<PAGE>1
 
                    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, 1998                                          0-29732

                            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 $1.60

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 $6,809,241.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant at March 27, 1999 was $ 14,833,663  based on the latest  quotation on
Nasdaq Smallcap market of $13.00 per share.

The number of shares  outstanding of issuer's class of common stock at March 27,
1999 was 1,461,632 shares of common stock.


                                  Page 1 of 80

                            Exhibit Index on Page 63


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                                TABLE OF CONTENTS
                                                                            Page
                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS.....................................3

ITEM 2.           DESCRIPTION OF PROPERTIES..................................13

ITEM 3.           LEGAL PROCEEDINGS..........................................13

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF
                  SECURITY HOLDERS...........................................14

                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND
                  RELATED STOCKHOLDER MATTERS................................14

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OR PLAN OF OPERATION.......................................15

ITEM 7.           FINANCIAL STATEMENTS ......................................33

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH
                  ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE.......................................55

                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                  CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
                  OF THE EXCHANGE ACT........................................55

ITEM 10.          EXECUTIVE COMPENSATION.....................................57

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN
                  BENEFICIAL OWNERS AND MANAGEMENT...........................60

ITEM 12.          CERTAIN RELATIONSHIPS AND
                  RELATED TRANSACTIONS.......................................61

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K...........................62

SIGNATURES...................................................................63



<PAGE>3

                                     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 Results 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").

On December 30, 1998,  the Company  entered into a merger  agreement  with First
Sterling Banks, Inc. ("First Sterling") whereby First Sterling would acquire all
issued and outstanding  common stock of the Company for shares of First Sterling
common stock. See "Other Events" included elsewhere in Item 1.

<PAGE>4

(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 4794 Highway 29,  Lilburn,
Georgia 30047.

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.

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, 1998 contains approximately 14.7% real
estate  construction  loans,  57.2% real estate mortgage loans, 21.8% commercial
loans and 6.3% consumer loans.  The Bank's loan to deposit ratio at December 31,
1998 was approximately 75.4%.

The principal  sources of income for the Bank are interest and fees collected on
loans,  interest  on  investment  securities  and  service  charges  on  deposit
accounts.  The  principal  expenses of the Bank are  interest  paid on deposits,
employee compensation, office expenses, and other overhead expenses.

<PAGE>5

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

<PAGE>6

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, 1998, 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, 1998.

                                                  Capital Adequacy
                                               (Dollars in thousands)

                                                  December 31, 1998
Leverage Ratio:                          Amount                   Percent

     Actual                              $7,456,935                 9.7%
     Minimum Required (1)                $3,070,527                 4.0%
Risk-Based Capital:

Tier 1 Capital

     Actual                              $7,456,935                11.4%
     Minimum Required                    $2,609,560                 4.0%

Total Capital

     Actual                              $8,197,552                12.6%
     Minimum Required                    $5,219,120                 8.0%


(1)  Represents  the  regular  minimum   requirement.   Institutions   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
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,

<PAGE>7

(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,
1998, 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,
has complied with applicable laws, regulations, rules and supervisory directives
and has not  engaged  in any  insider  dealing,  speculative  practice  or other
abusive activity.

<PAGE>8

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 Bank Insurance Fund (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 1999.

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
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.

<PAGE>9

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.

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

<PAGE>11

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.

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.

<PAGE>12

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
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.

<PAGE>13

Employees

As of  December  31,  1998,  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.


Other Events

The Company  entered  into a  definitive  merger  agreement on December 30, 1998
whereby the Company will combine with First  Sterling by means of exchanging the
Company's  common stock for First  Sterling  common  stock.  As a result of this
transaction, the Company's subsidiary,  Community Bank of Georgia, will become a
wholly owned subsidiary of First Sterling. The shareholders of the Company voted
upon and approved the proposed  merger on March 16,  1999.  The  transaction  is
scheduled for consummation in the middle of April 1999. Reference is hereby made
to the First Sterling's  Registration  Statement on Form S-4 filed with the U.S.
Securities and Exchange Commission which became effective February 10, 1999.


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, 1997,  the Bank opened its sole branch  located at 4794 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.


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.

<PAGE>14

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, 1998.

                                    PART II

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

As of December 31, 1998, there were  approximately 705 shareholders of record of
the Company's  common  stock.  The  following  table sets forth,  for the fourth
quarter of 1998, the high and low bid  information per share as reported by J.C.
Bradford & Co., one of the market makers in the Company's stock. The Company was
first listed on The Nasdaq SmallCap Market in the fourth quarter of 1998.  Prior
to the fourth quarter of 1998,  there was no  established  trading market in the
Company's stock and  information for these quarters are negotiated  trades which
are known to the  Company  or J.C.  Bradford & Co. The  regular  cash  dividends
declared for the Company is also given in the table below.  All  information  is
adjusted for the 5-for-2 stock split effective June 23, 1998.

                                                  COMMON STOCK
                                                    NEGOTIATED
                                                     TRADES
 1997                                      HIGH        LOW      DIVIDEND
First Quarter                             $5.20       $4.80       $0.04
Second Quarter                            $4.80       $4.80           -
Third Quarter                             $5.00       $5.00           -
Fourth Quarter                            $5.00       $4.60       $0.04
1998
First Quarter                             $6.25       $6.25       $0.04
Second Quarter                                -           -           -
Third Quarter                             $7.41       $7.41           -


                                                       BID
                                                   INFORMATION
1998                                       HIGH        LOW      DIVIDEND
Fourth Quarter*                           $9.50       $8.00       $0.05

* The  Company  started  trading  on the  Nasdaq  SmallCap  Market in the fourth
quarter of 1998. The high and low bid  information  for this quarter as reported
by J.C.  Bradford & Co. is set forth above.  These are  over-the-counter  market
quotations which reflect interdealer prices without retail mark-up,  markdown or
commissions and may not represent actual transactions.

<PAGE>15

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

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 - 1998 vs. 1997

Total assets  increased by $3,215,794  (4.0%) from December 31, 1997 to December
31, 1998. The increase was limited  because of  management's  decision to reduce
high  interest  rate  deposits  and invest cash and cash  equivalents  in higher
earning assets.  During 1998, net loans increased  $9,515,725 (21.3%) while cash
and cash equivalents  decreased  $4,878,539  (44.5%).  The remaining increase in
loans was funded by reducing  investments  by  $1,634,379  (8.6%) and  borrowing
$3,000,000  from the Federal Home Loan Bank of Atlanta.  The  composition of the
deposit  portfolio  changed  significantly  during  1998.  During the year,  the
Company had significant  decreases in time deposits due to management's approach
to relationship  banking and decreasing deposit rates. The time deposit category
decreased  $4,661,740  (11.1%)  during  1998.  The  level  of  savings  accounts
increased  by $236,375  (3.8%)  during 1998.  Non-interest  bearing and interest
bearing  demand  deposits  grew by  $1,101,479  (10.4%) and  $2,761,025  (20.1%)
respectively during 1998. With the shift to lower interest rate deposits and the
continued growth in loans, the net interest margin was positively impacted.

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  $547,869 at December 31, 1997 to $600,531 at December 31, 1998.
There were no  related  party  loans,  which were  considered  nonperforming  at
December 31, 1998.

The Bank was most  recently  examined by its  primary  regulatory  authority  in
November 1998. 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 - 1998 vs. 1997

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. Net earnings before taxes increased by
$239,313 (24.9%) to $1,200,193 in 1998 from $960,888 in 1997. Net earnings after
taxes for 1998 was  $844,306,  an  increase  of  $222,308  (35.7%)  compared  to
$621,998 in 1997.  The return on average  assets was 1.10% and .94% for the year
ended December 31, 1998 and 1997, respectively.

<PAGE>16

Net interest  income for 1998 was $3,541,715,  an increase of $601,395  (20.5%),
compared  to  $2,940,320  in 1997.  Interest  income  for  1998 was  $6,278,835,
representing  an increase of $910,158  (17.0%) for 1997.  The growth in interest
income  was  primarily  due to the  increase  of funds  available  for loans and
investments.  Interest  expense for 1998 increased  $308,763 (12.7%) compared to
1997. The growth in interest expense was less than the growth in interest income
primarily due to the significant change of deposit  portfolio.  The net interest
spread increased 6 basis points from 4.32% in 1997 to 4.38% in 1998.

The  provision  for loan  losses for 1998 was  $263,000  compared to $235,500 in
1997. 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  1.3% of total loans as of December 31, 1998. The net
amount of charge-offs  was $219,062 in 1998 compared to net recoveries of $1,796
in 1997.  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 1998 was  $530,406,  an increase of $76,606  from  $453,800 in
1997.  The  majority  of the  increase  was due to  increased  gain on  sales of
investment  securities  of  $26,686,  gain on sale of loans of $8,440 and income
from alternative investment activities of $9,687.

Other expenses for 1998 was $2,608,928 an increase of $411,188  (18.7%) compared
to $2,197,740 in 1997.  The majority of the increase was  attributed to expenses
related to  increases  in salaries  and  employee  benefits of $151,288  (13.8%)
related to merit increases and hiring additional personnel.  Other expense items
include  expenses  relating the  Company's  pending  merger with First  Sterling
Banks,  Inc. of $77,834 and  registration  of the Company on the Nasdaq Smallcap
market of $16,014.

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 unsecured  federal funds lines available from  commercial  banks of
$2,750,000.  In addition,  the Bank has secured  federal fund lines which it can
borrow from up to the amount of unpledge investment securities.  At December 31,
1998, the Bank had approximately $11,4000,000 on these secured lines.

Cash and cash  equivalents  totaled  $6,085,026 and  $10,963,565 at December 31,
1998 and 1997, respectively.  Cash inflows from operations totaled $1,190,275 in
1998,  while outflows from investing  activity  totaled  $8,379,759,  which were
primarily a net increase in loans.  Inflows from  financing  activities  totaled
$2,310,945,  which  resulted  from  increases  in other  borrowings.  A complete
analysis of cash flows is presented later in the audited financial statements.

<PAGE>17

Capital Resources

The Company's ratios of stockholders'  equity to total assets were 8.9% and 8.4%
at December 31, 1998 and 1997, 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, 1998, 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, 1998 were 11.5% and 12.6% for Tier I and
Total Capital  ratios,  respectively.  Additionally,  the Company is required to
maintain a leverage  ratio of at least 4%. At December 31, 1998,  the  Company's
leverage ratio was 9.8%. 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 is in the process of insuring  that all of our  computer  hardware,
software,  third party  service  providers and other systems are fully Year 2000
compliant.  We have  identified  several  computer  hardware  devices,  computer
software  systems and other systems that are not  compliant.  Substantially  all
non-compliant  systems have been  upgraded.  The Company has also  contacted all
third  party  service   providers  and  obtained  data  about  their  readiness.
Substantially all third party service providers are compliant.  The Company will
continue to monitor the efforts of all third party service  providers as well as
obtaining  certification and test results to ensure their readiness.

The Company  completed a conversion to Year 2000 compliant  computer  systems on
October 1, 1998.  The Company's  third  party service  providers  absorbed   the
majority of the costs  associated  with the  conversion.  We are projecting that
complete testing and certification of our systems will be completed by March 31,
1999.

The Company has budgeted  approximately  $85,000 for Year 2000  expenditures and
computer  systems  replacements  and  upgrades.  To date,  the Company has spent
approximately  $65,000 on upgrades  and  customer  awareness  documentation  and
seminars.

The Company has developed a contingency  plan for  backup systems  and  business
functions should any technical problems be encountered. Specific guidelines have
been established in case critical systems or communications interruption  occur.
Assignments have been established, as well as  step-by-step instructions  should
any system or process malfunction.

The  Company  has  assessed  the  risks  associated  with our  loan and  deposit
customers. The assessments did not disclose any significant exposure the Company
might incur  associated  with our  customers  and the Year 2000.  At the present
time,  management  has no  reasonable  means to predict the  potential  exposure
related to the Year 2000.

<PAGE>18

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.

The  following  table  summarizes  the  amounts of  interest-earning  assets and
interest-bearing  liabilities  outstanding  as of December  31, 1998 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>19
<TABLE>
<CAPTION>
                                                                   At December 31, 1998
                                                                 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)

Interest-earning assets:
<S>                                        <C>              <C>          <C>          <C>          <C>   
  Loans                                     $   36,236         2,748        15,364          557        54,905
Investment securities:
  Taxable                                            4           301         1,418       11,520        13,243
  Tax-Exempt                                        --            --            --        3,958         3,958
  Other Securities                                                                         228           228
  Federal funds sold                             2,776            --            --           --         2,776
                                                ------         -----        ------        -----        ------
 Total interest-earning assets              $   39,016         3,049        16,782       16,263        75,110
                                                ======         =====        ======       ======        ======

 Interest-bearing liabilities:
  Deposits:                                                             
    Interest-bearing demand                 $   16,515            --            --           --        16,515
    Savings                                      6,384            --            --           --         6,384
    Time                                         7,657        21,063         8,576            8        37,304
  Other borrowings                                                --         3,000           --         3,000
                                               -------       --------        -----         ----         -----
Total interest-bearing liabilities          $   30,556        21,063        11,576            8        63,203
                                               =======        ======        ======            =        ======

Interest sensitive difference per                                       
period                                           8,460      (18,014)         5,206       16,255
                                                 -----      --------         -----       ------
Cumulative interest sensitivity
difference                                  $    8,460       (9,554)       (4,348)       11,907
                                                 =====       =======       =======       ======
Cumulative difference to total
Assets                                          10.25%      (11.57)%       (5.27)%       14.42%
                                                ======      ========       =======       ======
</TABLE>

<PAGE>20

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           Allocation of the Allowance for Loan Losses
Table 7           Deposits
Table 8           Selected Financial Data






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<PAGE>21

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 1998
and 1997, and the average rate of interest earned or paid thereon.
<TABLE>
<CAPTION>

                                                           1998                                     1997
                                                           ----                                     ----
                                                         Interest                                 Interest
                                           Average       Income/       Yield/       Average       Income/      Yield/
                                           Balances      Expense       Rate         Balances      Expense      Rate
                                                                 (Amounts are presented in Thousands)
Assets:
Interest-earning assets:
<S>                                        <C>            <C>          <C>           <C>           <C>            <C>   
  Loans (including loan fees)              $     48,318        5,124        10.60%  $     38,512  $     4,108       10.67%
  Investment securities:
     Taxable                                     13,478          825         6.12%        15,200          997        6.56%
     Nontaxable                                   2,467          124         5.02%           145            8        5.52%
  Federal funds sold                              3,818          206         5.40%         4,546          256        5.63%
                                                  -----        -----        ------        ------        -----        -----
  Total interest earning assets                  68,081        6,279         9.22%        58,403        5,369        9.19%
Other non-interest earning assets           
                                                  8,355                                    7,631
                                                  -----                                    -----
  Total assets                             $     76,436                             $     66,034
                                                 ======                                   ======
Liabilities and stockholders' equity:
  Interest bearing liabilities:
     Deposits:
     Interest bearing demand and
savings                                    $     19,068          569         2.98%  $     15,713          461        2.94%
     Time                                        36,877        2,140         5.80%        34,133        1,964        5.75%
     Other borrowings                               620           28         4.52%            40            3        7.50%
                                                -------       ------         -----        ------        -----        -----
   Total interest bearing
liabilities:                                     56,565        2,737         4.84%        49,886        2,428        4.87%
Other non-interest bearing liabilities
                                                 13,257                                   10,180
Stockholders' equity                              6,614                                    5,968
                                                  -----                                    -----
Total liabilities and stockholders'
equity                                     $     76,436                             $     66,034
                                                 ======                                   ======
Excess of interest earning assets over
interest bearing liabilities               $     11,516                             $      8,517
                                                 ======                                    =====
Ratio of interest earning assets to
interest bearing liabilities                    120.36%                                  117.07%
                                                =======                                  =======
Net interest income                                            3,542                                    2,941
                                                               =====                                    =====
Net interest spread                                                          4.38%                                   4.32%
                                                                             =====                                   =====
Net interest yield on interest bearing
assets                                                                       5.20%                                   5.04%
                                                                             =====                                   =====
</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>22

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
1998 over 1997.


<TABLE>
<CAPTION>
                                                                               
                                                                                    1998   over  1997
                                                                          Increase(decrease) due to changes in:
                                                                           (Amounts are presented in thousands)
                                                                       Volume              Rate               Total
Interest income on:
<S>                                                         <C>                         <C>               <C>  
   Loans (including loan fees)                              $           1,043               (27)              1,016
   Investment securities:
       Taxable                                                           (105)              (67)               (172)
       Nontaxable                                                         116                --                 116
   Federal funds sold                                                     (40)              (10)                (50)
       Total interest-earning assets                        $           1,014              (104)                910
                                                                        =====              =====                ===
Interest expense on:
   Deposits:
       Interest-bearing demand and savings                  $             100                  8                108
       Time                                                               159                 17                176
   Other borrowings                                                        27                (2)                 25
                                                                         ----                ---               ----
       Total interest-bearing liabilities                   $             286                 23                309
                                                                          ===                 ==                ===
</TABLE>


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

<PAGE>23

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
1997 over 1996.
<TABLE>
<CAPTION>
                                                                             
                                                                                   1998   over  1997
                                                                          Increase(decrease) due to changes in:
                                                                           (Amounts are presented in thousands)     

                                                                       Volume              Rate               Total
Interest income on:
<S>                                                         <C>                          <C>               <C>  
   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 3
Investment Portfolio

The following  table  presents the  investments by category at December 31, 1998
and 1997 (amounts are represented in thousands):
<TABLE>
<CAPTION>

                                                            1998                                  1997
                                                            ----                                  ----
                                              Amortized          Estimated          Amortized          Estimated
                                                Cost            Fair Value            Cost            Fair Value
<S>                                         <C>                <C>                 <C>                <C>
U.S. Treasury                                 $ 1,196             1,199                 881               891
U.S. Government agencies                        3,666             3,665              10,799            10,790
Obligations of state and
 political subdivisions                         3,958             3,976                 804               809
Mortgage-backed securities                      8,413             8,361               6,372             6,345
Other Securities                                  228               228                  --                --
                                                -----             -----               -----            ------
                                              $17,461            17,429              18,856            18,835
                                               ======            ======              ======            ======
</TABLE>
<TABLE>
<CAPTION>
                      
                                                           Obligations
                                                          of states and                                        Weighted
                                U.S.             U.S.      political            Mortgage        Other           Average
                                Treasury       Agencies    subdivision           Backed       Securities          Yields

<S>                           <C>            <C>              <C>               <C>            <C>             <C>
Within 1 year                  $    --            --              --                305             --             7.49%
After 1 through 5 years            200         1,150              --                 68             --             6.38%
After 5 through 10 years           996         1,516              --                255             --             6.25%
After 10 years                     --          1,000            3,958             7,785            228             5.96%
                                 -----         -----            -----             -----            ---             ----
      Totals                   $ 1,196         3,666            3,958             8,413            228             6.07%
                                 =====         =====            =====             =====            ===             ====

</TABLE>

<PAGE>25

Table 4
Loan Portfolio

The following  table presents loans by type at the end of 1998 and 1997 (amounts
are presented in thousands):

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                          1998           1997
                                                                                          ----           ----
Commercial, financial and
<S>                                                                               <C>            <C>         
Agricultural                                                                      $     11,993   $     12,181
Real estate - construction                                                               8,044          6,587
Real estate - mortgage                                                                  31,380         23,393
Installment loans to
Individuals                                                                              3,488          3,185
                                                                                         -----          -----
                                                                                  $     54,905   $     45,346
                                                                                        ======         ======
</TABLE>

As  of  December  31,  1998,   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           $  8,379               6,592              22,737            1,276       38,984          
1 to 5 yrs               3,614               1,452               8,086            2,212       15,364          
After 5 yrs                 --                  --                 557               --          557          
                            --                ----                 ---            -----          ---          
   Totals             $ 11,993               8,044              31,380            3,488       54,905          
                        ======               =====              ======            =====       ======          

</TABLE>

<PAGE>26

Table 4
Loan Portfolio, Continued

As of  December  31,  1998,  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
Commercial, financial and agricultural:
<S>                                                      <C>                             <C>             <C>  
  Less than one year                                     $             1,253                 7,126           8,379
  1 to 5 years maturity                                                3,256                   358           3,614
  After 5 years maturity                                                  --                    --              --
                                                                          --                    --              --
                                                                       4,509                 7,484          11,993
                                                                       -----                 -----          ------
Real estate - construction:
  Less than one year                                                      --                 6,592           6,592
  1 to 5 years maturity                                                   --                 1,452           1,452
  After 5 years maturity                                                  --                    --              --
                                                                        ----                  ----            ----
                                                                          --                 8,044           8,044
                                                                        ----                 -----           -----
Real estate - mortgage:
  Less than one year                                                   2,213                20,524          22,737
  1 to 5 years maturity                                                1,603                 6,483           8,086
  After 5 years maturity                                                 557                    --             557
                                                                         ---                    --             ---
                                                                       4,373                27,007          31,380
                                                                       -----                ------          ------
Consumer:
  Less than one year                                                   1,222                    54           1,276
  1 to 5 years maturity                                                2,212                    --           2,212
  After 5 years maturity                                                  --                    --              --
                                                                        ----                  ----            ----
                                                                       3,434                    54           3,488
                                                                       -----                    --           -----
                                                         $            12,316                42,589          54,905
                                                                      ======                ======          ======



</TABLE>

<PAGE>27

Table 4
Loan Portfolio, Continued

The following summarizes past due and non-accrual loans and other real estate as
of December 31, 1998 and 1997 (amounts are presented in thousands):

                                                 1998               1997

Other real estate and repossessions         $      178                310      
Accruing loans 90 days or more past due            342                 24      
Non-accrual loans                                   80                214      


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>28

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,
                                                                                     1998                1997
                                                                                     ----                ----
<S>                                                                         <C>                       <C>
Balance at beginning of year                                                $         697                 459
Charge-offs:
  Commercial, financial and agricultural                                              125                  --
  Real estate                                                                          97                  --
  Installment loans to individuals                                                     11                   4
                                                                                     ----                 ---
                                                                                      233                   4
                                                                                    -----                 ---
Recoveries:
  Commercial, financial and agricultural                                                3                  --
  Real estate                                                                          --                  --
  Installment loans to individuals                                                     11                   6
                                                                                    -----                ----
                                                                                       14                   6
                                                                                    -----                 ---
  Net charge-offs                                                                     219                 (2)
  Additions charged to operations                                                     263                 236
                                                                                      ---                ----
  Balance at end of year                                                    $         741                 697
                                                                                      ===                 ===

Ration of net charge-offs during the period to average
loans outstanding during the period                                                  .45%              .(01)%

</TABLE>

<PAGE>29

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, 1998:
<TABLE>
<CAPTION>

                                                     1998                                         1997
                                                        Percent of Loans in Each                            Percent of Loans in Each
Balance at End of Period                 Amount          Category to Total Loans       Amount                Category to Total Loans
Applicable to :                                        

Domestic
<S>                                    <C>                      <C>                <C>                             <C>  
  Commercial,financial                  $    13                    21.8%              $    29                         26.9%
   and agricultural                                     
  Real Estate - Construction                 --                    14.7%                   39                         14.5%
  Real Estate - Mortgage                     12                    57.2%                  108                         51.6%
  Installment loans to individuals           10                     6.3%                    9                          7.0%
Unallocated                                 706                     N/A                   512                          N/A
                                            ---                     ----                  ---                          ---
                                         $  741                   100.0%               $  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>30


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>


                                                               1998                                  1997
                                                               ----                                  ----
                                                    Amount              Rate              Amount               Rate
Demand deposits:
<S>                                      <C>                        <C>                <C>                 <C>    
      Non-interest bearing               $          12,579                --%              9,409                --%
      Interest-bearing
      demand and savings                            19,068              2.98%             15,713              2.94%
Time deposits                                       36,877              5.80%             34,133              5.75%
                                                    ------                                ------
               Totals                    $          68,524                                59,255
                                                    ======                                ======
</TABLE>

Maturities of time  certificates  of deposit of $100,000 or more  outstanding at
December  31,  1998  are  summarized  as  follows   (amounts  are  presented  in
thousands):


Within 3 months                                               $           2,089
After 3 through 6 months                                                  2,765
After 6 through 12 months                                                 3,080
After 12 months                                                           1,448
                                                                         ------
               Totals                                         $           9,382
                                                                          =====


<PAGE>31


Table 7

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

The following  represents  selected  financial data for the years ended December
31, 1998, 1997 and 1996.  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>


                                                                                     1998          1997            1996
                                                                                     ----          ----            ----
<S>                                                                           <C>             <C>            <C>  
Interest income                                                               $      6,279         5,368          4,120
Interest expense                                                              $      2,737         2,428          1,828
Net interest expense                                                          $      3,542         2,940          2,292
Provision for loan losses                                                     $        263           236             90
Net earnings                                                                  $        844           622            535
Net earnings per share-Basic                                                  $        .58           .43            .37
Net earnings per share-Diluted                                                $        .57           .42            .36
Total average stockholders' equity                                            $      6,614         5,968          5,800
Total average assets                                                          $     76,436        66,034         52,271
Total assets at end of year                                                   $     82,572        79,356         58,350
Ratios:
    Net earnings to average assets                                                   1.10%          .94%          1.02%
    Net earnings to average
         stockholders' equity                                                       12.76%        10.42%          9.22%
    Average stockholders' equity to
         average assets                                                              8.65%         9.04%         11.10%
    Dividend Payout Ratio                                                           15.52%        18.60%         16.67% 


</TABLE>

<PAGE>32

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 Independent Certified Public Accountants....................... F-1

Consolidated Balance Sheets - December 31, 1998 and 1997..................F-2

Consolidated Statements of Earnings for the
Years Ended December 31, 1998, 1997 and 1996..............................F-3

Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996..............................F-4

Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996..............................F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996....................................F-6

Notes to Consolidated Financial Statements ...............................F-7


<PAGE>33



               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,  1998 and 1997,  and the
related statements of earnings,  comprehensive income,  changes in stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1998.  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, 1998 and 1997,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.




                                                  \s\PORTER KEADLE MOORE, LLP



Atlanta, Georgia
February 3, 1999






<PAGE>34
<TABLE>
<CAPTION>


                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                           Consolidated Balance Sheets

                           December 31, 1998 and 1997

                                     Assets

                                                                                           1998            1997
                                                                                           ----            ----
<S>                                                                             <C>                    <C>    
  Cash and due from banks, including reserve requirements
  of $332,000 and $269,000                                                          $       3,309,026       3,527,565
  Federal funds sold                                                                        2,776,000       7,436,000
                                                                                          -----------     -----------
             Cash and cash equivalents                                                      6,085,026      10,963,565

  Investment securities available for sale                                                 17,200,602      18,834,981
  Other investments                                                                           228,300               -
  Loans, net                                                                               54,164,630      44,648,905
  Premises and equipment, net                                                               2,789,388       2,853,414
  Accrued interest receivable and other assets                                              2,104,167       2,055,454
                                                                                          -----------     -----------
                                                                                    $      82,572,113      79,356,319
                                                                                           ==========      ==========

                      Liabilities and Stockholders' Equity

  Deposits:
    Demand                                                                          $      11,648,524      10,547,045
    Interest-bearing demand                                                                16,514,692      13,753,667
    Savings                                                                                 6,383,933       6,147,558
    Time                                                                                   37,304,489      41,966,229
                                                                                           ----------      ----------
             Total deposits                                                                71,851,638      72,414,499

  Federal Home Loan Bank advances                                                           3,000,000          -
  Accrued interest payable and other liabilities                                              343,351         291,043
                                                                                         ------------    ------------
             Total liabilities                                                             75,194,989      72,705,542
                                                                                           ----------      ----------

  Commitments

  Stockholders' equity:
    Common stock, $1.60 par value;  authorized  7,500,000 shares;  1,461,632 and
     1,460,570 shares issued and outstanding
     in 1998 and 1997, respectively                                                         2,338,611       2,336,912
    Additional paid-in capital                                                              3,555,270       3,536,659
    Retained earnings                                                                       1,609,093         896,291
    Accumulated other comprehensive income                                                   (125,850)       (119,085)
                                                                                         ------------    ------------

             Total stockholders' equity                                                     7,377,124       6,650,777
                                                                                          -----------     -----------

                                                                                    $      82,572,113      79,356,319
                                                                                           ==========      ==========


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

<PAGE>35

<TABLE>
<CAPTION>

                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                       Consolidated Statements of Earnings

              For the Years Ended December 31, 1998, 1997 and 1996

                                                                          1998            1997            1996
                                                                          ----            ----            ----
  Interest income:
<S>                                                                <C>               <C>            <C>      
    Interest and fees on loans                                     $     5,123,591      4,107,629      2,957,699
    Interest on federal funds sold                                         206,532        256,095        229,793
    Interest on deposits in other banks                                    -                   -          10,721
    Interest and dividends on investment securities:
     U.S. Treasuries and Government agencies                               430,414        785,352        785,191
     Mortgage backed securities and collateralized
       mortgage obligations                                                394,176        211,568        136,789
     Obligations of state and political subdivisions                       124,122          8,033        -     
                                                                        ----------      ---------      --------- 
             Total interest income                                       6,278,835      5,368,677      4,120,193
                                                                         ---------      ---------      ---------
  Interest expense:
    Interest-bearing demand                                                372,091        264,759        227,149
    Savings                                                                196,471        196,754        213,720
    Time                                                                 2,140,294      1,963,919      1,385,576
    Other                                                                   28,264          2,925          1,367
                                                                       -----------   ------------   ------------

             Total interest expense                                      2,737,120      2,428,357      1,827,812
                                                                         ---------      ---------      ---------

             Net interest income                                         3,541,715      2,940,320      2,292,381

  Provision for loan losses                                                263,000        235,500         90,000
                                                                        ----------      ---------    -----------

             Net interest income after provision for losses              3,278,715      2,704,820      2,202,381
                                                                         ---------      ---------      ---------

  Other income:
    Service charges and fees on deposits                                   304,699        305,965        296,890
    Gain (loss) on sales of investment securities                           23,912         (2,774)       -
    Other                                                                  201,795        150,609         76,360
                                                                        ----------      ---------    -----------

             Total other income                                            530,406        453,800        373,250
                                                                        ----------      ---------     ----------

  Other expenses:
    Salaries and employee benefits                                       1,250,245      1,098,957        924,253
    Occupancy                                                              360,274        323,592        265,856
    Other                                                                  998,409        775,191        623,957
                                                                        ----------      ---------     ----------

             Total other expenses                                        2,608,928      2,197,740      1,814,066
                                                                         ---------      ---------      ---------

             Earnings before income taxes                                1,200,193        960,880        761,565

  Income tax expense                                                       355,887        338,882        226,108
                                                                        ----------      ---------     ----------

              Net earnings                                         $       844,306        621,998        535,457
                                                                        ==========      =========     ==========

  Basic earnings per share                                         $           .58            .43            .37
                                                                       ===========    ===========    ===========

  Diluted earnings per share                                       $           .57            .42            .36
                                                                       ===========    ===========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>36

<TABLE>
<CAPTION>

                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                 Consolidated Statements of Comprehensive Income

              For the Years Ended December 31, 1998, 1997 and 1996



                                                                               1998            1997           1996
                                                                               ----            ----           ----

<S>                                                                     <C>                <C>            <C>    
Net earnings                                                            $     844,306         621,998        535,457

Other comprehensive income, net of tax:
     Unrealized gains (losses) on securities available for sale:
        Holding gains (losses) arising during period, net of tax
           of $4,940, $29,504 and $50,106                                       8,060          48,137        (81,752)
        Reclassification adjustment for (gains) losses included
           in net earnings, net of tax of $9,087 and $1,054                   (14,825)          1,720              -
                                                                             --------       ---------    -----------

        Total other comprehensive income (loss)                                (6,765)         49,857        (81,752)
                                                                            ---------        --------       --------

        Comprehensive income                                            $     837,541         671,855        453,705
                                                                              =======         =======        =======



</TABLE>



          See accompanying notes to consolidated financial statements.

<PAGE>37

<TABLE>
<CAPTION>

                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

           Consolidated Statements of Changes in Stockholders' Equity

              For the Years Ended December 31, 1998, 1997 and 1996


                                                                              Retained        Accumulated
                                        Common Stock          Additional      Earnings           Other
                                    Number                     Paid-In      (Accumulated     Comprehensive
                                   of Shares      Amount                       Deficit)         Income           Total
                                     Capital

<S>                            <C>          <C>             <C>            <C>              <C>             <C>      
  Balance, December 31, 1995     1,460,570    $  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, net of tax                 -               -            -            -          (81,752)          (81,752)
                                 ---------      ----------     --------      ---------       ---------          --------

  Balance, December 31, 1996     1,460,570       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, net of tax                 -               -            -            -           49,857            49,857
                                  --------       ---------    ---------     --------       ----------        ----------

  Balance, December 31, 1997     1,460,570       2,336,912    3,536,659      896,291         (119,085)        6,650,777

  Net earnings                           -               -            -      844,306                -           844,306

  Dividends paid                         -               -            -     (131,504)               -          (131,504)

  Changes in unrealized gains
    (losses) on securities available
    for sale, net of tax                 -               -            -            -           (6,765)           (6,765)

  Stock option compensation
    expense                              -               -       15,000            -                -            15,000

  Exercise of stock options          1,062           1,699        3,611            -                -             5,310
                               -----------      ----------   ----------     --------        ---------         ---------

  Balance, December 31, 1998     1,461,632    $  2,338,611    3,555,270    1,609,093         (125,850)        7,377,124
                                 =========       =========    =========    =========          =======         =========

</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, 1998, 1997 and 1996
                                                                                1998           1997              1996
                                                                                ----           ----              ----
  Cash flows from operating activities:
<S>                                                                    <C>                 <C>               <C>    
    Net earnings                                                       $     844,306          621,998           535,457
    Adjustments to reconcile net earnings to net
     cash provided by operating activities:
       Depreciation, amortization and accretion                              223,908          177,732           133,724
       Deferred tax benefit                                                  (68,028)         (91,675)           21,664
       Stock option compensation expense                                      15,000                -                 -
       Provision for loan losses                                             263,000          235,500            90,000
       Provision for other real estate losses                                      -                -            32,118
       Loss (gain) on sales of investment securities                         (23,702)           2,774                 -
       Loss on disposal of fixed assets                                            -                -            11,689
       Loss on sales of other real estate                                      4,871                -                 -
       Change in:
         Accrued interest receivable and other assets                       (121,388)         (28,956)          (75,123)
         Accrued interest payable and other liabilities                        52,308          79,359            18,428
                                                                       --------------    ------------      ------------
             Net cash provided by operating activities                     1,190,275          996,732           767,957
                                                                        ------------      -----------       -----------

    Cash flows from investing activities:
     Proceeds from sales, paydowns, and maturities of
       investment securities-AFS                                          18,734,418       10,191,714         4,076,110
     Purchases of investment securities-AFS                              (17,073,805)     (13,076,772)       (6,207,614)
     Purchases of Federal Home Loan Bank stock                              (228,300)               -                 -
     Net change in interest-bearing deposits in other banks                        -                -           299,000
     Net change in loans                                                  (9,969,518)     (13,912,344)       (6,050,114)
     Purchases of premises and equipment                                    (149,334)         (73,949)       (1,183,111)
     Proceeds from other real estate sales                                   425,859                -            66,757
     Improvements to and first lien payoffs on other real estate            (119,079)               -                 -
                                                                        ------------      -----------        ----------
             Net cash used by investing activities                        (8,379,759)     (16,871,351)       (8,998,972)
                                                                         -----------       ----------        ----------

    Cash flows from financing activities:
     Payment of dividends                                                   (131,504)        (116,846)          (87,634)
     Net change in deposits                                                 (562,861)      20,371,474        10,576,810
     Increases in Federal Home Loan Bank advances                          3,000,000                -                -
     Proceeds from exercise of stock options                                   5,310                -                - 
                                                                          ----------      -----------       -----------
             Net cash provided by financing activities                     2,310,945       20,254,628        10,489,176
                                                                         -----------       ----------        ----------

  Net change in cash and cash equivalents                                 (4,878,539)       4,380,009         2,258,161
  Cash and cash equivalents at beginning of year                          10,963,565        6,583,556         4,325,395
                                                                          ----------      -----------       -----------
  Cash and cash equivalents at end of year                             $   6,085,026       10,963,565         6,583,556
                                                                         ===========       ==========       ===========

  Supplemental disclosures of cash flow information:
    Cash paid for interest                                             $   2,709,264        2,369,631         1,801,418
    Income taxes paid                                                  $     450,000          448,661           175,924
   Noncash investing and financing activities:
     Transfers from loans to other assets                              $     357,222          208,532                 -
     Finance sales of other real estate                                $     166,429                -                 -
     Change in unrealized gain (loss) on securities
       available for sale, net of tax                                  $      (6,765)          49,857           (81,752)

</TABLE>

         See accompanying notes to consolidated financial statements.


<PAGE>39
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Nature of Operations
       Georgia  Bancshares,  Inc. (the  "Company") is a one bank holding company
       located in Tucker, Georgia. All of the Company's activities are currently
       conducted by its wholly-owned subsidiary,  Community Bank of Georgia (the
       "Bank").  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, 1998 and 1997,  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.

       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.



<PAGE>40
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

       Other Investments
       Other investments include equity securities with no readily  determinable
       fair market value. These investments are carried at cost.

       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, 1998 and
       1997.

       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.  In  determining  the adequacy of the
       allowance  for loan losses,  management  uses a loan grading  system that
       rates loans in eight different categories.  Grades five through eight are
       assigned   allocations  of  loss  based  on  standard   regulatory   loss
       percentages  used in  regulatory  examinations,  while  loans  graded one
       through four are allocated  estimated  loss ranges based on targeted peer
       group percentages.  The combination of these results are compared monthly
       to the recorded  allowance for loan losses and material  differences  are
       adjusted by  increasing  or  decreasing  the  provision  for loan losses.
       Management  uses  an  external  loan  review  program  to  challenge  and
       corroborate  the  internal  loan  grading  system and provide  additional
       analysis in  determining  the  adequacy of the  allowance  and the future
       provisions for estimated loan losses.

       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  ("SFAS") No. 128 "Earnings
       Per Share" became  effective for the Company for the year ended  December
       31, 1997.  This 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.  Basic 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.

<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
       SFAS 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 statement
       requires the  reconciliation  of the amounts used in the  computation  of
       both  "basic  earnings  per  share" and  "diluted  earnings  per  share".
       Earnings per common share amounts for the years ended  December 31, 1998,
       1997 and 1996 are as follows:
<TABLE>
<CAPTION>

                                                                      For the Year Ended December 31, 1998

                                                               Net Earnings        Common Share           Per Share
                                                                (Numerator)        (Denominator)           Amount

<S>                                                       <C>                     <C>                 <C>  
     Earnings per common share                            $         844,306           1,460,812           $ .58
                                                                                                            ===
     Effects of dilutive stock options                               -                   17,149
                                                                 ----------         -----------
     Earnings per common share - assuming dilution        $         844,306           1,477,961           $ .57
                                                                    =======           =========             ===
</TABLE>
<TABLE>
<CAPTION>

                                                                      For the Year Ended December 31, 1997

                                                               Net Earnings          Common Share         Per Share
                                                                (Numerator)         (Denominator)          Amount

<S>                                                       <C>                      <C>                 <C>  
     Earnings per common share:                           $          621,998          1,460,570           $ .43
                                                                                                            ===
     Effects of dilutive stock options                                  -                13,670
                                                                 ------------       -----------
     Earnings per common share - assuming dilution         $         621,998          1,474,240           $ .42
                                                                     =======          =========             ===
</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           1,460,570           $ .37
                                                                                                           ====
     Effects of dilutive stock options                               -                    6,988
                                                               ------------        ------------
     Earnings per common share - assuming dilution         $        535,457           1,467,558           $ .36
                                                                    =======           =========             ===
</TABLE>

       Recent Accounting Pronouncements
       In 1998, the Financial  Accounting  Standards  Board issued SFAS No. 133,
       "Accounting for Derivative Instruments and Hedging Activities".  SFAS No.
       133 establishes accounting and reporting standards for hedging activities
       and for derivative  instruments including derivative instruments embedded
       in other contracts. It requires the fair value recognition of derivatives
       as assets or liabilities in the financial statements.  The accounting for
       the changes in the fair value of a derivative depends on the intended use
       of the derivative instrument at inception. Instruments used as fair value
       hedges account for the change in fair value in the earnings of the period
       simultaneous  with accounting for the fair value change of the item being
       hedged.  Cash flow  hedges  account  for the  change in fair value of the
       effective  portion in  comprehensive  income  rather than  earnings,  and
       foreign currency hedges are accounted for in comprehensive income as part
       of the  translation  adjustment.  Derivative  instruments  that  are  not
       intended as a hedge  account for the change in fair value in the earnings
       of the period of the  change.  SFAS No. 133 is  effective  for all fiscal
       quarters of all fiscal years  beginning  after June 15, 1999, but initial
       application  of the  statement  must be made as of the  beginning  of the
       quarter. At the date of initial  application,  an entity may transfer any
       held to  maturity  security  into  the  available  for  sale  or  trading
       categories  without  calling into  question  the entity's  intent to hold
       other  securities  to maturity in the future.  The Company  believes  the
       adoption of SFAS No. 133 will not have a material impact on its 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, 1998 and 1997,
are as follows:
<TABLE>
<CAPTION>

                                                                          December 31, 1998
                                                      Gross           Gross         Gross            Estimated
                                                    Amortized      Unrealized     Unrealized            Fair
                                                      Cost           Gains         Losses              Value
  U.S. Treasuries and U.S.
<S>                                            <C>               <C>            <C>              <C>      
    Government agencies                        $   4,862,282         7,513          6,345            4,863,450
  Mortgage-backed securities
    and collateralized mortgage
    obligations                                    8,412,144         8,861         59,860            8,361,145
  State and municipal Securities                   3,958,299        46,685         28,977            3,976,007
                                                   ----------       ------         ------           ----------

         Total                                 $  17,232,725        63,059         95,182           17,200,602
                                                  ==========        ======         ======           ==========
</TABLE>
<TABLE>
<CAPTION>


                                                                          December 31, 1997
                                                      Gross           Gross          Gross            Estimated
                                                    Amortized       Unrealized     Unrealized           Fair
                                                      Cost            Gains         Losses              Value
  U.S. Treasuries and U.S.
<S>                                            <C>               <C>            <C>              <C>       
    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>

       The  amortized  cost and fair value of  securities  available for sale at
       December 31, 1998, 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
                                                                                        Cost          Fair Value

<S>                                                                           <C>                  <C>      
    1 to 5 years                                                                  $    1,350,415       1,356,867
    5 to 10 years                                                                      2,512,319       2,506,270
    Over 10 years                                                                      4,957,847       4,976,320
    Mortgage-backed securities and collateralized
     mortgage obligations                                                              8,412,144       8,361,145
                                                                                     -----------     -----------

                                                                                  $   17,232,725      17,200,602
                                                                                      ==========      ==========
</TABLE>

       Proceeds from sales of securities available for sale during 1998 and 1997
       were $10,294,738 and $4,510,305, respectively. Gross gains of $48,987 and
       $2,587 and gross  losses of $25,075  and $5,361  were  realized  on those
       sales in 1998 and 1997,  respectively.  There were no sales of securities
       during 1996.

       Securities with a carrying value of approximately $5,781,000 and $700,000
       at  December  31,  1998 and 1997,  respectively,  were  pledged to secure
       public deposits and for other purposes.

       At December 31, 1998 and 1997, 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>
                                                                                         1998              1997
                                                                                         ----              ----

<S>                                                                              <C>                 <C>       
         Commercial                                                              $     11,993,435        12,181,292
         Real estate - mortgage                                                        31,380,152        23,392,894
         Real estate - construction and land development                                8,044,320         6,586,647
         Consumer                                                                       3,487,340         3,184,751
                                                                                      -----------       -----------
                                                                                       54,905,247        45,345,584
         Less: Allowance for loan losses                                                  740,617           696,679
                                                                                     ------------      ------------
         Net loans                                                               $     54,164,630        44,648,905
                                                                                       ==========        ==========
</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>

                                                                                    1998          1997          1996
                                                                                    ----          ----          ----
<S>                                                                          <C>              <C>           <C>    
         Balance at beginning of year                                        $    696,679        459,383       401,430
         Provision for loan losses                                                263,000        235,500        90,000
         Loans charged off                                                       (233,156)        (4,374)      (49,966)
         Recoveries on loans charged off                                           14,094          6,170        17,919
                                                                                 --------       --------      --------
         Balance at end of year                                              $    740,617        696,679       459,383
                                                                                  =======        =======       =======
</TABLE>

(4)    PREMISES AND EQUIPMENT
       Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 1998         1997

<S>                                                                                      <C>              <C>      
         Land                                                                            $     1,334,914     1,334,914
         Buildings and improvements                                                            1,179,164     1,157,414
         Equipment, furniture and fixtures                                                     1,172,522     1,045,461
                                                                                               ---------     ---------
                                                                                               3,686,600     3,537,789
         Less: Accumulated depreciation                                                          897,212       684,375
                                                                                              ----------    ----------
                                                                                         $     2,789,388     2,853,414
                                                                                               =========     =========
</TABLE>

Depreciation expense was approximately  $213,000,  $201,000 and $149,000 for the
years ended December 31, 1998, 1997 and 1996 respectively.

<PAGE>45
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(5)    EMPLOYEE AND DIRECTOR BENEFIT PLANS
       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's  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, 1998 and 1997,  the cash  surrender  value of the  insurance
       contracts  was  approximately  $890,000 and $858,000 and is included as a
       component of other assets.  Expenses approximating $32,200 and $19,200 in
       1998 and 1997, respectively,  were incurred for benefits relating to this
       plan. Income related to the insurance policies of approximately  $31,500,
       $42,200  and $16,200  was  included  in other  income for the years ended
       December 31, 1998, 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 1998, 1997 or 1996.

(6)    DEPOSITS
       At December 31, 1998, maturities of time deposits are as follows:

           Maturing In:
           1999                                               $      28,720,109
           2000                                                       3,108,010
           2001                                                       1,329,684
           2002                                                       2,220,621
           2003                                                       1,917,818
           Thereafter                                                     8,247
                                                                     ----------
                                                              $      37,304,489
                                                                     ==========

       Deposits  from  related  parties  totaled   approximately   $946,000  and
       $1,279,000  at December 31, 1998 and 1997.  Time  deposits of $100,000 or
       more were  approximately  $9,382,000 and $16,461,000 at December 31, 1998
       and 1997.

(7)    FEDERAL HOME LOAN BANK ADVANCES
       At December  31, 1998 had an advance  outstanding  from the Federal  Home
       Loan Bank (FHLB) of Atlanta in the amount of $3,000,000  which matures on
       October 16, 2003. The interest rate on the advance was 4.41%.  Investment
       securities were pledged to collateralize the advance.

(8)    INCOME TAXES
       The consolidated income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
 
                                                                                     1998          1997         1996
                                                                                     ----          ----         ----

<S>                                                                          <C>              <C>          <C>    
         Current tax expense                                                 $     423,915       430,557      204,444
         Deferred tax expense                                                      (68,028)      (91,675)      56,935
         Reduction in deferred tax valuation
         allowance                                                                  -             -           (35,271)
                                                                                 ---------     ---------    ---------
                                                                             $     355,887       338,882      226,108
                                                                                   =======       =======      =======
</TABLE>


<PAGE>46
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

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

                                                                                        1998       1997       1996
                                                                                        ----       ----       ----
<S>                                                                             <C>            <C>        <C>    
         Tax provision at statutory rate                                        $     408,066    326,699    258,932
         Reduction in deferred tax valuation allowance                                      -          -    (35,271)
         Tax exempt investment income                                                 (42,100)    (2,730)         -
         Other                                                                        (10,079)    14,913      2,447
                                                                                      -------   --------  ---------
                                                                                $     355,887    338,882    226,108
                                                                                      =======    =======    =======
</TABLE>
       The following  summarizes  the sources and expected tax  consequences  of
       future taxable deductions (income) which comprise the net deferred taxes.
<TABLE>
<CAPTION>
                                                                                                1998          1997
                                                                                                ----          ----
         Deferred income tax assets:
<S>                                                                                     <C>              <C>    
         Allowance for loan losses                                                      $     248,861       211,182
         Unrealized losses on securities available for sale                                    12,194         8,055
         Deferred compensation                                                                 41,578        17,472
         Deferred loan fees                                                                         -         7,125
         Other real estate writedowns                                                          18,980        29,094
         Operating loss and credit carryforwards and other                                     59,241        36,820
                                                                                             --------      --------
         Total gross deferred income tax assets                                               380,854       309,748
                                                                                              -------       -------
         Deferred income tax liabilities consisting of
           premises and equipment                                                             (37,271)      (28,158)
                                                                                              -------      --------
         Net deferred income taxes                                                      $     343,583       281,590
                                                                                              =======       =======
</TABLE>

(9)    STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
       On May 21, 1998, the Company's board of directors declared a five-for-two
       common stock split which was effected in the form of a stock dividend and
       was  distributed  on June 23,  1998.  Accordingly,  all numbers of common
       shares and per share data including par value and authorized  shares have
       been restated to reflect the stock split.

       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, 1998, the Bank
       could have  declared  dividends  without  prior  approval  of  regulatory
       authorities of approximately $477,000.


<PAGE>47
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(10)   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 100,000  shares
       of the Company's  common stock.  Options under this plan are granted at a
       rate of  2,038  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.

       A summary status of the  Directors'  Stock Option Plan as of December 31,
       1998,  1997 and 1996, and changes during the years ending on those dates,
       is presented below:
<TABLE>
<CAPTION>

                                                       1998                      1997                     1996
                                                           Wtd. Avg.                Wtd. Avg.                 Wtd. Avg.
                                               Option       Exercise     Option      Exercise      Option      Exercise
                                               Shares        Price       Shares       Price        Shares       Price

<S>                                            <C>       <C>          <C>          <C>        <C>             <C>         
         Outstanding, beginning of year        26,488      $ 4.04       14,263       $ 3.92             -            -
         Granted during the year               14,266      $ 4.55       12,225       $ 4.17        14,263       $ 3.92
         Cancelled during the year                  -           -            -            -             -            -
                                              -------                  -------                    -------

         Outstanding, end of year              40,754      $ 4.22       26,488       $ 4.04        14,263       $ 3.92
                                               ======                   ======                     ======

         Options exercisable at year end       40,754      $ 4.22       26,488       $ 4.04        14,263       $ 3.92
                                               ======                   ======                     ======
</TABLE>

       The weighted average remaining contractual life for these options is 8.55
       years at December 31, 1998.

       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 100,000  shares of the Company's  common  stock.  Options under
       this  plan  are  granted  at the  discretion  of the  Company's  Board of
       Directors  and 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.

       A summary status of the Employee  Incentive  Stock Option Plan's activity
       as of December  31, 1998 and 1997 and changes  during the years ending on
       those dates, is presented below:

<TABLE>
<CAPTION>
                                                       1998                      1997
                                                           Wtd. Avg.                 Wtd. Avg.
                                               Option       Exercise      Option      Exercise
                                               Shares        Price        Shares       Price

<S>                                          <C>         <C>            <C>       <C>          
         Outstanding, beginning of year         4,750       $ 5.00             -           -
         Granted during the year                5,000       $ 7.40         4,750     $ 5.00
         Cancelled during the year               (786)      $ 5.39             -           -
         Exercised during the year             (1,062)      $ 5.00             -           -
                                                -----                     ------    --------

         Outstanding, end of year               7,902       $ 6.28         4,750     $ 5.00
                                               ======                      =====

         Options exercisable at year end        7,902       $ 6.28         4,750     $ 5.00
                                               ======                     ======
</TABLE>

         The weighted  average  remaining  contractual life for these options is
         nine years at December 31, 1998.

<PAGE>48
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(10)   STOCK OPTIONS, continued
       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.  Both  director and employee  options are
       accounted for under  Accounting  Principles  Board Opinion No. 25 and its
       related  interpretations.  The Company recognized $15,000 of compensation
       expense in 1998 in connection with the issuance of director options.  Had
       compensation  cost  been  determined  based  upon the  fair  value of the
       options at the grant  dates  consistent  with the method of SFAS No. 123,
       the  Company's  net  earnings  and net earnings per share would have been
       reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>

                                                                      1998         1997         1996
                                                                      ----         ----         ----
       <S>                                                  <C>               <C>          <C>    
         Net earnings                       As reported     $       844,306      621,998      535,457
                                            Proforma        $       834,167      610,138      527,110

         Basic earnings per share           As reported     $           .58          .43          .37 
                                            Proforma        $           .57          .42          .36

         Diluted earnings per share         As reported     $           .57          .42          .36
                                            Proforma        $           .56          .41          .36
</TABLE>

       The  weighted  average  grant-date  fair value of all options  granted in
       1998, 1997 and 1996 was $1.64, $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  1998,  1997  and  1996,  respectively:
       dividend yield of 2%; risk free interest rates of 5.00%, 6.00% and 5.11%,
       respectively, and an expected life of 5 years.

(11)   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 1998:

             Beginning balance                                $    772,667
               Loans advanced                                      204,422
               Repayments                                         (627,799)
                                                                  --------

             Ending balance                                   $    349,290
                                                                   =======

(12)   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.

<PAGE>49
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

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

                                                                                                   December 31
                                                                                                   Approximate
                                                                                                 Contract Amount
                                                                                               1998            1997
               Financial  instruments  whose contract  amounts  represent credit
               risk:
<S>                                                                                      <C>             <C>       
                   Commitments to extend credit                                          $   16,268,000     16,086,000
                   Standby letters of credit and                                         $      607,000         59,000
                   financial guarantees written
</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, 1998 and 1997.

(13)   SUPPLEMENTAL FINANCIAL DATA
       Components of other operating expenses in excess of 1% of total  interest
       and other  income for the years ended  December 31, 1998,  1997  and 1996
       are as follows:

<TABLE>
<CAPTION>
                                                                                        1998         1997       1996
                                                                                        ----         ----       ----

<S>                                                                               <C>            <C>        <C>   
         Professional fees                                                        $     77,882      58,290     55,467
         Advertising and marketing                                                $     53,120      56,408     63,026
         Stationery and supplies                                                  $     75,807      75,190     62,065
         Data processing fees                                                     $    106,578     106,250     63,650
         Postage and courier                                                      $     48,781      46,590     47,587
         Merger expenses                                                          $     77,834           -          -

</TABLE>

<PAGE>50
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(14)     GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>

                                 Balance Sheets
                           December 31, 1998 and 1997
                                     Assets
                                                                                                1998          1997
                                                                                                ----          ----

<S>                                                                                   <C>              <C>   
  Cash                                                                                  $      34,475        11,515
  Investment in bank subsidiary                                                             7,331,085     6,609,267
  Other assets                                                                                 51,564        29,995
                                                                                          -----------   -----------
                                                                                            7,417,124     6,650,777

  Liabilities and Stockholders' Equity

  Accrued expenses                                                                             55,000        -

  Stockholders' equity                                                                      7,362,124     6,650,777
                                                                                            ---------     ---------

                                                                                        $   7,417,124     6,650,777
                                                                                            =========     =========
</TABLE>
<TABLE>
<CAPTION>

                             Statements of Earnings

              For the Years Ended December 31, 1998, 1997 and 1996

                                                                                    1998         1997          1996
                                                                                    ----         ----          ----
  Income:
<S>                                                                          <C>           <C>           <C>
     Interest income                                                         $       652          341           608
     Dividends from bank subsidiary                                              225,716      116,844        87,634
     Other income                                                                    300        -             -    
                                                                                 -------      -------      --------

                                                                                 226,668      117,185        88,242
                                                                                 -------      -------      --------


  Other operating expenses                                                       167,608       26,824        19,633
                                                                                 -------       ------      --------

     Earnings before income taxes and equity in
       undistributed earnings of bank subsidiary                                  59,060       90,361        68,609

  Income tax benefit                                                              56,663        9,004         8,248
                                                                                --------    ---------      --------

  Earnings before equity in undistributed earnings
       of bank subsidiary                                                        115,723       99,365        76,857
  Equity in undistributed earnings of bank subsidiary                            728,583      522,633       458,600
                                                                                 -------      -------       -------

              Net earnings                                                   $   844,306      621,998       535,457
                                                                                 =======      =======       =======
</TABLE>


<PAGE>51


                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued


(14)     GEORGIA BANCSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
         continued
                            Statements of Cash Flows

              For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                                                                1998           1997            1996
                                                                                ----           ----            ----
  Cash flows from operating activities:
<S>                                                                    <C>               <C>             <C>    
     Net earnings                                                      $     844,306        621,998         535,457
     Adjustments to reconcile net earnings to net cash
       provided by operating activities:
         Equity in undistributed earnings of bank subsidiary                (728,583)      (522,633)       (458,600)
         Amortization and depreciation                                        24,295          9,892           9,382
         Change in other assets                                              (45,864)          (899)         (5,030)
         Change in other liabilities                                          55,000              -              - 
                                                                            --------       --------        --------
                Net cash provided by operating activities                    149,154        108,358          81,209
                                                                             -------        -------         -------

  Cash flows from financing activities:
    Payments of dividends                                                   (131,504)      (116,844)        (87,634)
    Proceeds from exercise of stock options                                    5,310              -               -
                                                                            --------      ---------         --------
                Net cash used by financing activities                       (126,194)      (116,844)        (87,634)
                                                                             -------        -------         --------

  Net change in cash                                                          22,960         (8,486)         (6,425)
  Cash at beginning of the period                                             11,515         20,001          26,426
                                                                              ------       --------        --------

  Cash at end of period                                                $      34,475         11,515          20,001
                                                                              ======       ========        ========

  Supplemental disclosure of noncash investing activities:
    Change in unrealized loss on investment securities available
      for sale of bank subsidiary, net of tax                          $      (6,765)        49,857         (81,752)
                                                                              ======       ========        ========
</TABLE>

(15)   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, 1998 and 1997,  that the Company meets all capital  adequacy
       requirements to which it is subject.

<PAGE>52
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(15)   REGULATORY MATTERS, continued
       As of December  31, 1998 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, 1998
Total Capital (to Risk Weighted Assets):
<S>                                   <C>               <C>      <C>           <C>       <C>             <C> 
     Consolidated                       $   8,228,591      12.6%    5,222,185     >8.0%          N/A       N/A    
     Bank only                          $   8,197,552      12.6%    5,219,120     >8.0%    6,523,900       >10.0%

    Tier 1 Capital (to Risk Weighted Assets):
     Consolidated                       $   7,487,974      11.5%    2,611,092     >4.0%          N/A       N/A
     Bank only                          $   7,456,935      11.4%    2,609,560     >4.0%    3,914,340        >6.0%

    Tier 1 Capital (to Average Assets):
     Consolidated                       $   7,487,974       9.8%    3,072,059     >4.0%          N/A       N/A
     Bank only                          $   7,456,935       9.7%    3,070,527     >4.0%    3,838,159        >5.0%

  As of December 31, 1997
    Total Capital (to Risk Weighted Assets):
     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%    3,370,202       > 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%
                                                                                  -                         -
</TABLE>

(16)   PROPOSED MERGER
       On December  29, 1998,  the Board of  Directors  approved an agreement to
       merge with First  Sterling  Banks,  Inc.  (First  Sterling),  a Marietta,
       Georgia based bank holding company. The agreement calls for each share of
       Company  stock to be  exchanged  for one share of First  Sterling  common
       stock. The transaction is subject to stockholder and regulatory approval.




<PAGE>53
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(17)  Fair Value of Financial Instruments
      SFAS No. 107,  "Disclosures  about Fair Value of  Financial  Instruments",
      requires disclosure of fair value information about financial instruments,
      whether or not recognized on the face of the balance  sheet,  for which it
      is  practicable  to  estimate  that  value.  The  assumptions  used in the
      estimation of the fair value of the company's  financial  instruments  are
      detailed  below.  Where quoted prices are not  available,  fair values are
      based on  estimates  using  discounted  cash  flows  and  other  valuation
      techniques. The use of discounted cash flows can be significantly affected
      by the  assumptions  used,  including  the discount  rate and estimates of
      future cash flows.  The following  disclosures  should not be considered a
      surrogate of the liquidation value of the Company, but rather a good-faith
      estimate of the  increase or  decrease in value of  financial  instruments
      held by the Company since purchase, origination, or issuance.

      Cash and Cash Equivalents
      For cash and due from banks and federal funds sold, the carrying amount is
      a reasonable estimate of fair value.

      Investment Securities
      Fair values for investment securities are based on quoted market prices.

      Other Investments
      The carrying value of other investments approximates fair value.

      Loans
      The fair value of fixed rate loans is estimated by discounting  the future
      cash flows using the current rates at which similar loans would be made to
      borrowers  with  similar  credit  ratings.  For variable  rate loans,  the
      carrying amount is a reasonable estimate of fair value.

      Deposits
      The fair value of demand  deposits,  savings  accounts,  NOW  accounts and
      certain  money  market  deposits  is the  amount  payable on demand at the
      reporting  date. The fair value of fixed maturity  certificates of deposit
      is estimated by discounting the future cash flows.

      FHLB Advances
      The fair value of the FHLB  fixed  rate  borrowings  are  estimated  using
      discounted cash flows,  based on the current  incremental  borrowing rates
      for similar types of borrowing arrangements.

      Commitments  to Extend  Credit,  Standby  Letters of Credit and  Financial
      Guarantees  Written  Because  commitments  to extend  credit  and  standby
      letters of credit are made using variable  rates,  the contract value is a
      reasonable estimate of fair value.

      Limitations
      Fair  value  estimates  are made at a  specific  point  in time,  based on
      relevant  market   information   and   information   about  the  financial
      instrument.  These  estimates do not reflect any premium or discount  that
      could  result  from  offering  for sale at one time the  Company's  entire
      holdings of a particular  financial  instrument.  Because no market exists
      for a significant  portion of the Company's  financial  instruments,  fair
      value  estimates  are  based  on  many  judgments.   These  estimates  are
      subjective in nature and involve  uncertainties and matters of significant
      judgment and therefore  cannot be determined  with  precision.  Changes in
      assumptions could significantly affect the estimates.

      Fair  value  estimates  are  based on  existing  on and  off-balance-sheet
      financial   instruments  without  attempting  to  estimate  the  value  of
      anticipated  future business and the value of assets and liabilities  that
      are  not  considered   financial   instruments.   Significant  assets  and
      liabilities that are not considered financial instruments include deferred
      income   taxes  and  premises  and   equipment.   In  addition,   the  tax
      ramifications  related  to the  realization  of the  unrealized  gains and
      losses can have a significant  effect on fair value estimates and have not
      been considered in the estimates.

<PAGE>54
                     GEORGIA BANCSHARES, INC. AND SUBSIDIARY

              Notes to Consolidated Financial Statements, continued

(17)  Fair Value of Financial Instruments, continued
      The carrying  amount and estimated fair values of the Company's  financial
      instruments as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>


                                                                         Carrying     Estimated
                                                                          Amount      Fair Value
           Assets:
<S>                                                        <C>                      <C>      
           Cash and cash equivalents                       $            6,085,026      6,085,026
           Securities available for sale                   $           17,200,602     17,200,602
           Other investments                               $              228,300        228,300
           Loans, net                                      $           54,164,630     54,411,982

           Liabilities:
           Deposits                                        $           71,851,638     72,108,998
           Federal Home Loan Bank advances                 $            3,000,000      2,909,732

           Unrecognized financial instruments:
           Commitments to extend credit                    $           16,268,000     16,268,000
           Standby letters of credit                       $              607,000        607,000



</TABLE>

<PAGE>55

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

                                                   Bank Management

         The following sets forth the name, age and principal occupation of each
         director of Georgia Bancshares, Inc. (the Company"):

Name                       Age              Principal Occupation

                                          
Eugene L. Argo             66               Eugene  L.  Argo  is  President   of
                                            Stacy's  Pharmacy,  Inc.   He   also
                                            serves as Vice President of  Medical
                                            Therapies, Inc.

James L. Armstrong, Jr.    59               James L. Armstrong, Jr. is the owner
                                            of Jim Armstrong Insurance Agency.

Ted A. Murphy              62               Ted A. Murphy is President and Chief
                                            Executive  Officer of Community Bank
                                            of Georgia.  Mr.  Murphy  began  his
                                            banking  career with First  National
                                            Bank of Atlanta in 1954 and worked
                                            in  several  operational  areas  of 
                                            the  bank.  In  1961,  he  joined  
                                            The Citizens and Southern  National
                                            Bank. In 1969,  Mr. Murphy helped 
                                            establish a new State Bank  Charter
                                            in  Clarkston,  Georgia  (Citizens  
                                            Bank of  Clarkston,  later Citizens
                                            DeKalb  Bank).  He  served  Citizens
                                            DeKalb  Bank  in the  capacity  of
                                            President,  CEO and  Chairman of the
                                            Board of  Directors  until 1986 when
                                            the bank  was   purchased  by  First
                                            Union.  After this  acquisition, Mr.
                                            Murphy served  First  Union  in  the
                                            area of Branch Supervision.

H. E. Norton                67              H.E. Norton is President of Norco, 
                                            Inc. and its insurance agency 
                                            subsidiaries.

<PAGE>56

Robert C. Pittard           57              Robert C. Pittard is the President 
                                            of Tucker Concrete Company, Inc.

Larry N. Reed               52              Larry  N.  Reed  is   a   partner   
                                            with   the    public accounting 
                                            firm of Reed, Quinn & McClure.

Dr. Dean T. Teusaw          58              Dr. Dean T. Teusaw is engaged in 
                                            the practice of dentistry.

         On July 16, 1998, Mr. Thomas M. Carnes retired from the Board  and  was
elected Director Emeritus.

         All of the Company's directors (except Mr. Pittard and Mr. Reed who was
appointed  to the  Board in 1996 and  1998,  respectively)  have  served in such
capacity  since its  inception in 1995.  The  directors are elected on staggered
terms of three years each. Messrs. Argo and Murphy are incumbent directors whose
terms expire in 1998;  Messrs.  Norton and Teusaw are incumbent  directors whose
terms  expire in 1999;  and Messrs.  Armstrong,  Reed and Pittard are  incumbent
directors   whose  terms  expire  in  2000.   There  are  no   arrangements   or
understandings  between the Company and any person  pursuant to which any of the
above  persons  have  been or will be  elected a  director.  There are no family
relations  between any of the directors or executive  officers of the Company or
the Bank.

         Ted A. Murphy has been the President and Chief Executive Officer of the
Bank since its organization.  Background  information on Mr. Murphy is set forth
above.

         Joel  Taylor,  Jr., age 49,  joined the Bank in 1998 as Executive  Vice
President and Senior Credit  Officer.  Mr. Taylor has been  associated  with the
banking and financial industries for approximately twenty-five years. Mr. Taylor
served as a Regional  President for Bank South  Corporation (now NationsBank) in
Lawrenceville,  Georgia from May 1992 until April 1996.  From May 1996 until his
employment by the Bank, he served as Chief  Financial  Officer and co-founder of
Assist, Inc. an entrepreneurial venture in Lexington, South Carolina.

         David  L.  Edgar,  age 36,  joined  the  Bank in  1995 as  Senior  Vice
President and Chief  Financial  Officer.  Mr. Edgar has been associated with the
banking  industry  for  approximately   thirteen  years.  The  majority  of  his
experience  has been with the public  accounting and  consulting  industry.  Mr.
Edgar  served  as Vice  President-Management  Advisory  Services  for  Bricker &
Melton,  P.A. in Duluth,  Georgia from  December  1990 until  August 1994.  From
August 1994 until his employment by Community Bank of Georgia, he served as Vice
President and Chief  Financial  Officer of a local  federally  chartered  credit
union in Atlanta, Georgia.

<PAGE>57
                       Meetings of the Board of Directors

         The Board of  Directors  of the Company had 9 meetings  during the 1998
fiscal  year.  Each  director of the Company  attended at least 75% of the board
meetings and committee  meetings of which such director was a member.  The Board
of  Directors  of the Bank had 15  meetings  during the 1998 fiscal  year.  Each
director of the Bank attended at least 75% of the total number of board meetings
of the Bank.

         The  Board  of  Directors  of  the  Company  has a  Stock  Option  Plan
Committee.  The Board of Directors of the Bank has an Executive Committee,  Loan
Committee,  Compensation/Personnel  Committee,  Audit  Committee and  Investment
Committee.

ITEM 10. EXECUTIVE COMPENSATION

                COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Executive Compensation

         The Company  does not  separately  compensate  any of its  directors or
executive officers.  The following sets forth certain information concerning the
compensation  of the Bank's chief  executive  officer  during fiscal years 1998,
1997 and 1996. No other executive officer received annual compensation in excess
of $100,000.
<TABLE>
<CAPTION>

                                             Summary Compensation Table
                                                                                         Long Term
                                                                                        Compensation
                                  Annual Compensation                                      Awards  
                                                                                         Securities
Name and                                                             Other Annual        Underlying    All Other
Principal                Fiscal                                      Compensation        Options       Compensation
Position                 Year         Salary ($)      Bonus ($)        ($)(1)                (#)(2)         ($)(3)
--------                 ----         ----------      ---------      ------------        ------------  -----------


<S>                    <C>           <C>             <C>           <C>                    <C>        <C>    
Ted A. Murphy            1998          $138,400        $0            $     -                3,288      $ 7,000
President and Chief      1997          $129,938       $37,201(4)     $     *                3,288      $ 6,497
Executive Officer        1996          $118,125       $18,281        $     *                2,038      $ 5,907

</TABLE>

(1)      Compensation  does not  include  any  perquisites  and  other  personal
         benefits which may be derived from  business-related  expenditures that
         in the  aggregate  do not  exceed  the  lesser of $50,000 or 10% of the
         total annual salary and bonus reported for such person.

(2)      The Company  granted 2,038 stock options to Mr. Murphy  pursuant to the
         Company's  Directors Stock Option Plan, all of which became exercisable
         in 1998,1997 and 1996. In addition,  the Company  granted 1250 and 1250
         stock options to Mr. Murphy  pursuant to the Company's  Employee  Stock
         Option Plan, all became exercisable in 1998 and 1997.

(3)      Mr.  Murphy  received a 5%  employee  compensation  bonus from the Bank
         equal to $7,000, $6,497, $5,907 in 1998, 1997 and 1996 respectively.

(4)      (4)Includes (a) 1996 Bank bonus of $17,719 paid in January 1997 and (b)
         1997 Bank bonus of $19,491 paid in December 1997.

<PAGE>58
The following table sets forth certain  information  concerning each grant(1) of
stock options to purchase the Company's common stock made during the 1998 fiscal
year to the executive officer named in the Summary Compensation Table:

<TABLE>
<CAPTION>
                                          Option Grants in Last Fiscal Year

                                                  Individual Grants                          

                                     Number of         % of Total
                                     Securities        Options
                                     Underlying        Granted to         Exercise or Base
                                     Options           Employees in       Price                 Expiration
       Name                          Granted (#)       Fiscal Year        ($/Sh)                Date

<S>                                <C>                 <C>               <C>                <C> 
Ted A. Murphy                         3,288               26%               (2)..              6/1/2007

</TABLE>


 (1)      The Company  granted 2,038 stock options to Mr. Murphy pursuant to the
          Company's Directors Stock Option Plan, all of which became exercisable
          in 1997. In addition,  the Company  granted 1,250 stock options to Mr.
          Murphy pursuant to the Company's Employee Incentive Stock Option Plan,
          all of which became exercisable in 1998.

(2)       The  exercise  price  of the  2,038  shares  granted  pursuant  to the
          Company's Directors Stock Option Plan is $4.55 per share. The exercise
          price of the 500 shares  granted  pursuant to the  Company's  Employee
          Incentive Stock Option Plan is $7.40 per share.

The  following  table sets forth certain  information  regarding the exercise of
stock  options in the 1998 fiscal  year by the  executive  officer  named in the
Summary  Compensation  Table and the  value of  options  held by such  executive
officer at the end of such fiscal year:

<TABLE>
<CAPTION>
                                  Aggregated Option Exercises in Last Fiscal Year
                                          and Fiscal Year-End Option Values


                                                                          Number of             
                                                                          Securities            
                                                                          Underlying            
                                                                          Unexercised           Value of Unexercised
                                                                          Options at            In-the-Money Options
                                                                          FY-End (#)            at FY-End ($)

                                    Shares Acquired    Value Realized     Exercisable/          Exercisable/
             Name                   on Exercise (#)    ($)                Unexercisable         Unexercisable(1)


<S>                                     <C>                 <C>                  <C>         <C>     
Ted A. Murphy                              0                   0                    0           $62,108/$0
</TABLE>

(1)       Market value of shares covered by  in-the-money  options,  less option
          exercise  price.  Options are in the money if the market  value of the
          shares covered thereby is greater than the option exercise price.

Employment Agreement

     Ted A.  Murphy is the  President  and Chief  Executive  Officer of the Bank
pursuant to an  Employment  Agreement.  This  agreement  provides  for a term of
employment  terminating  on December  31, 2000,  unless an extension  thereto is
agreed  to by the  parties.  The  agreement  provides  that  Mr.  Murphy  may be
terminated  upon his death,  disability  or for "cause." Mr.  Murphy may also be
terminated  without  cause.  If terminated  without  cause,  Mr. Murphy would be
entitled to receive  severance  compensation  in the amount of his gross monthly
compensation  at the time of said  termination  for a period  of 24  consecutive
months or the  remainder  of the term of the  Agreement  whichever  is  greater.
Medical and disability benefits for Mr. Murphy and his family would be continued
during  the  24-month  period  or the  remainder  of the  term of the  Agreement
whichever  is  greater at no expense to Mr.  Murphy.  Mr.  Murphy  would also be
entitled to receive severance compensation if a change of control of the Company
occurs and his  duties are  changed  in  connection  therewith  so that he is no
longer  functioning  as the Bank's  Chief  Executive  Officer or he is no longer
given the title of President and Chief Executive Officer.


<PAGE>59

     Under the Employment Agreement, Mr. Murphy will receive an annual base
salary through December 31, 1999 in the amount of $145,320.  His annual base
salary will be increased by 5% for the year 2000 to $152,586.  In addition, Mr.
Murphy will receive a performance bonus if certain targeted goals for the Bank's
performance are met, in an amount equal to 10% to 20% of annual base salary.
The Employment Agreement also provides for group health insurance for Mr. Murphy
and his immediate family, an allowance for country club or dining memberships in
an amount not to exceed $7,500 annually, a monthly car allowance (or in lieu
thereof a Bank-owned automobile), expenses for attendance at two trade 
association conventions and four weeks paid vacation. 

     David L. Edgar is the Senior Vice President and Chief Financial  Officer of
the Bank pursuant to an Employment Agreement. This agreement provides for a term
of employment  terminating on December 31, 1999,  unless an extension thereto is
agreed  to by  the  parties.  The  agreement  provides  that  Mr.  Edgar  may be
terminated  upon his death,  disability  or for  "cause."  Mr. Edgar may also be
terminated  without  cause.  If  terminated  without  cause,  Mr. Edagr would be
entitled to receive  severance  compensation  in the amount of his gross monthly
compensation  at the time of said  termination  for a period  of 12  consecutive
months.  Medical and  disability  benefits for Mr. Edgar and his family would be
continued  during  the  12-month  period  or the  remainder  of the  term of the
Agreement  whichever is greater at no expense to Mr.  Edgar.  Mr. Edgar has also
been provided with a Change of Control Contract, which expires July 1, 2001. Mr.
Edgar is entitled to receive  severance  compensation  if a change of control of
the Company occurs and his duties are changed in connection therewith so that he
is no longer  functioning  as the  Bank's  Chief  Executive  Officer or he is no
longer given the title of Senior Vice President and Chief Financial Officer.

   Under the  Employment  Agreement,  Mr.  Edgar will   receive  an  annual base
salary  through  December  31, 1999 in the amount of $80,000. In addition to Mr.
Edgar's  annual base salary,  Mr.  Edgar will receive a  performance  bonus if
certain targeted goals for the Bank's performance are met, in an amount equal to
12% of annual base salary.  The  Employment  Agreement  also provides for
group health insurance for Mr. Edgar  and  his  immediate  family,  expenses for
attendance at one trade association conventions and three weeks paid vacation.

Director Compensation

The Company  does not  compensate  any of its  directors  for their  services as
directors.  The directors of the Bank receive $400.00 for each board meeting and
$75.00 for each committee meeting.

<PAGE>60

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 
                  OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS                                                  

The  following  table sets forth  certain  information  regarding  the shares of
common  stock of the Company  owned as of the record date (i) by each person who
beneficially  owns more than 5% of the  shares of common  stock of the  Company,
(ii) by each of the Company's directors and (iii) by all directors and executive
officers of the Company as a group.

                                                       Beneficial Ownership(2)
                                                  Number            Percentage
          Name(1)                               of Shares            Ownership 

         Eugene L. Argo(3)                       144,473                9.9%
         James L. Armstrong, Jr.(9)               68,404                4.6
         Thomas M. Carnes(4)                      26,500                1.8
         Ted A. Murphy(5)                         40,618                2.7
         H. E. Norton(6)                          56,114                3.8
         Dr. Dean T. Teusaw(7)                    21,814                1.5
         Robert C. Pittard(8)                      3,288                  *
         Larry Reed                                    0                  *

         All directors and executive
         officers as a group (10 persons)        355,689               24.3%


*        Percent share ownership is less than 1% of total shares outstanding.

(1)      Except as  otherwise  indicated,  the persons  named in the above table
         have sole voting and investment  power with respect to all shares shown
         as  beneficially  owned  by  them.  The  information  as to  beneficial
         ownership has been  furnished by the  respective  persons listed in the
         above table.

(2)      Based on 1,461,632 shares outstanding as of the record date plus 48,656
         shares not  outstanding  but which are subject to options  granting the
         holders  thereof the right to acquire the shares within 60 days through
         the exercise of options.

(3)      Includes  54,152  shares which are held of record by Mr.  Argo's spouse
         and as to which he  disclaims  beneficial  ownership  and 6,114  shares
         representing unexercised options.

(4)      Includes  3,489 shares which are held of record by Mr.  Carnes'  spouse
         and 6,114 shares representing unexercised options.

(5)      Includes  12,004 shares which are held of record by Mr. Murphy's spouse
         and as to which he  disclaims  beneficial  ownership  and 8,614  shares
         representing unexercised options.

(6)      Includes  25,000 shares which are held of record by Mr. Norton's spouse
         and 6,114 shares representing unexercised options.

(7)      Includes (a) 250 shares which are held of record by Dr. Teusaw's spouse
         and as to which he disclaims beneficial ownership,  (b) 500 shares held
         for Dr. Teusaw's minor children and as to which he disclaims beneficial
         ownership and (c) 6,114 shares representing unexercised options.

(8)      Includes  625 shares which are held of record by Mr.  Pittard's  spouse
         and 2,038 shares representing unexercised options.

(9)      Includes 6,114 shares representing unexercised options.

<PAGE> 61
                               Compliance with Section 16(A) of
                              The Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange Act requires the  Company's
officers and directors, and persons who own 10% or more of a registered class of
the  Company's  equity  securities,  to file with the  Securities  and  Exchange
Commission  initial  reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors and
10% or more  stockholders  are required by  Securities  and Exchange  Commission
regulations  to furnish the Company with copies of all Section  16(a) forms they
file.

         To the  Company's  knowledge,  based  solely on review of the copies of
such reports furnished to the Company or written  representations  that no other
reports were  required,  during the fiscal year ended  December  31,  1997,  the
Company believes that all reports applicable to its officers, directors, and 10%
or more stockholders were complied within timely fashion.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


      Certain executive officers and directors of the Company and the Bank,
and principal  shareholders  of the Company and affiliates of such persons have,
from  time to  time,  engaged  in  banking  transactions  with  the Bank and are
expected  to  continue  such  relationships  in the  future.  All loans or other
extensions  of  credit  made by the Bank to such  individuals  were  made in the
ordinary course of business on substantially the same terms,  including interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with  unaffiliated  parties and were believed by management to not
involve  more  than  the  normal  risk of  collectibility  or to  present  other
unfavorable  features.  As of December  31,  1998,  indebtedness  to the Bank of
executive  officers  and  directors of the Company and the Bank,  and  principal
shareholders of the Company,  including affiliates of such persons,  amounted to
$349,290 in the aggregate.



                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]








<PAGE>62

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.
         10.3     Change of Control Contract between David L. Edgar and 
                  Community Bank of Georgia dated as of April 30, 1998.
         10.4     Employment Contract between David L. Edgar and Community Bank
                  of Georgia dated January 1, 1999.
         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

                  On January 14, 1999,  the Company filed a Form 8-K  announcing
         the Company entered into a definitive agreement to merger with and into
         First  Sterling Banks ("First  Sterling").  First Sterling would be the
         surviving  corporation.  The consummation of the merger remains subject
         to  certain  conditions  that  must  be  satisfied  prior  to  closing,
         including  the receipt of  shareholder  approval of both  institutions,
         appropriate  regulatory  approvals  and other  customary  conditions of
         closing.




<PAGE>63
                                   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 29, 1999.

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 29, 1999.

    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/ Robert C.Pittard                     Director
Robert C. Pittard

/s/ Larry N. Reed                        Director
Larry N. Reed

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

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



<PAGE>64

                               INDEX OF EXHIBITS
       Exhibit
       Numbers        Description of Exhibit
        
         10.3     Change of Control Contract between David L. Edgar and 
                  Community Bank of Georgia dated as of April 30, 1998.
         10.4     Employment Contract between David L. Edgar and Community Bank
                  of Georgia dated January 1, 1999.