losses)
                                                                                   Related          On
                                          Common Stock             Additional      Earnings      Securities
                                      Number                         Paid-In     (Accumulated     Available
                                    of  Shares      Amount           Capital       Deficit)      for Sale        Total

<S>                                  <C>        <C>               <C>            <C>             <C>         <C>
Balance, December 31, 1994            584,228    $ 2,336,912        3,536,659     (1,011,518)     (311,531)   4,550,522

Net earnings                                -              -                -        954,834          -         954,834

Changes in unrealized gains
    (losses) on securities
    available for sale                      -              -                -              -       224,341      224,341
                                     --------    -----------       ----------      ---------       -------      -------
Balance, December 31, 1995            584,228      2,336,912        3,536,659        (56,684)      (87,190)   5,729,697

Net earnings                                -              -                -        535,457             -      535,457

Dividends paid                              -              -                -        (87,634)            -      (87,634)

Changes in unrealized gains
    (losses) on securities
    available for sale                      -              -                -              -       (81,752)       81,752)
                                        -----      ---------       ----------    -----------      --------      --------

Balance, December 31, 1996            584,228      2,336,912        3,536,659        391,139      (168,942)    6,095,768

Net earnings                                -              -                -        621,998             -       621,998

Dividends paid                              -              -                -       (116,846)            -      (116,846)

Changes in unrealized gains
    (losses) on securities
    available for sale                      -              -                -         49,857                      49,857
                                         ----       --------        ---------         ------      --------    ----------

 Balance, December 31, 1997           584,228    $ 2,336,912        3,536,659        896,291      (119,085)    6,650,777
                                      =======      =========        =========       ========      ========    ==========

</TABLE>









See accompanying notes to consolidated financial statements.


<PAGE>38

<TABLE>
<CAPTION>


                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
              For the Years Ended December 31, 1997, 1996 and 1995
                                                                              1997             1996              1995
                                                                              ----             ----              ----
<S>                                                                   <C>                   <C>              <C>
 Cash flows from operating activities:
     Net earnings                                                      $     621,998          535,457            954,834
     Adjustments to reconcile net earnings to net
       cash provided by operating activities:
         Depreciation, amortization and accretion                            177,732          133,724            117,284
         Deferred tax benefit                                                (91,675)          21,664           (309,447)
         Provision for loan losses                                           235,500           90,000            126,900
         Provision for other real estate losses                                    -           32,118             25,000
         Loss (gain) on sales of investment securities                         2,774                -             10,491
         Loss on disposal of fixed assets                                          -           11,689                  -
         Change in:
           Accrued interest receivable and other assets                      (28,956)         (75,123)          (193,124)
           Accrued interest payable and other liabilities                     79,359           18,428             (2,662)
                                                                           ---------          -------            -------
                Net cash provided by operating activities                    996,732          767,957            729,276
                                                                           ---------          -------            -------

Cash flows from investing activities:
   Proceeds from sales, paydowns, and maturities of
     investment securities-HTM                                                     -                -          1,164,938
   Proceeds from sales, paydowns, and maturities of
     investment securities-AFS                                            10,191,714        4,076,110          3,638,302
   Purchases of investment securities-AFS                                (13,076,772)      (6,207,614)        (7,104,735)
   Net change in interest-bearing deposits in other banks                          -          299,000            496,000
   Net change in loans                                                   (13,912,344)      (6,050,114)        (3,836,323)
   Purchase of cash value life insurance policies                                  -                -           (800,000)
   Purchases of premises and equipment                                       (73,949)      (1,183,111)           (19,222)
   Proceeds from other real estate sales                                           -           66,757                  -
   Improvements to other real estate                                               -                -            (14,098)
                                                                          ----------       ----------          ---------

                Net cash used by investing activities                    (16,871,351)      (8,998,972)        (6,475,138)
                                                                          ----------       ----------          ---------

Cash flows from financing activities:
   Payment of dividends                                                     (116,846)         (87,634)                 -
   Net change in deposits                                                 20,371,474       10,576,810          6,520,095
                                                                          ----------       ----------          ---------

                Net cash provided by financing activities                 20,254,628       10,489,176          6,520,095
                                                                          ----------       ----------          ---------

   Net change in cash and cash equivalents                                 4,380,009        2,258,161            774,233

Cash and cash equivalents at beginning of year                             6,583,556        4,325,395          3,551,162
                                                                          ----------      -----------          ---------

Cash and cash equivalents at end of year                               $  10,963,565        6,583,556          4,325,395
                                                                          ==========      ===========          =========

Supplemental disclosures of cash flow information:
   Cash paid for interest                                              $   2,369,631        1,801,418          1,535,606
   Income taxes paid                                                   $     448,661          175,924                  -

   Noncash investing and financing activities:
     Transfers from loans to other assets                              $     208,532                -             56,399
     Transfer of securities held to maturity to
       securities available for sale                                   $           -                -          4,109,996
     Change in unrealized loss on securities
       available for sale, net of tax                                  $      49,857          (81,752)           224,341

See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>39



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Nature of Operations and Reorganization
       On May 18,  1995,  stockholders  of Community  Bank of Georgia  (formerly
       known as DeKalb State Bank) (the Bank) approved a plan of  reorganization
       whereby,  a bank holding  company would be formed by exchanging one share
       of Bank stock for one share of Georgia  Bancshares,  Inc.  (the  Company)
       stock.  The  reorganization  transaction  was  accounted for similar to a
       pooling of  interests.  All of the  Company's  activities  are  currently
       conducted by its wholly-owned subsidiary,  Community Bank of Georgia. The
       Bank is a  community  oriented  commercial  bank with  emphasis on retail
       banking  and offers such  customary  banking  services  as  consumer  and
       commercial checking accounts, savings accounts,  certificates of deposit,
       commercial  and consumer  loans,  money  transfers and a variety of other
       banking services.  The Bank has two offices, one office in Tucker (DeKalb
       County)  and one office in Lilburn  (Gwinnett  County),  both  suburbs of
       metropolitan  Atlanta,  Georgia,  and  conducts  its  banking  activities
       primarily in these counties.

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

       The accounting  principles followed by Georgia  Bancshares,  Inc. and its
       subsidiary  and the methods of applying  these  principles  conform  with
       generally  accepted   accounting   principles  (GAAP)  and  with  general
       practices within the banking industry.  In preparing financial statements
       in conformity  with GAAP,  management  is required to make  estimates and
       assumptions that affect the reported amounts in the financial statements.
       Actual results could differ significantly from those estimates.  Material
       estimates   common  to  the  banking   industry  that  are   particularly
       susceptible to significant  change in the near term include,  but are not
       limited to, the  determination  of the  allowance  for loan  losses,  the
       valuation  of  real  estate  acquired  in  connection  with or in lieu of
       foreclosure on loans, and valuation  allowances  associated with deferred
       tax assets, the recognition of which are based on future taxable income.

       Investment Securities
       The Bank classifies its securities in one of three  categories:  trading,
       available for sale, or held to maturity.  Trading  securities  are bought
       and held  principally  for the purpose of selling  them in the near term.
       Held to maturity  securities are those  securities for which the Bank has
       the ability and intent to hold the  security  until  maturity.  All other
       securities  not included in trading or held to maturity are classified as
       available  for sale.  At December 31, 1997 and 1996 there were no trading
       or held to maturity securities.

       Available for sale (AFS)  securities are recorded at fair value.  Held to
       maturity  securities  (HTM)  are  recorded  at  cost,  adjusted  for  the
       amortization  or accretion of premiums or discounts.  Unrealized  holding
       gains and losses, net of the related tax effect, on securities  available
       for sale are  excluded  from  earnings  and are  reported  as a  separate
       component of stockholders' equity until realized. Transfers of securities
       between  categories  are  recorded at fair value at the date of transfer.
       Unrealized   holding  gains  or  losses   associated  with  transfers  of
       securities  from held to maturity to available for sale are recorded as a
       separate component of stockholders'  equity. The unrealized holding gains
       or losses included in the separate component of stockholders'  equity for
       securities  transferred  from  available for sale to held to maturity are
       maintained  and amortized  into  earnings over the remaining  life of the
       security  as an  adjustment  to  yield in a  manner  consistent  with the
       amortization  or  accretion  of premium  or  discount  on the  associated
       security.


<PAGE>40



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

       Investment Securities, continued
       A  decline  in the  market  value  of any  available  for sale or held to
       maturity  investment  below cost that is deemed  other than  temporary is
       charged to earnings and establishes a new cost basis for the security.

       Premiums and  discounts  are  amortized or accreted  over the life of the
       related security as an adjustment to the yield. Realized gains and losses
       for securities  classified as available for sale and held to maturity are
       included in earnings and are derived  using the  specific  identification
       method for determining the cost of securities sold.

       Loans, Loan Fees and Interest Income on Loans
       Loans  are  stated  at  the  principal  amount  outstanding,  net  of the
       allowance  for loan losses.  Interest on loans is calculated by using the
       simple  interest  method  on  daily  balances  of  the  principal  amount
       outstanding.

       Accrual of interest is discontinued  on a loan when management  believes,
       after  considering   economic  and  business  conditions  and  collection
       efforts,  that the borrower's financial condition is such that collection
       of  interest is  doubtful.  When a loan is placed on  nonaccrual  status,
       previously accrued and uncollected interest is charged to interest income
       on  loans.  Generally,  payments  on  nonaccrual  loans  are  applied  to
       principal.

       Loan fees, net of certain  origination  costs, have been deferred and are
       being amortized over the lives of the respective loans.

       Impaired loans are measured based on the present value of expected future
       cash flows,  discounted at the loan's effective  interest rate, or at the
       loan's  observable  market price,  or the fair value of the collateral if
       the loan is  collateral  dependent.  A loan is  impaired  when,  based on
       current  information  and  events,  it is  probable  that all amounts due
       according to the contractual terms of the loan will not be collected. The
       Bank has no material  amounts of impaired  loans at December 31, 1997 and
       1996.

       Allowance for Loan Losses
       The allowance for loan losses is established through a provision for loan
       losses  charged to expense.  Loans are charged  against the allowance for
       loan losses when management believes that the collection of the principal
       is unlikely.  The allowance  represents an amount which,  in management's
       judgment,  will be adequate to absorb  probable  losses on existing loans
       that may become uncollectible.

       Management's  judgment in  determining  the adequacy of the  allowance is
       based on  evaluations of the  probability  of collection of loans.  These
       evaluations take into consideration such factors as changes in the nature
       and volume of the loan portfolio,  current  economic  conditions that may
       affect the borrower's  ability to pay,  overall  portfolio  quality,  and
       review of specific problem loans.

       Management believes that the allowance for loan losses is adequate. While
       management  uses  available  information  to  recognize  losses on loans,
       future  additions to the allowance  may be necessary  based on changes in
       economic conditions.  In addition,  regulatory  agencies,  as an integral
       part of their examination process,  periodically review the allowance for
       loan losses. Such regulators may require additions to the allowance based
       on their judgments of information  available to them at the time of their
       examination.


<PAGE>41



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

       Premises and Equipment
       Premises and equipment are carried at cost less accumulated depreciation.
       Depreciation  is  computed  using  the  straight-line   method  over  the
       estimated  useful lives of the related asset.  When assets are retired or
       otherwise disposed of, the cost and related accumulated  depreciation are
       removed from the accounts, and any resulting gain or loss is reflected in
       income for the period.  The cost of maintenance  and repairs which do not
       improve or extend the useful life of the  respective  asset is charged to
       income as incurred,  whereas  significant  renewals and  improvements are
       capitalized.  The  range of  estimated  useful  lives  for  premises  and
       equipment are:

              Buildings and improvements                          31 years
              Equipment, furniture and fixtures               5 - 20 years

       Other Real Estate
       Properties  acquired through foreclosure are carried at the lower of cost
       (defined as fair value at foreclosure) or fair value less estimated costs
       to dispose.  Accounting  literature defines fair value as the amount that
       is expected to be received in a current sale between a willing  buyer and
       seller  other  than in a forced  or  liquidation  sale.  Fair  values  at
       foreclosure are based on appraisals.  Losses arising from the acquisition
       of  foreclosed  properties  are charged  against the  allowance  for loan
       losses.  Subsequent writedowns are provided by a charge to income through
       an  allowance  for losses on other real estate in the period in which the
       need arises.

       Income Taxes
       The Company  uses the  liability  method of  accounting  for income taxes
       which requires the recognition of deferred tax assets and liabilities for
       the future tax  consequences  attributable  to  differences  between  the
       financial  statement  carrying amounts of existing assets and liabilities
       and their  respective tax basis.  Additionally,  this method requires the
       recognition   of  future  tax  benefits,   such  as  net  operating  loss
       carryforwards,  to the extent that  realization  of such benefits is more
       likely than not.  Deferred tax assets and  liabilities are measured using
       enacted  tax rates  expected  to apply to taxable  income in the years in
       which the assets and liabilities are expected to be recovered or settled.
       The effect on  deferred  tax assets  and  liabilities  of a change in tax
       rates is recognized in income tax expense in the period that includes the
       enactment date.

       In the event the future  tax  consequences  of  differences  between  the
       financial  reporting bases and the tax bases of the Company's  assets and
       liabilities  results in deferred  tax assets,  management  evaluates  the
       probability  of being able to realize the future  benefits  indicated  by
       such asset.  A  valuation  allowance  is provided  for the portion of the
       deferred  tax asset when it is more likely than not that some  portion or
       all of the  deferred tax asset will not be  realized.  In  assessing  the
       realization  of  the  deferred  tax  assets,   management  considers  the
       scheduled reversals of deferred tax liabilities, projected future taxable
       income, and tax planning strategies.

       Statement of Cash Flows
       For purposes of reporting cash flows,  the Company  includes cash and due
       from banks and federal funds sold.

       Net Earnings Per Common Share
       Statement of Financial  Accounting Standards (FASB) No. 128 "Earnings Per
       Share" became  effective for the Company for the year ended  December 31,
       1997.  This new standard  specifies  the  computation,  presentation  and
       disclosure  requirements  for  earnings  per  share  and is  designed  to
       simplify  previous  earnings per share standards and to make domestic and
       international  practices more  compatible.  Earnings per common share are
       based on the weighted average number of common shares  outstanding during
       the period  while the  effects of  potential  common  shares  outstanding
       during  the period  are  included  in  diluted  earnings  per share.  All
       earnings  per common share  amounts have been  restated to conform to the
       provisions of FASB No. 128.


<PAGE>42



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

       Net Earnings Per Common Share, continued
       FASB No.  128  requires  the  presentation  on the  face of the  earnings
       statement  of earnings  per common  share with and  without the  dilutive
       effects of potential  common stock  issuances  from  instruments  such as
       options,  convertible  securities  and  warrants.  Additionally,  the new
       statement  requires  the  reconciliation  of  the  amounts  used  in  the
       computation  of both "earnings per common share" and "earnings per common
       share - assuming  dilution."  Earnings per common  share  amounts for the
       years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>

                                                                 For the Year Ended December 31, 1997

<S>                                                    <C>                          <C>                  <C>
                                                            Net Earnings            Common Share            Per Share
                                                            (Numerator)             (Denominator)           Amount

     Earnings per common share                            $     621,998                 584,228              $ 1.06
                                                                                                               ====
     Effects of dilutive stock options                                -                   5,468
                                                               -------                 -------
     Earnings per common share - assuming
       dilution                                           $     621,998                 589,696              $ 1.05
                                                                =======                 =======                ====
</TABLE>

<TABLE>
<CAPTION>

                                                                 For the Year Ended December 31, 1996

                                                            Net Earnings            Common Share            Per Share
                                                            (Numerator)             (Denominator)           Amount
<S>                                                    <C>                          <C>                  <C>
     Earnings per common share:                           $     535,457                 584,228              $ 0.92
                                                                                                               ====
     Effects of dilutive stock options                               -                    2,795
                                                                -------                   -----
     Earnings per common share - assuming                 $     535,457                 587,023              $ 0.91
       dilution                                                 =======                 =======                ====

</TABLE>
<TABLE>
<CAPTION>

                      For the Year Ended December 31, 1995

                                                            Net Earnings            Common Share            Per Share
                                                            (Numerator)             (Denominator)           Amount
<S>                                                    <C>                          <C>                  <C>
     Earnings per common share                            $     954,834                 584,228             $ 1.63
                                                                                                              ====
     Effects of dilutive stock options                               -                        -
                                                                ------                   ------
     Earnings per common share - assuming
       dilution                                             $  954,834                  584,228             $ 1.63
                                                               =======                  =======               ====

</TABLE>

     Recent Accounting Pronouncements
     In 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
     Financial  Accounting  Standards No. 127 "Deferral of the Effective Date of
     Certain  Provisions of SFAS No. 125" ("SFAS  127"),  Statement of Financial
     Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
     and Statement of Financial Accounting Standards No. 131, "Disclosures about
     Segments of an Enterprise and Related  Information"  ("SFAS 131"). SFAS 127
     simply  defers,  until  January 1, 1998,  the  effective  date of  selected
     provisions of a previously issued accounting and disclosure standard.  SFAS
     130  establishes  standards for the reporting and display of  comprehensive
     income  and  its  components  in a full  set of  general-purpose  financial
     statements. SFAS 131 specifies the presentation and disclosure of operating
     segment  information  reported  in the annual  report and  interim  reports
     issued to  stockholders.  The  provisions of SFAS 130 and 131 are effective
     for fiscal years  beginning  after December 15, 1997. The management of the
     Company  believes  that the  adoption of these  statements  will not have a
     material impact on the Company's financial position, results of operations,
     or liquidity.



<PAGE>43



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(2)    INVESTMENT SECURITIES
       Investment  securities  available for sale at December 31, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>

                                                                            December 31, 1997
                                                          Gross           Gross            Gross        Estimated
                                                        Amortized      Unrealized       Unrealized        Fair
                                                          Cost            Gains           Losses          Value
<S>                                                <C>                  <C>              <C>           <C>
         U.S. Treasuries and U.S.
              Government agencies                  $    11,680,106          25,782         25,049       11,680,839
         Mortgage-backed securities
              and collateralized mortgage
              obligations                                6,372,133           8,869         36,280        6,344,722
         State and Municipal Securities                    803,961           5,459          -              809,420
                                                      ------------         -------     ----------     ------------

                      Total                        $    18,856,200          40,110         61,329       18,834,981
                                                        ==========          ======         ======       ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                            December 31, 1996
                                                          Gross           Gross            Gross        Estimated
                                                        Amortized      Unrealized       Unrealized        Fair
                                                          Cost            Gains           Losses          Value
 <S>                                                <C>                  <C>              <C>           <C>
         U.S. Treasuries and U.S.
              Government agencies                  $    13,871,668          26,501         97,438        13,800,731
         Mortgage-backed securities
              and collateralized mortgage
              obligations                                2,099,999           8,268         38,912         2,069,355
                                                       -----------         -------         ------         ---------

                      Total                        $    15,971,667          34,769        136,350        15,870,086
                                                        ==========          ======        =======        ==========
</TABLE>

       The  amortized  cost and fair value of  securities  available for sale at
       December 31, 1997, by  contractual  maturity,  are shown below.  Expected
       maturities will differ from contractual maturities because borrowers have
       the  right  to  call  or  prepay  obligations  with  or  without  call or
       prepayment penalties.

<TABLE>
<CAPTION>
                                                                                     Amortized     Estimated
                                                                                       Costs       Fair Value

<S>                                                                         <C>                   <C>
        Within 1 year                                                        $         599,929        599,260
        1 to 5 years                                                                 6,358,150      6,353,419
        5 to 10 years                                                                4,241,147      4,238,359
        Over 10 years                                                                1,284,841      1,299,221
        Mortgage-backed securities and collateralized
              mortgage obligations                                                   6,372,133      6,344,722
                                                                                   -----------    -----------

                                                                           $        18,856,200     18,834,981
                                                                                    ==========     ==========
</TABLE>

       Proceeds from sales of securities available for sale during 1997 and 1995
       were $4,510,305 and $1,976,450,  respectively.  Gross gains of $2,587 and
       $89,780 and gross  losses of $5,361 and $100,721  were  realized on those
       sales in 1997 and 1995,  respectively.  There were no sales of securities
       during 1996.

       Securities  with a carrying  value of  approximately  $700,000 at
       December  31,  1997 and 1996,  were  pledged to secure public deposits as
       required by law.

       At December  31, 1997 and 1996,  the Bank has no  outstanding  derivative
       financial  instruments  such  as  swaps,  options,  futures,  or  forward
       contracts.


<PAGE>44



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(3)    LOANS
       Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
                                                                                           1997             1996
                                                                                           ----             ----
<S>                                                                              <C>                       <C>
                Commercial                                                        $    12,181,292           8,422,757
                Real estate - mortgage                                                 23,392,894          17,331,685
                Real estate - construction and land development                         6,586,647           3,596,614
                Consumer                                                                3,184,751           2,288,920
                                                                                        ---------           ---------

                                                                                       45,345,584          31,639,976
                Less: Allowance for loan losses                                           696,679             459,383
                                                                                          -------             -------

                     Net loans                                                    $    44,648,905          31,180,593
                                                                                       ==========          ==========
</TABLE>

       The Bank  grants  loans and  extensions  of credit to  individuals  and a
       variety  of firms  and  corporations  located  primarily  in the  Georgia
       counties of DeKalb and Gwinnett. Although the Bank has a diversified loan
       portfolio,  a substantial portion of the loan portfolio is collateralized
       by improved and  unimproved  real estate and is  dependent  upon the real
       estate market.

       An analysis of the activity in the allowance for loan losses is presented
below:
<TABLE>
<CAPTION>

                                                                                  1997          1996          1995
                                                                                  ----          ----          ----

<S>                                                                      <C>                    <C>          <C>
              Balance at beginning of year                               $       459,383         401,430      325,357
              Provision for loan losses                                          235,500          90,000      126,900
              Loans charged off                                                   (4,374)        (49,966)     (70,562)
              Recoveries on loans charged off                                      6,170          17,919       19,735
                                                                                --------        --------     --------

              Balance at end of year                                     $       696,679         459,383      401,430
                                                                                 =======         =======      =======
</TABLE>

(4)    PREMISES AND EQUIPMENT
       Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>

                                                                                  1997           1996
                                                                                  ----           ----

<S>                                                                      <C>                 <C>
           Land                                                          $     1,334,914       1,334,914
           Buildings and improvements                                          1,157,414       1,150,819
           Equipment, furniture and fixtures                                   1,045,461         993,340
                                                                               ---------      ----------

                                                                               3,537,789       3,479,073
           Less: Accumulated depreciation                                        684,375         498,760
                                                                              ----------      ----------

                                                                         $     2,853,414       2,980,313
                                                                               =========       =========
</TABLE>

       Depreciation  expense was  approximately  $201,000,  $149,000 and
       $131,000 for the years ended December 31, 1997, 1996 and 1995,
       respectively.


<PAGE>45



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(5)    EMPLOYEE AND DIRECTOR BENEFIT PLANS
       In November 1995, the Bank purchased life insurance  contracts to provide
       benefits  to its  directors  under  Executive  Supplemental  Income  Plan
       agreements.  Under these  agreements,  the Bank is obligated to pay death
       benefits to the beneficiaries of its directors.  These death benefits are
       funded through the purchase of split-dollar whole life insurance policies
       on the lives of each Director.  The increase in cash  surrender  value of
       the  contracts,  less the  Bank's  cost of  funds,  constitutes  the Bank
       contributions to the plan each year. In the event the insurance contracts
       fail to produce certain returns, the Bank has no obligation to contribute
       to the plan. At December 31, 1997 and 1996, the cash  surrender  value of
       the insurance contracts was approximately  $858,000 and $816,000,  and is
       included as a component of other assets.  Expenses  totaling $19,216 were
       incurred for benefits  relating to this plan during 1997.  Income related
       to the  insurance  policies of $42,249 and $16,156 was  included in other
       income for the years ended December 31, 1997 and 1996, respectively.

       The Company also has a defined  contribution plan intended to comply with
       the requirements of section 401(k) of the Internal Revenue Code, covering
       substantially  all employees  subject to certain  minimum age and service
       requirements.  Contributions  to the plan are determined  annually by the
       Board of  Directors.  There  were no  Company  contributions  to the plan
       during 1997, 1996 or 1995.

(6)    DEPOSITS
       At December 31, 1997, maturities of time deposits are as follows:
<TABLE>
<CAPTION>

<S>                                                                   <C>
         Maturing In:
           1998                                                        $      35,321,649
           1999                                                                2,186,297
           2000                                                                1,367,070
           2001                                                                1,204,624
           2002                                                                1,878,671
           Thereafter                                                              7,918
                                                                               ---------

                                                                       $      41,966,229
                                                                              ==========
</TABLE>

       Deposits  from  related  parties  totaled  approximately  $1,279,000  and
       $2,111,000  at December 31, 1997 and 1996.  Time  deposits of $100,000 or
       more were  approximately  $16,461,000 and $9,006,000 at December 31, 1997
       and 1996.

(7)    INCOME TAXES
       In 1995 the Company  reduced the  deferred  tax  valuation  allowance  by
       approximately  $505,000  because it was more  likely than not that future
       taxable income will be sufficient to realize substantially all of the tax
       benefits   for   deductible   temporary    differences   including   loss
       carryforwards.

       The consolidated income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>

                                                                              1997             1996             1995
                                                                              ----             ----             ----

<S>                                                                    <C>                  <C>             <C>
           Current tax expense                                         $     430,557          204,444               -
           Deferred tax expense                                              (91,675)          56,935         195,624
           Reduction in deferred tax valuation
                allowance                                                         -           (35,271)       (505,071)
                                                                             -------          -------         -------

                                                                       $     338,882          226,108        (309,447)
                                                                             =======          =======         =======
</TABLE>


<PAGE>46



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(7)    INCOME TAXES, continued
       Income tax expense at the statutory federal income tax rate is reconciled
       to the Company's actual benefit as follows:
<TABLE>
<CAPTION>

                                                                              1997           1996             1995
                                                                              ----           ----             ----

<S>                                                                 <C>                    <C>               <C>
        Tax provision at statutory rate                              $       326,699        258,932           219,432
        Reduction in deferred tax valuation allowance                           -           (35,271)         (505,071)
        Other                                                                 12,183          2,447           (23,808)
                                                                              ------          -----           -------

                                                                     $       338,882        226,108          (309,447)
                                                                             =======        =======          ========
</TABLE>

       The following  summarizes  the sources and expected tax  consequences  of
       future taxable deductions (income) which comprise the net deferred taxes.
<TABLE>
<CAPTION>
                                                                                             1997             1996
                                                                                             ----             ----
<S>                                                                                    <C>                 <C>
             Deferred income tax assets:
                Allowance for loan losses                                               $   211,182           121,786
                Unrealized losses on securities available for sale                            8,055            38,560
                Deferred compensation                                                        17,472            -
                Deferred loan fees                                                            7,125            14,252
                Gain on foreclosure                                                          29,094            17,000
                Operating loss and credit carryforwards                                      36,820            55,711
                Other                                                                            -              1,925
                                                                                              -----             -----

                   Total gross deferred income tax assets                                   309,748           249,234
                                                                                            -------           -------

              Deferred income tax liabilities consisting of
                premises and equipment                                                      (28,158)          (28,814)
                                                                                           --------          --------

                   Net deferred income taxes                                            $   281,590           220,420
                                                                                            =======           =======
</TABLE>

       At December  31,  1997,  the Bank had  remaining  loss  carryforwards  of
       approximately  $286,000  for state  income tax  purposes,  which begin to
       expire in 2006.

(8)    DIVIDEND RESTRICTIONS
       Dividends paid by the Bank are the primary  source of funds  available to
       the Company for payment of dividends to its shareholders and other needs.
       Banking  regulations  restrict the amount of dividends which the Bank may
       pay without obtaining prior approval.  In addition to the formal statutes
       and regulations, regulatory authorities also consider the adequacy of the
       Bank's total  capital in relation to its assets,  deposits and other such
       items.   Capital   adequacy   considerations   could  further  limit  the
       availability  of dividends  from the Bank. At December 31, 1997, the Bank
       could have  declared  dividends  without  prior  approval  of  regulatory
       authorities of approximately $320,000.


<PAGE>47



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(9)    STOCK OPTIONS
       In May 1996, the Company  adopted the Directors  Stock Option Plan.  This
       plan  provides for the issuance of stock  options for up to 40,000 shares
       of the Company's  common stock.  Options under this plan are granted at a
       rate of 815  shares  per  year  for  each  director  who  meets  specific
       attendance standards. Options under the plan are at an option price equal
       to the book  value per share as of  December  31 of the  fiscal  year for
       which the options are granted. The options are exercisable any time after
       the date of grant,  and expire  ten years from date of the grant.  During
       1997 and 1996 the Company  granted options on 4,890 and 5,705 shares at a
       price of $10.43  and $9.81 per share  under the  Directors  Stock  Option
       Plan, respectively.  No options were exercised in 1997 or 1996. The total
       number of options  outstanding  under the Directors  Stock Option Plan at
       December 31, 1997 were 10,595 shares.

       Additionally,  in May 1996,  the Company  adopted the Employee  Incentive
       Stock Option Plan.  This plan  provides for the issuance of stock options
       for up to 40,000 shares of the Company's common stock. Options under this
       plan are granted at the  discretion of the Company's  Board of Directors.
       Options  under  the plan are at an  option  price  not less than the fair
       value of the Company's common stock at the date of grant. The options are
       exercisable any time after the date of the grant, subject to restrictions
       determined  by the  Board,  and  expire ten years from date of the grant.
       During 1997,  the Company  granted  options on 1,900 shares at a price of
       $12.50 per share under the Employee  Stock  Option Plan.  No options were
       exercised in 1997.

       SFAS No. 123, "Accounting for Stock Based Compensation," became effective
       for the Company January 1, 1996.  This statement  encourages but does not
       require  entities  to  compute  the fair  value of options at the date of
       grant and to recognize such costs as compensation  expense immediately if
       there is no vesting  period or  ratably  over the  vesting  period of the
       options.  The  Company  has  chosen  not to adopt  the  cost  recognition
       principles of this statement. No compensation expense has been recognized
       in 1997, 1996 or 1995 related to the stock option plan. Had  compensation
       cost been  determined  based  upon the fair  value of the  options at the
       grant  dates  consistent  with  the  method  of the  new  statement,  the
       Company's net earnings and net earnings per share would have been reduced
       to the proforma amounts indicated below:
<TABLE>
<CAPTION>

                                                                   1997          1996          1995
                                                                   ----          ----          ----

<S>                                                         <C>              <C>           <C>
           Net earnings                     As reported     $    621,998      535,457       954,834
                                            Proforma        $    610,138      527,110       954,834

           Earnings per common share
                                            As reported     $       1.06          .92          1.63
                                            Proforma        $       1.04          .90          1.63

           Earnings per common share - assuming dilution
                                            As reported     $       1.05          .91          1.63
                                            Proforma        $       1.03          .90          1.63
</TABLE>

       The  weighted  average  grant-date  fair  value of all  options  granted
       in 1997  and  1996  was 2.82 and  2.36, respectively.

       The fair value of each  option  grant is  estimated  on the date of grant
       using the  minimum  value  method  with the  following  weighted  average
       assumptions  used for  grants  in 1997 and 1996,  respectively:  dividend
       yield of 2%; risk free interest rates of 6.00% and 5.11%, and an expected
       life of 5 years.


<PAGE>48



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(10)   RELATED PARTY TRANSACTIONS
       The Bank conducts  transactions  with  directors and officers,  including
       companies in which they have beneficial interest, in the normal course of
       business.  It is the  policy  of the Bank  that  loan  transactions  with
       directors and officers be made on  substantially  the same terms as those
       prevailing  at the  time for  comparable  loans  to  other  persons.  The
       following is a summary of activity for related party loans for 1997:
<TABLE>
<S>                                                                                    <C>
           Beginning balance                                                            $          327,138
                  Loans advanced                                                                   400,298
                  Repayments                                                                       104,770
                                                                                                   -------

              Ending balance                                                            $          622,666
                                                                                                   =======
</TABLE>

(11)   COMMITMENTS
       The Bank is a party to financial instruments with  off-balance-sheet risk
       in the  normal  course of  business  to meet the  financing  needs of its
       customers.  These  financial  instruments  include  commitments to extend
       credit,  standby  letters  of  credit  and  financial  guarantees.  Those
       instruments  involve,  to varying  degrees,  elements  of credit  risk in
       excess of the  amount  recognized  in the  balance  sheet.  The  contract
       amounts of those  instruments  reflect the extent of involvement the Bank
       has in particular classes of financial instruments.

       The exposure to credit loss in the event of  nonperformance  by the other
       party to the financial  instrument  for  commitments to extend credit and
       standby letters of credit and financial guarantees written is represented
       by the contractual  amount of those  instruments.  The Bank uses the same
       credit policies in making  commitments and conditional  obligations as it
       does for on-balance-sheet instruments.

       In most cases, the Bank requires  collateral or other security to support
       financial instruments with credit risk.
<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                              Approximate
                                                                                            Contract Amount

                                                                                           1997         1996

<S>                                                                                <C>             <C>
          Financial instruments whose contract
            amounts represent credit risk:
               Commitments to extend credit                                         $  16,086,000   10,005,000
               Standby letters of credit and
                 financial guarantees written                                       $      59,000      124,000
</TABLE>
       Commitments  to extend credit are  agreements  to lend to a customer,  as
       long  as  there  is no  violation  of any  condition  established  in the
       contract.  Commitments  generally  have fixed  expiration  dates or other
       termination  clauses and may require  payment of a fee. Since many of the
       commitments  may expire  without being drawn upon,  the total  commitment
       amounts do not necessarily  represent future cash requirements.  The Bank
       evaluates each customer's  creditworthiness  on a case-by-case basis. The
       amount of  collateral  obtained,  if deemed  necessary by the Bank,  upon
       extension  of  credit  is  based  on  management's   credit   evaluation.
       Collateral  held  varies but may include  unimproved  and  improved  real
       estate, certificates of deposit, or personal property.

       Standby   letters  of  credit  and  financial   guarantees   written  are
       conditional  commitments  issued by the Bank to guarantee the performance
       of a customer to a third party.  Those guarantees are primarily issued to
       local  businesses.  The credit risk involved in issuing letters of credit
       is essentially  the same as that involved in extending loan facilities to
       customers.   The  Bank  holds   certificates  of  deposit  as  collateral
       supporting those  commitments for which  collateral is deemed  necessary.
       The extent of collateral held for those commitments  varies.  All letters
       of credit were collateralized at December 31, 1997 and 1996.


<PAGE>49



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(12)   SUPPLEMENTAL FINANCIAL DATA
       Components of other operating  expenses in excess of 1% of total interest
       and other income for the years ended December 31, 1997, 1996 and 1995 are
       as follows:

<TABLE>
<CAPTION>
                                                                         1997              1996            1995
                                                                         ----              ----            ----

<S>                                                               <C>                      <C>            <C>
        Regulatory agency assessments                             $       15,554           11,182         49,974
        Professional fees                                         $       58,290           55,467         67,388
        Advertising and marketing                                 $       56,408           63,026         45,937
        Stationery and supplies                                   $       75,190           62,065         41,915
        Data processing fees                                      $      106,250           63,650         38,737
        Postage and courier                                       $       46,590           47,587         40,090
</TABLE>
<TABLE>
<CAPTION>

(13)  GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION

                                 Balance Sheets
                           December 31, 1997 and 1996
                                     Assets
                                                                                           1997             1996
                                                                                           ----             ----

<S>                                                                            <C>                      <C>
          Cash                                                                  $          11,515            20,001
          Investment in bank subsidiary                                                 6,609,267         6,036,779
          Other assets                                                                     29,995            38,988
                                                                                           ------            ------

                                                                                        6,650,777         6,095,768

                              Stockholders' Equity

           Stockholders' equity                                                 $       6,650,777         6,095,768
                                                                                        =========         =========
</TABLE>
<TABLE>
<CAPTION>

                             Statements of Earnings

              For the Years Ended December 31, 1997, 1996 and 1995

                                                                                        1997         1996          1995
                                                                                        ----         ----          ----
<S>                                                                            <C>               <C>           <C>
            Income:
                Interest income                                                 $         341          608             -
                Dividends from bank subsidiary                                        116,844       87,634        75,000
                                                                                      -------       ------        ------
                                                                                      117,185       88,242        75,000
                                                                                      -------       ------        ------

            Other operating expenses                                                   26,824       19,633         5,235
                                                                                       ------       ------         -----

                Earnings before income taxes and equity in
                  undistributed earnings of bank subsidiary                            90,361       68,609        69,765

            Income tax benefit                                                          9,004        8,248            -
                                                                                        -----        -----        -----

           Earnings before equity in undistributed earnings
                of bank subsidiary                                                     99,365       76,857        69,765
           Equity in undistributed earnings of bank subsidiary                        522,633      458,600       885,069
                                                                                      -------      -------       -------

                   Net earnings                                                 $     621,998      535,457       954,834
                                                                                      =======      =======       =======
</TABLE>


<PAGE>50



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(13)   GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
       continued

                            Statements of Cash Flows

              For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>

                                                                              1997         1996         1995
                                                                              ----         ----         ----
<S>                                                                     <C>            <C>          <C>
     Cash flows from operating activities:
         Net earnings                                                    $   621,998     535,457      954,834
         Adjustments to reconcile net earnings to net cash
           provided by operating activities:
              Equity in undistributed earnings of bank                      (522,633)   (458,600)    (885,069)
              subsidiary
              Amortization and depreciation                                    9,892       9,382        3,849
              Change in other assets                                            (899)     (5,030)     (47,188)
                                                                            --------    --------      -------

              Net cash provided by operating activities                      108,358      81,209       26,426
                                                                             -------    --------       ------

     Cash flows from financing activities:
         Proceeds from notes payable                                               -           -       26,426
         Payment of notes payable                                                  -           -      (26,426)
         Payments of dividends                                              (116,844)    (87,634)           -
                                                                             -------    --------        -----

              Net cash used by financing activities                         (116,844)    (87,634)           -
                                                                             -------    --------        -----

     Net change in cash                                                       (8,486)     (6,425)      26,426

     Cash at beginning of the period                                          20,001      26,426            -
                                                                            --------    --------       ------

     Cash at end of period                                               $    11,515      20,001       26,426
                                                                             =======    ========       ======

     Supplemental disclosure of noncash investing activities:
     Exchange of Bank common stock for Company common stock              $         -           -    4,550,222
                                                                              ======       =====    =========

     Change in unrealized loss on investment securities available
       for sale of bank subsidiary, net of tax                           $    49,857     (81,752)     224,341
                                                                             =======     =======     ========
</TABLE>

(14)   REGULATORY MATTERS
       The  Company  is  subject  to  various  regulatory  capital  requirements
       administered  by state and  federal  banking  agencies.  Failure  to meet
       minimum  capital  requirements  can  initiate  certain  mandatory  -  and
       possibly  additional  discretionary  - actions  by  regulators  that,  if
       undertaken,  could  have  a  direct  material  effect  on  the  Company's
       financial   statements.   Under  capital  adequacy   guidelines  and  the
       regulatory  framework for prompt  corrective action the Company must meet
       specific  capital  guidelines that involve  quantitative  measures of the
       Company's assets,  liabilities,  and certain  off-balance-sheet  items as
       calculated under regulatory accounting  practices.  The Company's capital
       amounts and classification  are also subject to qualitative  judgments by
       the regulators about components, risk weightings, and other factors.

       Quantitative   measures  established  by  regulation  to  ensure  capital
       adequacy  require the Company to maintain minimum amounts and ratios (set
       forth in the table  below) of total and Tier 1 capital (as defined in the
       regulations) to risk-weighted assets (as defined),  and of Tier 1 capital
       (as defined, to average assets (as defined).  Management believes,  as of
       December 31, 1997 and 1996,  that the Company meets all capital  adequacy
       requirements to which it is subject.


<PAGE>51



                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(14)   REGULATORY MATTERS, continued
       As of December  31, 1997 the most  recent  notification  from the various
       regulators categorized the Company and the Bank as well capitalized under
       the regulatory  framework for prompt corrective action. To be categorized
       as well capitalized the Bank must maintain minimum total risk-based, Tier
       1 risk-based, Tier 1 leverage ratios as set forth in the table. There are
       no conditions or events since that notification that management  believes
       have changed the institution's category.

       The Company's actual capital amounts and ratios are also presented in the
       table below.

<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                                                Capitalized Under
                                                                             For Capital        Prompt Corrective
                                                       Actual             Adequacy Purposes     Action Provisions
                                                  Amount     Ratio       Amount      Ratio      Amount      Ratio

 As of December 31, 1997
    Total Capital
    (to Risk Weighted Assets):
<S>                                        <C>              <C>       <C>          <C>        <C>         <C>
        Consolidated                       $   7,462,542     13.3%     4,495,694    >8.0%     N/A          N/A
                                                                                    -
        Bank only                          $   7,421,031     13.2%     4,493,360    >8.0%     5,616,700    >10.0%
                                                                                    -                      -
    Tier 1 Capital
     (to Risk Weighted Assets):
        Consolidated                       $   6,769,863     12.0%     2,247,847    >4.0%     N/A          N/A
                                                                                    -
        Bank only                          $   6,728,352     12.0%     2,246,680    >4.0%     3,370,020    >6.0%
                                                                                    -                      -
    Tier 1 Capital
     (to Average Assets):
        Consolidated                       $   6,769,863     10.4%     2,615,220    >4.0%     N/A          N/A
                                                                                    -
        Bank only                          $   6,728,352     10.3%     2,613,320    >4.0%     3,266,650    >5.0%
                                                                                    -                      -

 As of December 31, 1996
    Total Capital
    (to Risk Weighted Assets):
       Consolidated                        $   6,724,093     16.9%     3,180,760    >8.0%     N/A          N/A
                                                                                    -
       Bank only                           $   6,665,104     16.8%     3,177,840    >8.0%     3,972,300    >10.0%
                                                                                    -                      -
    Tier 1 Capital
    (to Risk Weighted Assets):
        Consolidated                       $   6,264,710     15.8%     1,590,380    >4.0%     N/A          N/A
                                                                                    -
        Bank only                          $   6,205,721     15.6%     1,588,920    >4.0%     2,383,390    > 6.0%
                                                                                    -                      -
    Tier 1 Capital
    (to Average Assets):
       Consolidated                        $   6,264,710     12.0%     2,092,805    >4.0%     N/A          N/A
                                                                                    -
       Bank only                           $   6,205,721     11.9%     2,091,285    >4.0%     2,614,106 >5.0%
                                                                                    -                   -
</TABLE>




<PAGE>52



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

There are no changes in or  disagreements  with  accountants  on accounting  and
financial disclosure.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                  COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The  information  set forth under the caption  "Election of Directors" and "Bank
Management"  in the  Proxy  Statement  to be  utilized  in  connection  with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

The information  contained under the caption "Compensation of Executive Officers
and  Directors"  in the Proxy  Statement to be utilized in  connection  with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT

The information  contained  under the caption  "Principal  Shareholders"  in the
Proxy  Statement to be utilized in  connection  with the  Company's  1998 Annual
Shareholders Meeting is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information  contained under the caption "Certain  Relationships and Related
Transactions"  in the Proxy  Statement  to be  utilized in  connection  with the
Company's 1998 Annual Shareholders Meeting is incorporated herein by reference.






                 [REMAINDER THIS PAGE LEFT INTENTIONALLY BLANK]



<PAGE>53



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      1.  Financial Statements

         The consolidated  financial  statements,  notes thereto and independent
         auditors' report thereon, filed as part hereof, are listed in Item 7.

         2.  Financial Statement Schedules

         All  schedules  have been  omitted as the required  information  is not
         applicable.

         3.  Exhibits

         Exhibit Numbers

         3.1*    Articles of Incorporation
         3.2*    Bylaws
         10.1*   Employment Contract between Ted A. Murphy and DeKalb State Bank
         10.2    Employment Contract between Ted A. Murphy and Community Bank
                   of Georgia dated as of January 1, 1998.
         21.1    Subsidiaries  of  the  Company.  The  sole  subsidiary  of the
                 Company is Community Bank of Georgia,  Tucker,  Georgia, which
                 is wholly-owned by the Company.

       *Items 3.1 through 10.1, as listed above,  were previously filed by the
         Company  as  Exhibits  (with the same  respective  Exhibit  Numbers  as
         indicated herein) to the Company's Registration Statement (Registration
         No.
         33-90742) and such documents are incorporated herein by reference.

(b)      Reports on Form 8-K

         No Reports on Form 8-K have been filed during the fourth quarter of the
         year ended December 31, 1997.




<PAGE>54

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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 on March 19, 1998.

GEORGIA BANCSHARES, INC.

By:  /s/ Ted A. Murphy
    Ted A. Murphy
    President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on March 19, 1998.

          Signature                                      Title


/s/ Ted A. Murphy                              President (Principal Executive
Ted A. Murphy                                    Officer) and Director


/s/ Eugene L. Argo                             Director
Eugene L. Argo

/s/ James L. Armstrong, Jr.                    Director
James L. Armstrong, Jr.


/s/ Thomas M. Carnes                           Director
Thomas M. Carnes


/s/ H. E. Norton                               Director
H.E. Norton


/s/ Robert C. Pittard                          Director
Robert C. Pittard


/s/ Dean T. Teusaw                             Director
Dean T. Teusaw


/s/ David L. Edgar                             Principal Financial Officer
David L. Edgar                                 and Principal Accounting Officer

<PAGE>55

                               INDEX OF EXHIBITS
         Exhibit
         Numbers    Description of Exhibit

         10.2    Employment Contract between Ted A. Murphy and Community Bank
                 of Georgia dated as of January 1, 1998.