EXHIBIT 13.1

                       2003 ANNUAL REPORT TO SHAREHOLDERS


MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION.

INDEPENDENT AUDITOR'S REPORT.

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.





<PAGE>
                      MARKET FOR THE COMPANY'S COMMON STOCK
                         AND RELATED SHAREHOLDER MATTERS

     There  is currently no market for the Company's shares of Common Stock, and
it  is  not  likely that an active trading market will develop for the shares in
the  future.  There  are  no  present plans for the Company's Common Stock to be
traded  on  any  stock  exchange of over-the-counter market.  As of December 31,
2003,  there  were  approximately  614 holders of record of the Company's Common
Stock  and  1,825,000  shares  of  Common  Stock  issued  and  outstanding.

     No cash dividends have been paid to date on the Company's Common Stock, and
it  is  anticipated that earnings will be retained for the foreseeable future to
support  the Company's rapid growth and expansion.  The Company currently has no
source of income other than dividends and other payments received from the Bank.
The  amount  of dividends that may be paid by the Bank to the Company depends on
the  Bank's  earnings  and  capital position and is limited by federal and state
law,  regulation  and  policies.

     The Company has only one compensation plan that allows for shares of Common
Stock  to  be  issued  upon  the  exercise  of  outstanding stock options, or in
connection  with  other  stock  based  awards  to  key employees.  The Company's
Long-Term Incentive Plan (the "Incentive Plan") was adopted effective January 1,
2000  and approved by the shareholders at the 2000 Annual Meeting.  The terms of
the Incentive Plan authorize the Company's Board of Directors to issue awards to
key employees of the Bank, which may consist of stock options, restricted stock,
stock  appreciation  rights  or performance shares.  The rate of vesting, option
price,  term  and  other  conditions  applicable to such awards are fixed by the
Board  of  Directors  in  such  award.  However, the terms of the Incentive Plan
provide  that  all outstanding awards shall automatically be fully vested in the
event  of any change in control of the Company or the Bank.  The following table
sets  out  certain  information with respect to the currently outstanding awards
under  the  Incentive  Plan.

<TABLE>
<CAPTION>
                                    NUMBER OF SECURITIES         WEIGHTED AVERAGE        NUMBER OF SECURITIES
                                     TO BE ISSUED UPON          EXERCISE PRICE OF      REMAINING AVAILABLE FOR
                                  EXERCISE OF OUTSTANDING      OUTSTANDING OPTIONS,     FUTURE ISSUANCE UNDER
                                OPTIONS, WARRANTS AND RIGHTS   WARRANTS AND RIGHTS    EQUITY COMPENSATION PLANS
                                ----------------------------  ----------------------  --------------------------
                                            (a)                        (b)                       (c)
                                ----------------------------  ----------------------  --------------------------
<S>                             <C>                           <C>                     <C>
Equity Compensation Plans                             24,500  $                 8.33                     135,500
  approved by security holders
Equity Compensation Plans not                              -                       -                           -
  approved by security holders
                                ----------------------------  ----------------------  --------------------------
Total                                                 24,500  $                 8.33                     135,500
                                ----------------------------  ----------------------  --------------------------
</TABLE>



<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The  following  is  a  discussion  of  our financial condition and the financial
condition  of  our  bank  subsidiary,  The  Citizens  Bank of Forsyth County, at
December  31,  2003  and  2002  and the results of operations for the years then
ended.  The  purpose  of  this  discussion  is to focus on information about our
financial  condition  and  results of operations that are not otherwise apparent
from our audited consolidated financial statements.  Reference should be made to
those  statements  and  the  selected financial data presented elsewhere in this
report  for  an  understanding  of  the  following  discussion  and  analysis.

FORWARD-LOOKING  STATEMENTS

We  may  from  time  to  time  make  written or oral forward-looking statements,
including  statements  contained in our filings with the Securities and Exchange
Commission  and  our  reports  to stockholders.  Statements made in this report,
other  than  those  concerning  historical  information,  should  be  considered
forward-looking and subject to various risks and uncertainties.  Forward-looking
statements  are  made based upon management's belief as well as assumptions made
by, and information currently available to, management pursuant to "safe harbor"
provisions  of the Private Securities Litigation Reform Act of 1995.  Our actual
results  may  differ  materially from the results anticipated in forward-looking
statements  due  to  a  variety  of factors, including governmental monetary and
fiscal policies, deposit levels, loan demand, loan collateral values, securities
portfolio  values,  interest rate risk management, the effects of competition in
the  banking  business  from  other  commercial banks, thrifts, mortgage banking
firms,  consumer  finance  companies, credit unions, securities brokerage firms,
insurance  companies,  money  market  funds  and  other  financial  institutions
operating  in  our  market  area and elsewhere, including institutions operating
through the Internet, changes in governmental regulation relating to the banking
industry,  including regulations relating to branching and acquisitions, failure
of  assumptions  underlying  the  establishment  of  reserves  for  loan losses,
including the value of collateral underlying delinquent loans and other factors.
We  caution that these factors are not exclusive.  We do not undertake to update
any  forward-looking  statement  that may be made from time to time by us, or on
our  behalf.

CRITICAL  ACCOUNTING  POLICIES

We  have  adopted  various  accounting  policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of  our  financial statements. Our significant accounting policies are described
in  the  footnotes to the consolidated financial statements at December 31, 2003
as  filed  on  our  annual  report  on  Form  10-KSB.

Certain  accounting policies involve significant judgments and assumptions by us
which  have  a  material  impact  on  the  carrying  value of certain assets and
liabilities.  We  consider  these  accounting policies to be critical accounting
policies.  The  judgments  and  assumptions  we  use  are  based  on  historical
experience  and  other  factors,  which  we  believe  to be reasonable under the
circumstances.  Because  of the nature of the judgments and assumptions we make,
actual  results could differ from these judgments and estimates which could have
a  material  impact  on  our  carrying  values of assets and liabilities and our
results  of  operations.

We  believe  the  allowance for loan losses is a critical accounting policy that
requires the most significant judgments and estimates used in preparation of our
consolidated  financial statements. Refer to the portion of this discussion that
addresses  our  allowance for loan losses for a description of our processes and
methodology  for  determining  our  allowance  for  loan  losses.


<PAGE>
OVERVIEW

Our  2003 results continued to show increased profitability due to the continued
loan  growth  and  deposit  growth  despite  the  sluggish growth of the current
economy.  Our net income increased to $842,135, as compared to $638,240 in 2002,
primarily  due  to  the decreasing cost of funds.  With Forsyth County remaining
one  of  the  fastest  growing  areas in the country, we have purchased a future
branch  site  and  continue to seek desirable locations to meet the needs of the
community.

We  were  able  to  raise  $425,000  in capital through several of our directors
exercising stock options granted to them in the year 2002.  1.825 million shares
were  outstanding  at December 31, 2003.  The additional capital will be used to
fund  the  bank's  growth.

FINANCIAL CONDITION AT DECEMBER 31, 2003 AND 2002

The following is a summary of our balance sheet for the years indicated:

<TABLE>
<CAPTION>
                                                        December 31,
                                                     -------------------
                                                       2003       2002
                                                     ---------  --------
<S>                                                  <C>        <C>
                                                    (Dollars in Thousands)

Cash and due from banks                              $   3,616  $  1,903
Interest-bearing deposits in banks                         224       214
Federal funds sold                                       4,467     3,461
Securities                                              24,985    18,950
Loans, net                                              81,921    69,661
Premises and equipment                                   5,324     5,334
Other assets                                               812       686
                                                     ---------  --------

                                                     $ 121,349  $100,209
                                                     =========  ========


Total deposits                                       $ 107,724  $ 87,966
Other liabilities                                          753       467
Stockholders' equity                                    12,872    11,776
                                                     ---------  --------

                                                     $ 121,349  $100,209
                                                     =========  ========
</TABLE>

As  of  December 31, 2003, we had total assets of $121.3 million, an increase of
21.10%  over  December  31,  2002.  Total  interest-earning  assets  were $112.6
million  at  December  31,  2003  or 92.8% of total assets as compared to 93% of
total  assets  at  December  31,  2002.  Our  primary interest-earning assets at
December  31,  2003  were  loans,  which made up 73.7% of total interest-earning
assets as compared to 75.7% at December 31, 2002.  Our loan to deposit ratio was
77.0%  at  December 31, 2003 as compared to 80.2% at December 31, 2002.  Deposit
growth  of $19.8 million funded an increase in federal funds sold of $1 million,
loan growth of $12.4 million, with the remainder being used to fund a $6 million
increase  in  securities  portfolio.

Our  securities  portfolio,  consisting  of  U.S.  Agency  securities, state and
municipal  securities,  corporate  securities,  mortgage-backed  securities
collateralized  mortgage  obligations and restricted equity securities, amounted
to  $24.9  million  at  December  31,  2003.  Net unrealized gains on securities
amounted to $268,000 at December 31, 2003 as compared to net unrealized gains of
$585,000  at  December  31,  2002.


<PAGE>
Management  has  not  specifically  identified any securities for sale in future
periods,  which,  if  so designated, would require a charge to operations if the
market  value  would  not be reasonably expected to recover prior to the time of
sale.

We  have  80% of our loan portfolio collateralized by real estate located in our
primary market area of Forsyth County and surrounding counties.  Our real estate
mortgage  portfolio  consists  of  loans  collateralized  by  one-to-four-family
residential  properties  (30%),  construction  loans to build one-to-four family
residential properties (37%), and nonresidential properties consisting primarily
of  small business commercial properties (33%).  We generally require that loans
collateralized  by  real  estate  not  exceed  80%  of  the  collateral  value.

The  remaining  20%  of  the loan portfolio consist of commercial, consumer, and
other  loans.  We require collateral commensurate with the repayment ability and
creditworthiness  of  the  borrower.

The  specific  economic  and  credit  risks  associated with our loan portfolio,
especially the real estate portfolio, include, but are not limited to, a general
downturn  in  the  economy  which  could affect unemployment rates in our market
area,  general  real  estate  market  deterioration, interest rate fluctuations,
deteriorated  or  non-existing collateral, title defects, inaccurate appraisals,
financial  deterioration  of  borrowers,  fraud,  and  any  violation of banking
protection  laws.  Construction lending can also present other specific risks to
the  lender  such  as  whether developers can find builders to buy lots for home
construction,  whether  the  builders can obtain financing for the construction,
whether  the  builders  can  sell the home to a buyer, and whether the buyer can
obtain permanent financing.  Currently, real estate values and employment trends
in  our  market area are stable with no indications of a significant downturn in
the  local  economy.  However,  we  cannot predict the impact global events will
have  on  our  local  economy.

We  attempt  to  reduce  these economic and credit risks not only by adhering to
loan  to value guidelines, but also by investigating the creditworthiness of the
borrower  and  monitoring the borrower's financial position.  Also, we establish
and  periodically  review  our  lending  policies and procedures.  State banking
regulations limit exposure by prohibiting secured loan relationships that exceed
25% of the Bank's statutory capital and unsecured loan relationships that exceed
15%  of  the  Bank's  statutory  capital.

LIQUIDITY  AND  CAPITAL  RESOURCES

The  purpose of liquidity management is to ensure that there are sufficient cash
flows  to  satisfy demands for credit, deposit withdrawals, and our other needs.
Traditional  sources  of  liquidity  include asset maturities and growth in core
deposits.  A  company  may  achieve  its  desired  liquidity objectives from the
management  of  assets and liabilities and through funds provided by operations.
Funds  invested in short-term marketable instruments and the continuous maturing
of  other  earning  assets  are sources of liquidity from the asset perspective.
The  liability  base  provides  sources of liquidity through deposit growth, the
maturity structure of liabilities, and accessibility to market sources of funds.

Scheduled  loan  payments  are  a  relatively  stable  source of funds, but loan
payoffs  and deposit flows fluctuate significantly, being influenced by interest
rates  and  general  economic  conditions  and competition.  We attempt to price
deposits  to  meet  asset/liability  objectives  consistent  with  local  market
conditions.

Our  liquidity  and  capital  resources  are  monitored  on  a periodic basis by
management,  State  and  Federal  regulatory  authorities.  As  determined under
guidelines  established  by  regulatory  authorities  and  internal  policy, our
liquidity ratio of 30.90% at December 31, 2003 was considered satisfactory.


<PAGE>
At  December  31,  2003,  we  had loan commitments outstanding of $14.4 million.
Because  these  commitments  generally have fixed expiration dates and many will
expire without being drawn upon, the total commitment amounts do not necessarily
represent  future  cash  requirements.  If  needed,  we  have  the  ability on a
short-term  basis  to  borrow  and  purchase  federal funds from other financial
institutions.  At  December  31,  2003,  we had an arrangement with a commercial
bank  for short-term advances of $3,000,000, in addition to $10,000,000 which is
available  to  us,  subject to available collateral, in the form of Federal Home
Loan  Bank  advances.

At  December  31,  2003,  our  capital  ratios were considered adequate based on
regulatory  minimum capital requirements.  Our stockholders' equity increased by
$1.1  million  due  to net income in 2003 of $842,000; to a decrease in the fair
value  of  securities available-for-sale, net of tax, in the amount of $196,000;
and  to several of our directors exercising stock options granted to them, which
contributed  $450,000.  For regulatory purposes, net unrealized gains and losses
on  securities available-for-sale are excluded in the computation of the capital
ratios.

The primary source of funds available to Forsyth Bancshares, Inc. is the payment
of dividends by the Bank.  Banking regulations limit the amount of the dividends
that  may  be  paid  without  prior  approval  of  the Bank's regulatory agency.
Currently, the Bank could pay $460,000 in dividends without regulatory approval.
Another  source  of  funds  is the stock options granted to the directors during
2002.  Options to purchase 327,500 shares were granted to the directors. Options
for 50,000 shares were exercised in 2003, raising $425,000 in additional capital
for  Forsyth  Bancshares,  Inc.  Directors  have  remaining  options to purchase
99,500  shares.

The  minimum capital requirements to be considered well capitalized under prompt
corrective  action  provisions  and  the actual capital ratios on a consolidated
basis  and  for  the  Bank  as  of  December  31,  2003  are  as  follows:

<TABLE>
<CAPTION>
                                             Actual
                               ------------------------------------
                                                       Regulatory
                               Consolidated    Bank   Requirements
                               -------------  ------  -------------
<S>                            <C>            <C>     <C>


   Leverage capital ratio            10.64 %  7.75 %         5.00 %
   Risk-based capital ratios:
      Core capital                   13.39    9.77           6.00
      Total capital                  14.48   10.87          10.00
</TABLE>

These ratios may decline as asset growth continues, but are expected to continue
to exceed the regulatory minimum requirements.  Anticipated future earnings will
assist  in  keeping  these  ratios  at  satisfactory  levels.

We  believe  that our liquidity and capital resources are adequate and will meet
our  foreseeable  short  and  long-term  needs.  We anticipate that we will have
sufficient  funds  available  to  meet  current  loan commitments and to fund or
refinance,  on  a  timely basis, our other material commitments and liabilities.

In  March 2004, the Directors of the Company approved a transfer of land held by
the  Company  to  the bank as a capital infusion.  The land, located in Cherokee
County, will be the site of the bank's next branch.  The land was transferred at
a  value  of  $237,467.  The  Directors  also  approved increasing the Company's
investment  in  the  bank  by  $1 million.  These two transfers to the bank will
increase  the


<PAGE>
bank's capital and allow it to continue to grow for the foreseeable future while
maintaining  its  well  capitalized  status.

Effects  of  Inflation
----------------------

The  impact  of  inflation  on  banks  differs  from its impact on non-financial
institutions.  Banks,  as  financial  intermediaries,  have  assets  that  are
primarily  monetary  in  nature  and  that  tend  to  fluctuate  in concert with
inflation.  A  bank can reduce the impact of inflation if it can manage its rate
sensitivity  gap.  This  gap  represents  the  difference between rate sensitive
assets  and  rate  sensitive  liabilities.  We, through our executive committee,
attempt  to structure the assets and liabilities and manage the rate sensitivity
gap,  thereby  seeking  to  minimize  the  potential  effects of inflation.  For
information  on  the  management  of  our  interest  rate  sensitive  assets and
liabilities,  see  "Asset/Liability  Management".


RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

The following is a summary of our operations for the years indicated.

<TABLE>
<CAPTION>
                                         Years Ended December 31,
                                             2003       2002
<S>                                      <C>        <C>
                                          (Dollars in Thousands)

Interest income                          $   5,999  $    5,792

Interest expense                             1,738       2,155
                                         ---------  -----------

Net interest income                          4,261       3,637

Provision for loan losses                      201         196

Other income                                   962         897

Other expenses                               3,722       3,359
                                         ---------  -----------

Pretax income                                1,300         979

Income taxes                                   458         341
                                         ---------  -----------

Net income                               $     842  $      638
                                         =========  ===========
</TABLE>


Net  Interest  Income
---------------------

Our  results  of  operations  are  determined  by our ability to manage interest
income  and  expense  effectively,  to  minimize  loan and investment losses, to
generate  non-interest  income,  and  to  control  operating  expenses.  Because
interest  rates  are  determined by market forces and economic conditions beyond
our  control, our ability to generate net interest income depends on our ability
to  obtain  an  adequate  net  interest  spread  between  the  rate  we  pay  on
interest-bearing  liabilities  and  the rate we earn on interest-earning assets.


<PAGE>
Our  net  yield on average interest-earning assets was 4.23% in 2003 as compared
to 4.14% in 2002.  Average loans increased by $11.5 million, which accounted for
the  most significant change in average interest-earning assets, which increased
overall  by  $12.9  million.  Average  interest-bearing liabilities increased by
$9.8 million with average money market deposits accounting for the vast majority
of  this increase.  The rate earned on average interest-earning assets decreased
to  5.95% in 2003 from 6.59% in 2002.  The rate paid on average interest-bearing
liabilities  decreased to 2.09% in 2003 from 2.94% in 2002.  The increase in net
yield is due primarily to the decrease in the rates paid on our interest-bearing
liabilities  more  than  offsetting  the  decrease  in  the  yield  on  our
interest-earning  assets.

Provision  for  Loan  Losses
----------------------------

The  provision  for  loan losses was $201,000 in 2003 as compared to $196,000 in
2002.  The  increase  in the provision for loan losses is due to the increase in
the loan portfolio as net loan charge offs decreased slightly to $53,000 in 2003
compared to $67,000 in 2002. As of December 31, 2003, we had nonperforming loans
and  assets totaling $12,000 as compared to $16,000 at December 31, 2002.  Based
upon  our  evaluation  of  the loan portfolio, we believe the allowance for loan
losses  to  be  adequate  to  absorb  losses  on  existing loans that may become
uncollectible.  Our  evaluation  considers  significant  factors relative to the
credit  risk  and  loss  exposure  in the loan portfolio, including past due and
classified  loans,  historical  experience,  underlying  collateral  values, and
current  economic  conditions  that  may affect the borrower's ability to repay.
The allowance for loan losses is evaluated by segmenting the loan portfolio into
unclassified  and  classified  loans.  An allowance percentage is applied to the
unclassified  loans  to  establish  a  general  allowance  for loan losses.  The
allowance  percentage  determined  is based upon our experience specifically and
the  historical  experience  of  the banking industry generally.  The classified
loans, including impaired loans, are analyzed individually in order to establish
a  specific  allowance  for  loan  losses.  The  total  of  these allowances are
compared  to  the  minimum  allowance  level  range  in accordance with internal
policy,  (1.20%  to  1.30%  of total loans outstanding), with the greater amount
being  recorded as the allowance for loan losses.  The allowance for loan losses
as  a  percentage  of  total loans at December 31, 2003 was 1.25% as compared to
1.26%  at  December  31,  2002.

Other  Income
-------------

Other  income  consists  of  service  charges on deposit accounts, mortgage loan
origination fees, other miscellaneous revenues and fees, and gains and losses on
securities  transactions.  Other  income  was  $962,000  in  2003 as compared to
$897,000  in  2002.  The  increase  of  $65,000  is  due  primarily to increased
mortgage  loan origination fees of $54,000, decreased service charges on deposit
accounts  of  $3,000,  increased  net  realized  gains on sales of securities of
$6,000,  increased net customer service fees of $7,000, decreased recording fees
from  loans  of  $12,000, and increased credit life insurance income of $10,000.
The  credit  life  increase  was  a one time credit due to a correction from the
credit  life  company  to  the  Bank.

Other  Expenses
---------------

Other  expense  for  2003  consists  of  salaries  and  employee  benefits ($2.1
million),  equipment  and  occupancy  expenses  ($510,000),  and other operating
expenses  ($1.1  million).  Salaries and employee benefits increased by $264,000
due  to annual salary increases, the hiring of an additional lending officer and
increased  commissions paid to our mortgage originator.  Equipment and occupancy
expenses  increased by $2,000 due primarily to increasing fixed assets and their
related  depreciation.  Other  operating  expenses  increased  by $97,000 due to
increased  data  processing  fees  of $15,000, increased advertising expenses of
$5,000, increased legal fees of $19,000, decreased telephone expense of $21,000,
increased  insurance,  taxes  and  assessments  of  $18,000  and increased other
operating  expenses of $57,000.


<PAGE>
$38,000  of  the  other operating expense increase is due to the lease payout to
Bank of America for the old Main Office Facility. The other increases are normal
and  are  a  reflection  of  our  overall  growth.

Income  Tax
-----------

We  recognized income tax expense of $458,000 in 2003 as compared to $341,000 in
2002.  The  increase was due to higher pretax income in 2003.  The effective tax
rate  was  35%  for  2003  and  2002.

Management  is  not  aware  of  any other known trends, events or uncertainties,
other  than  those discussed above, that will have or that are reasonably likely
to  have  a  material  effect on our liquidity, capital resources or operations.
Management  is  also  not aware of any current recommendations by the regulatory
authorities  that,  if  they  were  implemented,  would  have  such  an  effect.

Asset/Liability  Management
---------------------------

Our  objective  is  to  manage assets and liabilities to provide a satisfactory,
consistent  level  of  profitability  within  the framework of established cash,
loan,  investment,  borrowing,  and  capital  policies.  Specific  officers  are
charged  with the responsibility for monitoring policies and procedures designed
to  ensure  acceptable  composition  of  the  asset/liability mix.  Management's
overall  philosophy  is to support asset growth primarily through growth of core
deposits  of  all  categories  made  by  local  individuals,  partnerships,  and
corporations.

Our asset/liability mix is monitored on a regular basis with a report reflecting
the interest rate-sensitive assets and interest rate-sensitive liabilities being
prepared  and  presented to the Bank's Executive Committee on a quarterly basis.
The  objective  of  this policy is to monitor interest rate-sensitive assets and
liabilities  so  as  to minimize the impact of substantial movements in interest
rates  on  earnings.  An  asset  or  liability  is  considered  to  be  interest
rate-sensitive  if  it  will  reprice or mature within the time period analyzed,
usually  one  year or less.  The interest rate-sensitivity gap is the difference
between  the  interest-earning assets and interest-bearing liabilities scheduled
to mature or reprice within such time period.  A gap is considered positive when
the  amount  of  interest  rate-sensitive  assets exceeds the amount of interest
rate-sensitive  liabilities.  A  gap  is  considered negative when the amount of
interest  rate-sensitive liabilities exceeds the interest rate-sensitive assets.
During  a  period  of rising interest rates, a negative gap would tend to affect
net  interest  income adversely, while a positive gap would tend to result in an
increase  in  net  interest  income.  Conversely,  during  a  period  of falling
interest  rates,  a  negative  gap  would  tend  to result in an increase in net
interest  income,  while a positive gap would tend to affect net interest income
adversely.  If  our  assets  and  liabilities  were  equally  flexible and moved
concurrently,  the  impact  of any increase or decrease in interest rates on net
interest  income  would  be  minimal.

A simple interest rate "gap" analysis by itself may not be an accurate indicator
of  how  net  interest  income  will  be  affected by changes in interest rates.
Accordingly,  we  also  evaluate  how  the  repayment  of  particular assets and
liabilities  is  impacted  by changes in interest rates.  Income associated with
interest-earning  assets  and costs associated with interest-bearing liabilities
may  not  be  affected uniformly by changes in interest rates.  In addition, the
magnitude  and  duration  of  changes  in  interest rates may have a significant
impact  on  net  interest  income.  For  example,  although  certain  assets and
liabilities  may have similar maturities or periods of repricing, they may react
in  different  degrees  to  changes in market interest rates.  Interest rates on
certain  types  of  assets  and  liabilities  fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes
in  general  market rates.  In addition, certain assets, such as adjustable rate
mortgage  loans, have features (generally referred to as "interest rate caps and
floors")  that limit changes in interest rates.  Prepayment and early withdrawal
levels  also  could  deviate significantly from those assumed in calculating the
interest  rate  gap.  The  ability of many borrowers to service their debts also
may  decrease  during  periods  of  rising  interest  rates.


<PAGE>
Changes  in  interest  rates  also  affect our liquidity position.  We currently
price  deposits  in response to market rates and it is management's intention to
continue this policy.  If deposits are not priced in response to market rates, a
loss  of  deposits  could  occur  that  would  negatively  affect  our liquidity
position.

At  December  31,  2003,  our  cumulative one-year interest rate-sensitivity gap
ratio  was  67%.  Our  targeted ratio is 80% to 120% in this time horizon.  This
indicates  that our interest-bearing liabilities will reprice during this period
at  a rate faster than our interest-earning assets.  We are currently not within
our  targeted  parameters  due  primarily  to  83%  of  certificates  of deposit
repricing within a one-year time frame as opposed to 62% of loans and securities
repricing within a one-year time frame.  The ratio in the one-year time frame is
significantly  impacted  by  the  classification  of all interest bearing demand
deposits as immediately rate sensitive for purposes of this analysis.  It is our
belief that competitive market rates are being paid for certificates of deposit,
and  as  long  as  the  rates  remain competitive, liquidity, while not assured,
should  not  be  adversely  affected.

The  following  table  sets  forth  the  distribution  of  the  repricing of our
interest-earning  assets  and  interest-bearing  liabilities  as of December 31,
2003,  the  interest  rate-sensitivity  gap,  the  cumulative  interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio.  The table also sets forth the time periods
in which interest-earning assets and interest-bearing liabilities will mature or
may reprice in accordance with their contractual terms.  However, the table does
not  necessarily  indicate  the impact of general interest rate movements on the
net  interest  margin  as  the  repricing  of  various  categories of assets and
liabilities  is subject to competitive pressures and the needs of our customers.
In  addition,  various  assets and liabilities indicated as repricing within the
same  period  may  in fact, reprice at different times within such period and at
different  rates.


<PAGE>
<TABLE>
<CAPTION>
                                             After       After
                                             Three        One
                                             Months    Year but
                                 Within       but       Within     After
                                  Three      Within      Five      Five
                                 Months     One Year     Years     Years    Total
<S>                             <C>        <C>         <C>        <C>      <C>
                                            (Dollars in Thousands)
Interest-earning assets:
   Interest-bearing
      deposits in banks         $    224   $           $          $        $   224
   Federal funds sold              4,467                                     4,467
   Securities                      1,178       1,303      13,838    8,665   24,984
   Loans                          33,487      17,552      30,293    1,622   82,954
                                ---------  ----------  ---------  -------  -------

                                  39,356      18,855      44,131   10,287  112,629
                                ---------  ----------  ---------  -------  -------

Interest-bearing liabilities:
   Interest-bearing demand
      deposits                    51,981                                    51,981
   Savings                         1,720                                     1,720
   Certificates, less than
      $100,000                     6,048      11,338       3,843            21,229
   Certificates, $100,000
      and over                     5,280      10,901       2,877            19,058
                                ---------  ----------  ---------  -------  -------

                                  65,029      22,239       6,720        0   93,988
                                ---------  ----------  ---------  -------  -------

Interest rate sensitivity
   gap                          $(25,673)  $  (3,384)  $  37,411  $10,287  $18,641
                                =========  ==========  =========  =======  =======

Cumulative interest rate
   sensitivity gap              $(25,673)  $ (29,057)  $   8,354  $18,641
                                =========  ==========  =========  =======
Interest rate sensitivity
   gap ratio                        0.61        0.85        6.57        -
                                =========  ==========  =========  =======
Cumulative interest rate
   sensitivity gap ratio            0.61        0.67        1.09     1.20
                                =========  ==========  =========  =======
</TABLE>


<PAGE>
               SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

The  tables  and  schedules on the following pages set forth certain significant
financial  information and statistical data with respect to: the distribution of
our  assets,  liabilities  and  stockholders'  equity,  the  interest  rates  we
experience;  our  investment  portfolio;  our loan portfolio, including types of
loans,  maturities,  and sensitivities of loans to changes in interest rates and
information  on  nonperforming  loans;  summary  of the loan loss experience and
allowance  for  loan  losses;  types  of  deposits  and the return on equity and
assets.



<PAGE>
                    DISTRIBUTION OF ASSETS, LIABILITIES, AND
                              STOCKHOLDERS' EQUITY:
                    INTEREST RATES AND INTEREST DIFFERENTIALS

AVERAGE  BALANCES

The condensed average balance sheet for the years indicated is presented below.
(1)

<TABLE>
<CAPTION>
                                                                  Years Ended
                                                                  December 31,
                                                                2003        2002
<S>                                                          <C>          <C>
                                                             (Dollars in Thousands)
         ASSETS

   Cash and due from banks                                   $    2,322   $ 2,093
   Taxable securities                                            18,940    17,398
   Nontaxable securities                                          1,356     1,358
   Interest-bearing deposits in banks                               220       201
   Securities valuation account                                     382       358
   Federal funds sold                                             4,421     4,596
   Loans (2)                                                     75,874    64,379
   Allowance for loan losses                                       (942)     (810)
   Other assets                                                   6,189     4,776
                                                             -----------  --------
                                                             $  108,762   $94,349
                                                             ===========  ========

   Total interest-earning assets                             $  100,811   $87,932
                                                             ===========  ========

         LIABILITIES AND STOCKHOLDERS' EQUITY

   Deposits:
      Noninterest-bearing demand                             $   12,936   $10,428
      Interest-bearing demand                                    35,530    22,793
      Savings                                                     1,537     1,163
      Time                                                       46,046    49,395
                                                             -----------  --------
         Total deposits                                          96,049    83,779

   Other liabilities                                                400       440
                                                             -----------  --------
         Total liabilities                                       96,449    84,219
   Stockholders' equity                                          12,313    10,130
                                                             -----------  --------
                                                             $  108,762   $94,349
                                                             ===========  ========

   Total interest-bearing liabilities                        $   83,113   $73,351
                                                             ===========  ========
<FN>

(1)  For each category, average balances were determined using the daily average
     balances  during  the  year.

(2)  Non-accrual loans of $52,000 and $14,000 were included in average loans for
     2003  and  2002,  respectively.
</TABLE>


<PAGE>
INTEREST  INCOME  AND  INTEREST  EXPENSE

The  following  tables  set  forth  the  amount  of interest income and interest
expense  for  each  category  of  interest-earning  assets  and interest-bearing
liabilities  and the average interest rate for total interest-earning assets and
total interest-bearing liabilities, net interest spread and net yield on average
interest-earning  assets.

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                             2003                  2002
                                                                  Average              Average
                                                      Interest     Rate     Interest     Rate
<S>                                                  <C>         <C>        <C>        <C>
                                                               (Dollars in Thousands)

   INTEREST INCOME:
      Interest and fees on loans (1)                 $   5,168       6.81%  $   4,779     7.42%
      Interest on taxable securities                       719       3.80         871     5.01
      Interest on nontaxable securities (2)                 58       4.28          58     4.27
      Interest on deposits in banks                          9       4.09          10     5.19
      Interest on federal funds sold                        45       1.02          74     1.61
                                                     ----------             ---------
      Total interest income                              5,999       5.95       5,792     6.59
                                                     ----------             ---------

   INTEREST EXPENSE:
      Interest on interest-bearing
      demand deposits                                      388       1.09         295     1.29
      Interest on savings deposits                           8       0.52          11     0.95
      Interest on time deposits                          1,342       2.92       1,849     3.74
                                                     ----------             ---------
            Total interest expense                       1,738       2.09       2,155     2.94
                                                     ----------             ---------

   NET INTEREST INCOME                               $   4,261              $  3,637
                                                     ==========             =========

      Net interest spread                                            3.86%                3.65%
                                                                 =========             ========
      Net yield on average interest-earning assets                   4.23%                4.14%
                                                                 =========             ========
<FN>


(1)  Interest  and  fees  on loans includes $466,000 and $349,000 of loan fee income for the years
     ended December 31, 2003 and 2002, respectively. There was no interest income recognized on
     nonaccrual loans during 2003 or 2002.

(2)  Average rates on nontaxable securities have not been presented on a tax equivalent basis.
</TABLE>


<PAGE>
RATE  AND  VOLUME  ANALYSIS

The  following table describes the extent to which changes in interest rates and
changes  in  volume  of interest-earning assets and interest-bearing liabilities
have  affected  our  interest income and expense during the year indicated.  For
each  category  of  interest-earning  assets  and  interest-bearing liabilities,
information  is provided on changes attributable to (1) change in volume (change
in volume multiplied by old rate); (2) change in rate (change in rate multiplied
by  old  volume);  and (3) a combination of change in rate and change in volume.
The  changes in interest income and interest expense attributable to both volume
and rate have been allocated proportionately on a consistent basis to the change
due  to  volume  and  the  change  due  to  rate.

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                        2003 vs. 2002
                                                       Changes Due To:

                                                    Rate    Volume    Net
<S>                                                <C>      <C>      <C>
                                                   (Dollars in Thousands)
   Increase (decrease) in:
      Income from interest-earning assets:
      Interest and fees on loans                   $ (416)  $  805   $ 389
      Interest on taxable securities                 (224)            (152)
      Interest on nontaxable securities                --        0      (0)
      Interest on deposits in banks                    (2)       1      (1)
      Interest on Federal funds sold                  (26)      (3)    (29)
                                                   -------  -------  ------
            Total interest income                    (668)     875     207
                                                   -------  -------  ------

      Expense from interest-bearing liabilities:
      Interest on interest-bearing
            demand deposits                           (52)     145      93
      Interest on savings deposits                     (6)       3      (3)
      Interest on time deposits                      (383)    (124)   (507)
                                                   -------  -------  ------

            Total interest expense                   (441)      24    (417)
                                                   -------  -------  ------

            Net interest income                    $ (227)  $  851   $(624)
                                                   =======  =======  ======
</TABLE>



<PAGE>
                              INVESTMENT PORTFOLIO

TYPES  OF  INVESTMENTS

The  carrying  amounts  of  securities  at the dates indicated are summarized as
follows:

<TABLE>
<CAPTION>
                                                     December 31,
                                                    2003       2002
<S>                                              <C>          <C>
                                                (Dollars in Thousands)

   U.S. Government agencies                      $    10,557  $ 1,566
   State and municipal securities                      1,423    1,417
   Corporate securities                                3,941    4,556
   Mortgage-backed securities                          8,786   11,205
                                                 -----------  -------
                                                 $    24,707  $18,744
                                                 ===========  =======
</TABLE>

MATURITIES

The  amounts  of  debt  securities, including the weighted average yield in each
category  as  of December 31, 2003 are shown in the following table according to
contractual maturity classifications (1) one year or less, (2) after one through
five  years,  (3)  after  five  through  ten  years  and  (4)  after  ten years.

<TABLE>
<CAPTION>
                                                                               After one                       After five
                                             One year or less              through five years              through ten years
                                  Amount         Yield (1)       Amount         Yield (1)        Amount         Yield(1)
<S>                             <C>          <C>                <C>        <C>                  <C>        <C>

U.S. Government agencies        $         0                  %  $   8,492                3.17%  $   2,065               2.19%
State and municipal securities            0                           653                3.93         291                4.20
Corporate securities                    985               5.90      2,956                4.09           0
Mortgage-backed securities              520               3.61      1,738                4.49           0
                                -----------                     ---------                       ---------

                                $     1,505               5.11  $  13,839                3.56   $   2,356               2.43
                                ===========                     =========                       =========
</TABLE>


<TABLE>
<CAPTION>
                               After ten years             Total
                             Amount    Yield (1)      Amount   Yield (1)
<S>                         <C>       <C>           <C>        <C>

U.S. Government agencies    $      0             %  $  10,557    2.98%
State and municipal              479          4.74      1,423    4.25
Corporate securities               0                    3,941    4.54
Mortgage-backed securities     6,528          3.98      8,786    3.57
                            --------                ---------

                            $  7,007          3.01  $  24,707    3.39
                            ========                =========
<FN>

(1)  The  weighted  average  yields  were computed using coupon interest, adding
     discount  accretion or subtracting premium amortization, as appropriate, on
     a  ratable  basis  over  the  life  of  each  security.
</TABLE>



<PAGE>
                                 LOAN PORTFOLIO

TYPES  OF  LOANS

The  amounts  of  loans  outstanding  at  the  indicated  dates are shown in the
following  table  according  to  the  type  of  loan.

<TABLE>
<CAPTION>
                                                          December 31,
                                                         2003       2002
<S>                                                    <C>        <C>
                                                     (Dollars in Thousands)

   Commercial                                          $  9,807   $14,022
   Real estate-construction                              24,751    18,507
   Real estate-mortgage                                  41,291    30,500
   Consumer installment loans and other                   7,105     7,517
                                                       ---------  --------
                                                         82,954    70,546
   Less allowance for loan losses                        (1,033)     (885)
                                                       ---------  --------
         Net loans                                     $ 81,921   $69,661
                                                       =========  ========
</TABLE>

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

Total  loans  as of December 31, 2003 are shown in the following table according
to  contractual  maturity  classifications  (1)  one year or less, (2) after one
through  five  years,  and  (3)  after  five  years.

<TABLE>
<CAPTION>
                                                 (Dollars in Thousands)
<S>                                              <C>
   Commercial
      One year or less                           $                5,724
      After one through five years                                3,959
      After five years                                              124
                                                 ----------------------
                                                                  9,807
                                                 ----------------------

   Construction
      One year or less                                           21,230
      After one through five years                                3,456
      After five years                                               65
                                                 ----------------------
                                                                 24,751
                                                 ----------------------

   Other
      One year or less                                           18,528
      After one through five years                               27,460
      After five years                                            2,408
                                                 ----------------------
                                                                 48,396
                                                 ----------------------

                                                                $82,954
                                                 ======================
</TABLE>



<PAGE>
The  following  table  summarizes  loans at December 31, 2003 with the due dates
after  one  year  that  have  predetermined  and floating or adjustable interest
rates.

<TABLE>
<CAPTION>
                                                (Dollars in Thousands)
<S>                                             <C>

      Predetermined interest rates              $               33,570
      Floating or adjustable interest rates                      3,902
                                                ----------------------
                                                $               37,472
                                                ======================
</TABLE>


RISK  ELEMENTS

Information with respect to nonaccrual, past due, restructured and other problem
loans  at  December  31,  2002  and  2000  is  as  follows:

<TABLE>
<CAPTION>
                                                      December 31,
                                                     2003      2002
<S>                                                <C>       <C>
                                                 (Dollars in Thousands)

   Nonaccrual loans                                $     12  $     16
   Loans contractually past due ninety
      days or more as to interest or
      principal payments and still accruing               0         0
   Restructured loans                                     0         0
   Potential problem loans                              353         0
   Interest income that would have been recorded
      on nonaccrual and restructured loans under
      original terms                                      1         1
   Interest income that was recorded on
      nonaccrual and restructured loans                   0         0
</TABLE>

Potential problems loans are defined as loans about which we have serious doubts
as  to  the  ability  of  the borrower to comply with the present loan repayment
terms  and which may cause the loan to be placed on nonaccrual status, to become
past  due  more  than  ninety  days,  or  to  be  restructured.

Our policy is to discontinue the accrual of interest income when, in the opinion
of management, collection of interest becomes doubtful.  This status is accorded
interest  when  (1)  there  is  a  significant  deterioration  in  the financial
condition  of  the  borrower and full repayment of principal and interest is not
expected  and  (2)  the principal or interest is more than ninety days past due,
unless  the  loan  is  both  well-secured  and  in  the  process  of collection.

Loans  that  are  classified  for  regulatory  purposes  as  loss,  doubtful,
substandard,  or  special mention that have not been included in the table above
do  not  represent  or  result  from  trends  or  uncertainties  that management
reasonably  expects  will materially impact future operating results, liquidity,
or  capital resources.  These classified loans do not represent material credits
about  which  management  is  aware of any information that causes management to
have  serious doubts as to the ability of such borrowers to comply with the loan
repayment  terms.


<PAGE>
                         SUMMARY OF LOAN LOSS EXPERIENCE

The  following  table  summarizes  average loan balances for the year determined
using  the  daily average balances during the year; changes in the allowance for
loan  losses  arising  from  loans  charged  off; recoveries on loans previously
charged  off;  additions  to  the allowance which have been charged to operating
expense;  and  the  ratio  of  net charge-offs during the year to average loans.

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                        2003        2002
<S>                                                <C>          <C>
                                                    (Dollars in Thousands)

     Average amount of loans outstanding           $   75,874   $   64,379
                                                   ===========  ===========

     Balance of allowance for loan losses
          at beginning of year                     $      885   $      756
                                                   -----------  -----------

     Loans charged off
     Commercial and financial                              20           34
     Real estate mortgage                                  --           --
          Installment                                      45           37
                                                   -----------  -----------
                                                           65           71
                                                   -----------  -----------

     Loans recovered
          Commercial and financial                         --           --
          Real estate mortgage                             --           --
          Installment                                      12            4
                                                   -----------  -----------
                                                           12            4
                                                   -----------  -----------

     Net charge-offs                                       53           67
                                                   -----------  -----------

     Additions to allowance charged to operating
          expense during year                             201          196
                                                   -----------  -----------

     Balance of allowance for loan losses
          at end of year                           $    1,033      $   885
                                                   ===========  ===========

     Ratio of net loans charged off during the
     year to average loans outstanding                    .07%        0.11%
                                                   ===========  ===========
</TABLE>


ALLOWANCE  FOR  LOAN  LOSSES

The  allowance  for  loan  losses  is  maintained  at  a  level  that  is deemed
appropriate  by  management  to adequately cover all known and inherent risks in
the  loan  portfolio.  Our  evaluation of the loan portfolio includes a periodic
review  of loan loss experience, current economic conditions that may affect the
borrower's ability to pay and the underlying collateral value of the loans.


<PAGE>
As  of  December  31,  2003  and  2002, the allocation of our allowance for loan
losses does not specifically correspond to the categories of loans listed below.
Based  on  our best estimate, the allocation of the allowance for loan losses to
types  of  loans,  as  of  the  indicated  dates,  is  as  follows:

<TABLE>
<CAPTION>
                                December 31, 2003               December 31, 2002
                                      Percent of loans in            Percent of loans in
                                         each category                  each category
                             Amount      to total loans     Amount      to total loans
<S>                          <C>      <C>                   <C>      <C>
                                              (Dollars in Thousands)

Commercial                   $   118                11.82%  $   175                19.88%
Real estate - construction       293                29.84       227                26.23
Real estate - mortgage           536                49.78       385                43.23
Consumer installment
   loans and other                86                 8.56        98                10.66
                             -------  --------------------  -------  --------------------
                             $ 1,033               100.00%  $   885               100.00%
                             =======  ====================  =======  ====================
</TABLE>

                                    DEPOSITS

Average  amount  of  deposits  and  average rates paid thereon, classified as to
noninterest-bearing  demand  deposits, interest-bearing demand deposits, savings
deposits,  and  time  deposits  are  presented  below.  (1)

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                            2003                2002
                                      Amount    Percent   Amount    Percent
<S>                                   <C>      <C>        <C>      <C>
                                             (Dollars in Thousands)

Noninterest-bearing demand deposits   $12,936        --%  $10,428        --%
Interest-bearing demand deposits       35,530       1.09   22,793       1.29
Savings deposits                        1,537        .52    1,163        .95
Time deposits                          46,046       2.92   49,395       3.74
                                      -------             -------
                                      $96,049             $83,779
                                      =======             =======
<FN>

(1)  Average  balances  were  determined using the daily average balances during
     the  year.
</TABLE>

The  amounts  of  time  certificates of deposit issued in amounts of $100,000 or
more as of December 31, 2003 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months,  (3)  over  six  through  twelve  months,  and  (4)  over twelve months.



<TABLE>
<CAPTION>
                                          (Dollars in Thousands)
<S>                                         <C>

   Three months or less                     $         5,280
   Over three through six months                      5,056
   Over six through twelve months                     5,845
   Over twelve months                                 2,877
                                                    -------
         Total                                      $19,058
                                                    =======
</TABLE>


<PAGE>
                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

The  following  rate  of return information for the years indicated is presented
below.

<TABLE>
<CAPTION>
                                          Years Ended December 31,
                                                2003    2002
<S>                                            <C>     <C>

   Return on assets (1)                         0.77%   0.68%
   Return on equity (2)                         6.84    6.30
   Dividend payout ratio (3)                       -       -
   Equity to assets ratio (4)                  11.32   10.74
<FN>

(1)  Net  income  divided  by  average  total  assets.
(2)  Net  income  divided  by  average  equity.
(3)  Dividends  declared  per  share  of  common stock divided by net income per
     share.
(4)  Average  equity  divided  by  average  total  assets.
</TABLE>



<PAGE>
                          INDEPENDENT AUDITOR'S REPORT


TO THE BOARD OF DIRECTORS
FORSYTH BANCSHARES, INC.
CUMMING, GEORGIA


          We  have  audited  the  accompanying  consolidated  balance  sheets of
FORSYTH  BANCSHARES,  INC.  AND SUBSIDIARY as of December 31, 2003 and 2002, and
the  related  statements  of income, comprehensive income, stockholders' equity,
and  cash  flows  for  the years then ended.  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  auditing  standards
generally  accepted  in  the  United States of America.  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
Forsyth  Bancshares,  Inc.  and subsidiary as of December 31, 2003 and 2002, and
the  results  of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States
of  America.

                                        /s/ MAULDIN & JENKINS, LLC




Atlanta, Georgia
January 16, 2004, except for Note 17, as to which the date is January 22, 2004


<PAGE>
<TABLE>
<CAPTION>
                                    FORSYTH BANCSHARES, INC.
                                         AND SUBSIDIARY

                                   CONSOLIDATED BALANCE SHEETS
                                   DECEMBER 31, 2003 AND 2002

------------------------------------------------------------------------------------------------

                                     ASSETS                               2003          2002
                                                                      ------------  ------------
<S>                                                                   <C>           <C>
Cash and due from banks                                               $  3,616,575  $  1,902,847
Interest-bearing deposits in banks                                         224,265       214,059
Federal funds sold                                                       4,467,000     3,461,000
Securities available for sale                                           24,707,332    18,712,368
Securities held to maturity, at cost (fair value of $31,643)                     -        31,643
Restricted equity securities, at cost                                      277,400       205,900

Loans                                                                   82,953,909    70,546,477
Less allowance for loan losses                                           1,032,855       885,266
                                                                      ------------  ------------
          Loans, net                                                    81,921,054    69,661,211

Premises and equipment                                                   5,323,670     5,334,104
Other assets                                                               812,007       685,590
                                                                      ------------  ------------

          TOTAL ASSETS                                                $121,349,303  $100,208,722
                                                                      ============  ============

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits:
    Noninterest-bearing                                               $ 13,736,834  $ 11,286,519
    Interest-bearing                                                    93,987,602    76,679,881
                                                                      ------------  ------------
          Total deposits                                               107,724,436    87,966,400
Securities sold under repurchase agreements                                416,396        16,435
Other liabilities                                                          336,920       450,367
                                                                      ------------  ------------
          TOTAL LIABILITIES                                            108,477,752    88,433,202
                                                                      ------------  ------------

Commitments and contingencies

Stockholders' equity:
  Common stock, no par value; 10,000,000 shares authorized;
    1,825,000 and 1,775,000 issued and outstanding, respectively         9,897,936     9,447,841
  Retained earnings                                                      2,807,148     1,965,013
  Accumulated other comprehensive income                                   166,467       362,666
                                                                      ------------  ------------
          TOTAL STOCKHOLDERS' EQUITY                                    12,871,551    11,775,520
                                                                      ------------  ------------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $121,349,303  $100,208,722
                                                                      ============  ============

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                FORSYTH BANCSHARES, INC.
                                     AND SUBSIDIARY

                            CONSOLIDATED STATEMENTS OF INCOME
                         YEARS ENDED DECEMBER 31, 2003 AND 2002

----------------------------------------------------------------------------------------

                                                                     2003        2002
                                                                  ----------  ----------
<S>                                                               <C>         <C>
INTEREST INCOME:
    Loans, including fees                                         $5,168,262  $4,779,363
    Taxable securities                                               718,716     870,561
    Nontaxable securities                                             57,677      57,796
    Deposits in banks                                                  9,150      10,450
    Federal funds sold                                                45,469      74,085
                                                                  ----------  ----------
          TOTAL INTEREST INCOME                                    5,999,274   5,792,255
                                                                  ----------  ----------

INTEREST EXPENSE:
    Deposits                                                       1,735,194   2,154,004
    Other borrowings                                                   2,685         878
                                                                  ----------  ----------
          TOTAL INTEREST EXPENSE                                   1,737,879   2,154,882
                                                                  ----------  ----------

          NET INTEREST INCOME                                      4,261,395   3,637,373
PROVISION FOR LOAN LOSSES                                            201,100     196,374
                                                                  ----------  ----------
          NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES      4,060,295   3,440,999
                                                                  ----------  ----------

OTHER INCOME:
    Service charges on deposit accounts                              267,686     270,301
    Mortgage origination fees                                        625,774     571,938
    Other operating income                                            57,118      49,806
    Net realized gains on sales of securities available for sale      10,916       5,028
                                                                  ----------  ----------
          TOTAL OTHER INCOME                                         961,494     897,073
                                                                  ----------  ----------

OTHER EXPENSES:
    Salaries and employee benefits                                 2,109,302   1,845,072
    Equipment and occupancy expenses                                 509,774     507,584
    Other operating expenses                                       1,102,900   1,006,108
                                                                  ----------  ----------
          TOTAL OTHER EXPENSES                                     3,721,976   3,358,764
                                                                  ----------  ----------

          INCOME BEFORE INCOME TAXES                               1,299,813     979,308

INCOME TAX EXPENSE                                                   457,678     341,068
                                                                  ----------  ----------

                    NET INCOME                                    $  842,135  $  638,240
                                                                  ==========  ==========

BASIC EARNINGS PER SHARE                                          $     0.47  $     0.40
                                                                  ==========  ==========

DILUTED  EARNINGS PER SHARE                                       $     0.47  $     0.40
                                                                  ==========  ==========
<FN>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                     FORSYTH BANCSHARES, INC.
                                          AND SUBSIDIARY

                          CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                              YEARS ENDED DECEMBER 31, 2003 AND 2002

--------------------------------------------------------------------------------------------------

                                                                                2003       2002
                                                                             ----------  ---------
<S>                                                                          <C>         <C>

NET INCOME                                                                   $ 842,135   $638,240
                                                                             ----------  ---------


OTHER COMPREHENSIVE INCOME (LOSS):


    Unrealized gains on securities available for sale:


        Unrealized holding gains (losses) arising during period,
            net of tax (benefits) of $(116,106) and $123,784, respectively    (189,431)   201,962


         Reclassification adjustment for gains realized

            in net income, net of  tax of $4,148 and $1,911,
            respectively                                                        (6,768)    (3,117)
                                                                             ----------  ---------


OTHER COMPREHENSIVE INCOME (LOSS)                                             (196,199)   198,845
                                                                             ----------  ---------


COMPREHENSIVE INCOME                                                         $ 645,936   $837,085
                                                                             ==========  =========
<FN>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                            FORSYTH BANCSHARES, INC.
                                                 AND SUBSIDIARY

                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                     YEARS ENDED DECEMBER 31, 2003 AND 2002

---------------------------------------------------------------------------------------------------------------

                                             COMMON STOCK                            ACCUMULATED
                                      ---------------------------                      OTHER          TOTAL
                                        SHARES      AT AMOUNT         RETAINED      COMPREHENSIVE  STOCKHOLDERS'
                                                     PAID-IN          EARNINGS      INCOME (LOSS)     EQUITY

                                      ----------  ---------------  ---------------  --------------  -----------
<S>                                   <C>         <C>              <C>              <C>             <C>
  BALANCE, DECEMBER 31, 2001            800,000   $    7,960,341   $     1,326,773  $      163,821  $ 9,450,935
      Net income                              -                -           638,240               -      638,240
      Two-for-one common stock split    800,000                -                 -               -            -
      Exercise of stock options         175,000        1,487,500                 -               -    1,487,500
      Other comprehensive income              -                -                 -         198,845      198,845
                                      ----------  ---------------  ---------------  --------------  -----------
  BALANCE, DECEMBER 31, 2002          1,775,000        9,447,841         1,965,013         362,666   11,775,520
      Net income                              -                -           842,135               -      842,135
      Exercise of stock options          50,000          425,000                 -               -      425,000
      Tax benefit from exercise
      of stock options                        -           25,095                 -               -       25,095
      Other comprehensive loss                                                            (196,199)    (196,199)
                                      ----------  ---------------  ---------------  --------------  -----------
  BALANCE, DECEMBER 31, 2003          1,825,000   $    9,897,936   $     2,807,148  $      166,467  $12,871,551
                                      ==========  ===============  ===============  ==============  ===========
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                   FORSYTH BANCSHARES, INC.
                                        AND SUBSIDIARY

                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEARS ENDED DECEMBER 31, 2003 AND 2002

---------------------------------------------------------------------------------------------

                                                                     2003           2002
                                                                 -------------  -------------
<S>                                                              <C>            <C>

OPERATING ACTIVITIES
    Net income                                                   $    842,135   $    638,240
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                  319,044        263,453
        Provision for loan losses                                     201,100        196,374
        Deferred income taxes                                          (5,807)        27,785
        Gain on sales of securities available for sale                (10,916)        (5,028)
        Decrease in interest receivable                                 6,858         85,643
        Decrease  in interest payable                                 (58,798)       (37,125)
        Net other operating activities                                (36,771)       144,227
                                                                 -------------  -------------

          Net cash provided by operating activities                 1,256,845      1,313,569
                                                                 -------------  -------------

INVESTING ACTIVITIES
    Net increase in interest-bearing deposits in banks                (10,206)       (28,300)
    Purchases of securities available for sale                    (19,828,453)   (12,165,444)
    Proceeds from maturities of securities available for sale       8,507,562      7,331,870
    Proceeds from sales of securities available for sale            5,020,393      2,355,607
    Proceeds from maturities of securities held to maturity            31,643        221,555
    Purchases of restricted equity securities                         (71,500)        (5,900)
    Net (increase) decrease in federal funds sold                  (1,006,000)     3,905,000
    Net increase in loans                                         (12,460,943)    (9,941,786)
    Purchase of premises and equipment                               (320,610)    (2,549,660)
    Proceeds from sale of premises and equipment                       12,000              -
                                                                 -------------  -------------

          Net cash used in investing activities                   (20,126,114)   (10,877,058)
                                                                 -------------  -------------

FINANCING ACTIVITIES
    Net increase in deposits                                       19,758,036      7,181,149
    Net increase in securities sold under repurchase agreements       399,961         16,435
    Proceeds from exercise of stock options                           425,000      1,487,500
                                                                 -------------  -------------

          Net cash provided by financing activities                20,582,997      8,685,084
                                                                 -------------  -------------

Net increase (decrease) in cash and due from banks                  1,713,728       (878,405)

Cash and due from banks at beginning  of year                       1,902,847      2,781,252
                                                                 -------------  -------------

Cash and due from banks at end of year                           $  3,616,575   $  1,902,847
                                                                 =============  =============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                            FORSYTH BANCSHARES, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

----------------------------------------------------------------------------

<S>                                                   <C>         <C>
SUPPLEMENTAL DISCLOSURES
    Cash paid for:
        Interest                                      $1,796,677  $2,192,007

        Income taxes                                  $  413,682  $  205,636
<FN>



SEE  NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS.
</TABLE>



<PAGE>
                            FORSYTH BANCSHARES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          NATURE OF BUSINESS

               Forsyth  Bancshares,  Inc.  (the  "Company")  is  a  bank holding
               company  whose principal activity is the ownership and management
               of  its  wholly-owned  subsidiary,  The  Citizens Bank of Forsyth
               County,  (the  "Bank").  The Bank is a commercial bank located in
               Cumming,  Forsyth County, Georgia. The Bank provides a full range
               of  banking services in its primary market area of Forsyth County
               and  surrounding  counties.

          BASIS  OF  PRESENTATION  AND  ACCOUNTING  ESTIMATES

               The consolidated financial statements include the accounts of the
               Company and its subsidiary. Significant intercompany transactions
               and  balances  have  been  eliminated  in  consolidation.

               In  preparing the consolidated financial statements in accordance
               with  accounting  principles  generally  accepted  in  the United
               States  of  America, management is required to make estimates and
               assumptions  that  affect  the  reported  amounts  of  assets and
               liabilities  and  the  disclosure  of  contingent  assets  and
               liabilities as of the balance sheet date and the reported amounts
               of  revenues  and  expenses  during  the reporting period. Actual
               results  could  differ  from  those  estimates.

               Material  estimates  that  are  particularly  susceptible  to
               significant  change  in the near term relate to the determination
               of  the allowance for loan losses, deferred taxes, and contingent
               assets  and liabilities. The determination of the adequacy of the
               allowance  for  loan  losses  is  based  on  estimates  that  are
               susceptible  to  significant  changes in the economic environment
               and  market  conditions.  In connection with the determination of
               the  estimated  losses  on  loans and the valuation of foreclosed
               real  estate,  management  obtains  independent  appraisals  for
               significant  collateral.

          CASH, DUE FROM BANKS AND CASH FLOWS

               For  purposes  of  reporting  cash flows, cash and due from banks
               include  cash  on  hand,  cash items in process of collection and
               amounts  due  from  banks.  Cash  flows from loans, federal funds
               sold,  interest-bearing  deposits  in  banks,  deposits,  and
               securities  sold  under  repurchase  agreements are reported net.

               The  Bank  is required to maintain reserve balances in cash or on
               deposit  with  the Federal Reserve Bank, based on a percentage of
               deposits. The total of those reserve balances was approximately $
               570,000 and $332,000 at December 31, 2003 and 2002, respectively.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          SECURITIES

               Debt  securities  that  management  has  the  positive intent and
               ability  to  hold  to maturity are classified as held to maturity
               and recorded at amortized cost. Securities not classified as held
               to  maturity are classified as available for sale and recorded at
               fair  value  with  unrealized  gains  and  losses  excluded  from
               earnings  and  reported  in  other  comprehensive  income, net of
               related deferred tax effect. Restricted equity securities without
               a  readily  determinable  fair  value  are  recorded  at  cost.

               The  amortization  of  premiums  and  accretion  of discounts are
               recognized  in  interest  income  using methods approximating the
               interest  method  over the life of the securities. Realized gains
               and  losses,  determined  on  the  basis  of the cost of specific
               securities sold, are included in earnings on the settlement date.
               Declines  in the fair value of held to maturity and available for
               sale securities below their cost that are deemed to be other than
               temporary  are  reflected  in  earnings  as  realized  losses.

          LOANS

               Loans  are  reported at their outstanding principal balances less
               the  allowance for loan losses. Interest income is accrued on the
               outstanding  principal  balance.

               Nonrefundable loan fees and certain direct loan origination costs
               are  deferred and recognized in income over the life of the loans
               using  a  method  which  approximates  a  level  yield.

               The  accrual  of  interest  on  loans  is  discontinued  when, in
               management's opinion, the borrower may be unable to meet payments
               as they become due, unless the loan is well-secured. All interest
               accrued but not collected for loans that are placed on nonaccrual
               or  charged  off  is  reversed  against  interest  income, unless
               management  believes  that  the  accrued  interest is recoverable
               through  the  liquidation  of  collateral.  Interest  income  on
               nonaccrual loans is recognized on the cash-basis or cost-recovery
               method, until the loans are returned to accrual status. Loans are
               returned  to  accrual  status when all the principal and interest
               amounts  are  brought  current and future payments are reasonably
               assured.

               A  loan  is  considered  impaired  when  it is probable, based on
               current  information  and  events,  the Company will be unable to
               collect  all  principal  and  interest payments due in accordance
               with  the contractual terms of the loan agreement. Impaired loans
               are  measured by either the present value of expected future cash
               flows  discounted  at  the  loan's  effective  interest rate, the
               loan's  obtainable  market  price,  or  the  fair  value  of  the
               collateral  if  the  loan  is collateral dependent. The amount of
               impairment,  if  any,  and any subsequent changes are included in
               the  allowance  for  loan  losses.  Interest on accruing impaired
               loans  is  recognized  as  long  as  such  loans  do not meet the
               criteria  for  nonaccrual  status.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          ALLOWANCE  FOR  LOAN  LOSSES

               The  allowance for loan losses is established through a provision
               for  loan  losses  charged  to  expense.  Loan losses are charged
               against the allowance when management believes the collectibility
               of  the principal is unlikely. Subsequent recoveries, if any, are
               credited  to  the  allowance.

               The  allowance  is  an  amount  that  management believes will be
               adequate  to  absorb  estimated  losses  relating to specifically
               identified  loans,  as well as probable credit losses inherent in
               the  balance of the loan portfolio, based on an evaluation of the
               collectibility  of existing loans and prior loss experience. This
               evaluation  also takes into consideration such factors as changes
               in the nature and volume of the loan portfolio, overall portfolio
               quality,  review  of  specific  problem loans, concentrations and
               current  economic  conditions  that  may  affect  the  borrower's
               ability  to  pay. This evaluation does not include the effects of
               expected  losses  on  specific  loans or groups of loans that are
               related  to  future  events  or  expected  changes  in  economic
               conditions.  While management uses the best information available
               to  make  its evaluation, future adjustments to the allowance may
               be  necessary  if  there  are  significant  changes  in  economic
               conditions. In addition, regulatory agencies, as an integral part
               of  their  examination  process,  periodically  review the Bank's
               allowance  for  loan  losses,  and  may  require the Bank to make
               additions  to  the  allowance  based  on  their  judgment  about
               information  available to them at the time of their examinations.

               The  allowance  consists  of  specific,  general  and unallocated
               components.  The  specific  component  relates  to loans that are
               classified  as  either  doubtful, substandard or special mention.
               For such loans that are also classified as impaired, an allowance
               is  established  when  the  discounted  cash flows (or collateral
               value  or  observable market price) of the impaired loan is lower
               than  the  carrying  value  of  that  loan. The general component
               covers  non-classified  loans  and  is  based  on historical loss
               experience  adjusted  for  qualitative  factors.  An  unallocated
               component  is maintained to cover uncertainties that could affect
               management's  estimate  of  probable  losses.  The  unallocated
               component  of  the  allowance  reflects the margin of imprecision
               inherent  in the underlying assumptions used in the methodologies
               for  estimating  specific  and  general  losses in the portfolio.

          PREMISES  AND  EQUIPMENT

               Land  is  carried  at cost. Premises and equipment are carried at
               cost  less  accumulated  depreciation.  Depreciation  is computed
               principally by the straight-line method over the estimated useful
               lives  of  the  assets.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          OTHER  REAL  ESTATE  OWNED

               Other real estate owned represents properties acquired through or
               in  lieu  of  loan  foreclosure  and is initially recorded at the
               lower  of  cost  or  fair value less estimated costs to sell. Any
               write-down  to  fair  value at the time of transfer to other real
               estate  owned  is charged to the allowance for loan losses. Costs
               of  improvements  are  capitalized,  whereas  costs  relating  to
               holding other real estate owned and subsequent adjustments to the
               value are expensed. The Company had no other real estate owned at
               December  31,  2003  and  2002.

          INCOME  TAXES

               Deferred  income  tax assets and liabilities are determined using
               the balance sheet method. Under this method, the net deferred tax
               asset  or liability is determined based on the tax effects of the
               temporary  differences  between  the  book  and  tax bases of the
               various  balance  sheet  assets and liabilities and gives current
               recognition  to  changes  in  tax  rates  and  laws.

          STOCK-BASED  COMPENSATION

               At  December  31,  2003, the Company has two stock-based employee
               compensation plans, which are described more fully in Note 8. The
               Company  accounts  for  those  plans  under  the  recognition and
               measurement  principles  of  APB  Opinion  No. 25, Accounting for
               Stock  Issued  to  Employees,  and  related  Interpretations.  No
               stock-based  employee  compensation  cost  is  reflected  in  net
               income,  as all options granted under those plans had an exercise
               price  equal  to  the market value of the underlying stock on the
               date  of grant. The following table illustrates the effect on net
               income and earnings per share if the Company had applied the fair
               value  recognition  provisions  of  SFAS  No. 123, Accounting for
               Stock-Based  Compensation,  to stock-based employee compensation.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          STOCK-BASED  COMPENSATION  (CONTINUED)

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                                  2003      2002
                                                                --------  --------
<S>                                                             <C>       <C>

          Net income, as reported                               $842,135  $638,240
          Deduct: Total stock-based employee compensation
             expense determined under fair value based
             method for all awards, net of related tax effects    13,125   545,403
                                                                --------  --------
          Pro forma net income                                  $829,010  $ 92,837
                                                                ========  ========
          Earnings per share:
             Basic - as reported                                $   0.47  $    .40
                                                                ========  ========
             Basic - pro forma                                  $   0.46  $    .06
                                                                ========  ========
             Diluted - as reported                              $   0.47  $    .40
                                                                ========  ========
             Diluted - pro forma                                $   0.46  $    .06
                                                                ========  ========
</TABLE>

          EARNINGS  PER  SHARE

               Basic  earnings  per share are computed by dividing net income by
               the  weighted-average  number  of  shares  of  common  stock
               outstanding.  Diluted earnings per share are computed by dividing
               net income by the sum of the weighted-average number of shares of
               common  stock  outstanding and potential common shares. Potential
               common  shares  consist  of  stock  options.

          COMPREHENSIVE  INCOME

               Accounting  principles generally require that recognized revenue,
               expenses,  gains  and  losses be included in net income. Although
               certain  changes  in  assets  and liabilities, such as unrealized
               gains  and  losses on available for sale securities, are reported
               as  a  separate  component  of  the equity section of the balance
               sheet,  such  items,  along  with  net  income, are components of
               comprehensive  income.

          RECENT  ACCOUNTING  STANDARDS

               In  November  2002,  the  FASB  issued  Interpretation  No.  45,
               "Guarantor's  Accounting  and  Disclosure  Requirements  for
               Guarantees,  Including  Indirect  Guarantees  of  Indebtedness of
               Others,  an  interpretation of FASB Statements No. 5, 57, and 107
               and  a  rescission  of  FASB  Interpretation  No.  34".  The
               interpretation  elaborates  on  the  disclosures  to be made by a
               guarantor  in  its  interim and annual financial statements about
               its obligations under guarantees issued. It also clarifies that a
               guarantor  is required to recognize, at inception of a guarantee,
               a  liability  for  the fair value of the obligation undertaken in
               issuing  a  guarantee.  The  initial  recognition  and  initial
               measurement  provisions  of  the interpretation are applicable to
               guarantees  issued  or


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          RECENT  ACCOUNTING  STANDARDS  (CONTINUED)

               modified  after December 31, 2002. The disclosure requirements in
               the  interpretation  are  effective  for  financial statements of
               interim  or  annual  periods  ending after December 15, 2002. The
               adoption  of the interpretation did not have a material effect on
               the  Company's  financial  condition  or  results  of operations.

               In  December 2002, the FASB issued Statement No. 148, "Accounting
               for  Stock-Based  Compensation  -  Transition  and Disclosure, an
               amendment  of  FASB  Statement  No.  123".  The  Statement amends
               Statement  No. 123, "Accounting for Stock-Based Compensation", to
               provide  alternative methods of transition for a voluntary change
               to  the  fair value method of accounting for stock-based employee
               compensation.  In  addition,  the statement amends the disclosure
               requirements  of  Statement  No.  123  to  require  prominent
               disclosures in both annual and interim financial statements about
               the  method  of  accounting  for stock-based compensation and the
               effect  on  reported  results  of  operations.  The  disclosure
               requirements  of  the  statement  are  required  for fiscal years
               ending  after  December  15,  2002  and interim periods beginning
               after  December  15,  2002. The Company has not adopted Statement
               No.  123  for  accounting  for  stock-based  compensation  as  of
               December  31, 2003; however all required disclosures of Statement
               No.  148  are  included  above  under  the  heading  "Stock-Based
               Compensation".

               In  January  2003,  the  FASB  issued  Interpretation  No.  46,
               "Consolidation  of  Variable Interest Entities, an interpretation
               of  ARB  No.  51", and on December 24, 2003, the FASB issued FASB
               Interpretation  No. 46 (Revised December 2003), "Consolidation of
               Variable  Interest  Entities"  which  replaced  FIN  46.  The
               interpretation addresses consolidation by business enterprises of
               variable interest entities. A variable interest entity is defined
               as an entity subject to consolidation according to the provisions
               of  the  interpretation.  The revised interpretation provided for
               special  effective dates for entities that had fully or partially
               applied  the  original  interpretation  as  of December 24, 2003.
               Otherwise,  application  of  the  interpretation  is  required in
               financial  statements  of  public entities that have interests in
               special-purpose  entities,  or  SPEs,  for  periods  ending after
               December  15,  2003.  Application  by public entities, other than
               small  business issuers, for all other types of variable interest
               entities (i.e., non-SPEs) is required in financial statements for
               periods  ending  after  March  15,  2004.  Application  by  small
               business issuers to variable interest entities other than SPEs is
               required  at  various dates in 2004 and 2005. The interpretations
               did  not  have  a  material  effect  on  the  Company's financial
               condition  or  results  of  operations.

               In  May  2003, the FASB issued Statement No. 150, "Accounting for
               Certain  Financial  Instruments  with  Characteristics  of  both
               Liabilities  and Equity". The statement establishes standards for
               how  an  issuer  classifies  and  measures  certain  financial
               instruments  with characteristics of both liabilities and equity.
               The  statement  requires  than  an  issuer  classify  a financial
               instrument  that  is  within  its  scope  as  a  liability.  Many


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          RECENT  ACCOUNTING  STANDARDS  (CONTINUED)


               of  those  instruments  were previously classified as equity. The
               statement  is effective for financial instruments entered into or
               modified  after  May  31, 2003, and otherwise is effective at the
               beginning  of  the  first interim period beginning after June 15,
               2003.  The  adoption  of  the  statement  did not have a material
               effect  on  the  Company's  financial  condition  or  results  of
               operations.

NOTE 2.   SECURITIES

          The  amortized  cost  and  fair  value of securities are summarized as
          follows:

<TABLE>
<CAPTION>
                                                             GROSS        GROSS
                                              AMORTIZED   UNREALIZED    UNREALIZED      FAIR
                                                COST         GAINS        LOSSES        VALUE
                                             -----------  -----------  ------------  -----------
<S>                                          <C>          <C>          <C>           <C>
          SECURITIES AVAILABLE FOR SALE
             DECEMBER 31, 2003:
             U.S. GOVERNMENT AND AGENCY
                SECURITIES                   $10,497,785  $    59,377  $         -   $10,557,162
             STATE AND MUNICIPAL SECURITIES    1,354,274       69,095            -     1,423,369
             CORPORATE SECURITIES              3,807,125      133,441            -     3,940,566
             MORTGAGE-BACKED SECURITIES        8,779,653       45,857      (39,275)    8,786,235
                                             -----------  -----------  ------------  -----------
                                             $24,438,837  $   307,770  $   (39,275)  $24,707,332
                                             ===========  ===========  ============  ===========

             December 31, 2002:
             U.S. Government and agency
                securities                   $ 1,501,007  $    65,495  $         -   $ 1,566,502
             State and municipal securities    1,357,052       59,708            -     1,416,760
             Corporate securities              4,344,889      210,894            -     4,555,783
             Mortgage-backed securities       10,924,475      248,848            -    11,173,323
                                             -----------  -----------  ------------  -----------
                                             $18,127,423  $   584,945  $         -   $18,712,368
                                             ===========  ===========  ============  ===========

          SECURITIES HELD TO MATURITY
             December 31, 2002:
             Mortgage-backed securities      $    31,643  $         -  $         -   $    31,643
                                             ===========  ===========  ============  ===========
</TABLE>

          In 2003, the FASB Emerging Issues Task Force released Issue 03-01, The
          Meaning  of  Other-Than-Temporary  Impairment  and  Its Application to
          Certain  Investments.  The  issue  requires  disclosure  of  certain
          information about other than temporary impairments in the market value
          of  securities.  The  market  value  of  securities is based on quoted
          market  values  and  is  significantly  affected  by the interest rate
          environment.  At  December  31,  2003,  all  unrealized  losses in the
          securities  portfolio  were for debt securities. From the December 31,
          2003  tables  above, four out of twenty nine securities purchased from
          U.S.  Government  agencies  and  Government  sponsored  corporations,
          including mortgage-backed securities, contained unrealized losses. The
          amortized cost and fair value of these securities at December 31, 2003
          was  $5,185,552  and  $5,146,277, respectively. All securities with an
          unrealized  loss  at  December  31,  2003  have  been  in a continuous
          unrealized loss position for less than twelve months. These unrealized
          losses  are


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.   SECURITIES (CONTINUED)

          considered  temporary  because of acceptable investment grades on each
          security  and  the  repayment  sources  of  principal and interest are
          government  backed.

          Securities  with  a  carrying  value of $5,663,001 and $5,372,565 were
          pledged  at December 31, 2003 and 2002, respectively, to secure public
          deposits  and  for  other  purposes  required  or  permitted  by  law.

          The  amortized cost and fair value of securities available for sale as
          of  December  31, 2003 by contractual maturity are shown below. Actual
          maturities  may differ from contractual maturities because issuers may
          have  the  right to call or prepay obligations with or without call or
          prepayment  penalties.

<TABLE>
<CAPTION>
                                                              SECURITIES AVAILABLE FOR SALE
                                                             --------------------------------
                                                                 AMORTIZED          FAIR
                                                                    COST            VALUE
                                                             ---------------  ---------------
<S>                                                          <C>              <C>

            Due within one year                              $     5,262,612  $     5,310,422
            Due from one to five years                             9,672,546        9,839,832
            Due from five to ten years                               275,000          291,193
            Due after ten years                                      449,026          479,650
            Mortgage-backed securities                             8,779,653        8,786,235
                                                             ---------------  ---------------
                                                             $    24,438,837  $    24,707,332
                                                             ===============  ===============
</TABLE>

          Gross  gains  and  losses  on  sales  of securities available for sale
          consist  of  the  following:

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                            ---------------------------
                                                 2003           2002
                                            -------------  ------------
<S>                                         <C>            <C>

            Gross gains                     $     31,980   $    10,349
            Gross losses                         (21,064)       (5,321)
                                            -------------  ------------
            Net realized gains              $     10,916   $     5,028
                                            =============  ============
</TABLE>

NOTE 3.   LOANS

          The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                            --------------------------
                                                                2003          2002
                                                            ------------  ------------
<S>                                                         <C>           <C>

            Commercial, financial, and agricultural         $ 9,807,000   $14,021,244
            Real estate - construction                       24,751,000    18,507,410
            Real estate - mortgage                           41,291,000    30,500,205
            Consumer installment and other                    7,104,909     7,517,618
                                                            ------------  ------------
                                                             82,953,909    70,546,477
            Allowance for loan losses                        (1,032,855)     (885,266)
                                                            ------------  ------------
            Loans, net                                      $81,921,054   $69,661,211
                                                            ============  ============
</TABLE>


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3.   LOANS (CONTINUED)

          Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                          ------------------------
                                                              2003        2002
                                                           -----------  ---------
<S>                                                        <C>          <C>

            Balance, beginning of year                     $  885,266   $756,367
               Provision for loan losses                      201,100    196,374
               Loans charged off                              (65,220)   (71,063)
               Recoveries of loans previously charged off      11,709      3,588
                                                           -----------  ---------
            Balance, end of year                           $1,032,855   $885,266
                                                           ===========  =========
</TABLE>

          The  total recorded investment in impaired loans, consisting solely of
          loans  on  nonaccrual  status, was $11,956 and $16,259 at December 31,
          2003  and  2002,  respectively.  There were no impaired loans that had
          related  allowances  determined  in  accordance  with  SFAS  No.  114,
          Accounting by Creditors for Impairment of a Loan, at December 31, 2003
          and  2002.  The average recorded investment in impaired loans for 2003
          and  2002 was $51,926 and $13,861. Interest income recognized for cash
          payments  received  on  impaired  loans was not material for the years
          ended  December 31, 2003 and 2002. There were no loans past due ninety
          days  or  more  and  still  accruing interest at December 31, 2003 and
          2002.

          In  the  ordinary course of business, the Company has granted loans to
          certain  related parties, including directors, executive officers, and
          their affiliates. The interest rates on these loans were substantially
          the  same  as  rates  prevailing  at  the  time of the transaction and
          repayment terms are customary for the type of loan. Changes in related
          party  loans  for  the  year  ended  December 31, 2003 are as follows:

<TABLE>
<CAPTION>
<S>                                                 <C>
            Balance, beginning of year              $ 8,135,989
               Advances                               4,421,963
               Repayments                            (6,153,390)
                                                    ------------
            Balance, end of year                    $ 6,404,562
                                                    ============
</TABLE>


NOTE 4.   PREMISES AND EQUIPMENT

          Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                  ------------------------
                                                                     2003         2002
                                                                  -----------  -----------
<S>                                                               <C>          <C>

            Land                                                  $1,791,652   $1,781,652
            Buildings                                              2,958,378    2,885,022
            Equipment                                              1,499,130    1,400,745
            Construction and equipment installation in progress,
               estimated cost to complete, $1,400,000                 53,534            -
                                                                  -----------  -----------
                                                                   6,302,694    6,067,419
            Accumulated depreciation                                (979,024)    (733,315)
                                                                  -----------  -----------
                                                                  $5,323,670   $5,334,104
                                                                  ===========  ===========
</TABLE>


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.   PREMISES AND EQUIPMENT (CONTINUED)

          Through  November 2002, the Company operated out of leased main office
          and  operational  center  facilities.  In  2003,  the Company paid the
          lessor  $37,986  for  the  release  of the main office lease contract.
          Total  rental  expense, including the release fee, amounted to $62,060
          and  $90,518  for  the  years  ending  December  31,  2003  and  2002,
          respectively.

NOTE 5.   DEPOSITS

          The  aggregate amount of time deposits in denominations of $100,000 or
          more  at  December  31, 2003 and 2002 was $19,057,577 and $25,523,515,
          respectively.  The  scheduled  maturities of time deposits at December
          31,  2003  are  as  follows:

            2004                                                  $33,567,017
            2005                                                    3,182,911
            2006                                                      130,326
            2007                                                      272,002
            2008                                                    3,134,685
                                                                  -----------
                                                                  $40,286,941
                                                                  ===========

          Overdraft  demand  deposits  reclassified to loans totaled $11,611 and
          $11,625  at  December  31,  2003  and  2002,  respectively.

NOTE 6.   SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

          Securities  sold  under  repurchase  agreements,  which  are  secured
          borrowings,  generally  mature  within  one  to  four  days  from  the
          transaction  date.  Securities  sold  under  repurchase agreements are
          reflected  at  the  amount  of  cash  received  in connection with the
          transactions.  The  Company  may  be  required  to  provide additional
          collateral  based  on the fair value of the underlying securities. The
          Company  monitors  the  fair  value  of  the  underlying  securities.
          Securities  sold  under repurchase agreements at December 31, 2003 and
          2002  were  $416,396  and  $16,435,  respectively.

NOTE 7.   EMPLOYEE BENEFIT PLAN

          The  Company has a 401-K profit sharing plan available to all eligible
          employees,  subject  to  certain minimum age and service requirements.
          Contributions  charged  to  expense  were  $36,377 and $21,800 for the
          years  ended  December  31,  2003  and  2002,  respectively.

NOTE 8.   STOCK-BASED COMPENSATION

          The  Company  has  an incentive plan that provides for the issuance of
          stock  options  to  key  employees.  The  Company has reserved 160,000
          shares  of  common  stock for this purpose. The options are granted at
          the  fair value of the Company's common stock on the date of grant and
          expire  in  ten  years from the date of grant. In 2002, 24,500 options


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8.   STOCK-BASED COMPENSATION (CONTINUED)

          were  granted  to key employees that vest over a period of five years.
          No  options  were  granted  to  employees  in  2003.

          The  Company granted 3,000 and 324,500 stock options in 2003 and 2002,
          respectively,  to  certain  directors of the Company. The options were
          granted at the fair value of the Company's common stock on the date of
          grant  and  expire  in ten years from the date of grant. These options
          vested  on  the  date  of  grant.

          Other pertinent information related to the options is as follows:

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                              -------------------------------------------
                                                       2003                 2002
                                              ----------------------  -------------------
                                                           WEIGHTED-            Weighted-
                                                           AVERAGE              Average
                                                           EXERCISE             Exercise
                                                NUMBER      PRICE      Number    Price
                                              ----------  ----------  ---------  --------
<S>                                           <C>         <C>         <C>        <C>

          Outstanding at beginning of year      174,000   $     8.48         -   $    -
             Granted                              3,000         8.50   349,000     8.49
             Exercised                          (50,000)        8.50  (175,000)    8.50
             Terminated                               -            -         -        -
                                              ----------              ---------
          Outstanding at end of year            127,000         8.47   174,000     8.48
                                              ==========              =========

          Options exercisable at end of year    107,400         8.49   149,500     8.50
                                              ==========              =========

          Weighted-average fair value of
             options granted during the year       2.63                            2.70
</TABLE>

          Information  pertaining to options outstanding at December 31, 2003 is
          as  follows:

<TABLE>
<CAPTION>
                                       OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
                            -----------------------------------------  ----------------------
                                          WEIGHTED-
                                           AVERAGE                                  WEIGHTED-
                                          REMAINING      WEIGHTED-                   AVERAGE
          RANGE OF            NUMBER     CONTRACTUAL      AVERAGE        NUMBER     EXERCISE
          EXERCISE PRICES   OUTSTANDING     LIFE      EXERCISE PRICE   EXERCISABLE    PRICE
          ----------------  -----------  -----------  ---------------  -----------  ---------
<S>                         <C>          <C>          <C>              <C>          <C>

          $8.33-$8.50           127,000      9 years  $          8.47      107,400  $    8.49
</TABLE>


          The  fair value of each option grant is estimated on the date of grant
          using  the  Black-Scholes  option-pricing  model  with  the  following
          weighted-average  assumptions:

<TABLE>
<CAPTION>
                                           YEARS ENDED DECEMBER 31,
                                           ------------------------
                                               2003      2002
                                             --------  ---------
<S>                                          <C>       <C>

          Dividend yield                           0%         0%

          Expected life                      9 years   10 years

          Expected volatility                   0.01%      0.01%

          Risk-free interest rate               4.27%      3.86%
</TABLE>


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9.   INCOME TAXES

          Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                          YEARS ENDED DECEMBER 31,
                                          ------------------------
                                              2003       2002
                                            ---------  --------
<S>                                         <C>        <C>

          Current                           $463,485   $313,283
          Deferred                            (5,807)    27,785
                                            ---------  --------
              Income tax expense            $457,678   $341,068
                                            =========  ========
</TABLE>

          The  Company's income tax expense differs from the amounts computed by
          applying  the  federal  income  tax  statutory  rates to income before
          income  taxes.  A  reconciliation  of  the  differences is as follows:

<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                                ------------------------
                                                    2003       2002
                                                  ---------  ---------
<S>                                               <C>        <C>

          Income taxes at statutory federal rate  $441,937   $332,965
             Nontaxable interest                   (18,190)   (17,488)
             State income taxes                     33,016     25,220
             Other items, net                          915        371
                                                  ---------  ---------
          Income tax expense                      $457,678   $341,068
                                                  =========  =========
</TABLE>

          The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                      ------------------
                                                        2003      2002
                                                      --------  --------
<S>                                                   <C>       <C>

          Deferred tax assets:
             Loan loss reserves                       $355,718  $308,660
             Other                                       8,642     4,750
                                                      --------  --------
                                                       364,360   313,410
                                                      --------  --------
          Deferred tax liabilities:
             Securities available for sale             102,025   222,279
             Depreciation                               90,478    45,335
                                                      --------  --------
                                                       192,503   267,614
                                                      --------  --------

          Net deferred tax assets                     $171,857  $ 45,796
                                                      ========  ========
</TABLE>



<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.  EARNINGS PER SHARE

          Presented below is a summary of the components used to calculate basic
          and  diluted  earnings  per  common  share.

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                           ------------------------
                                                               2003        2002
                                                            ----------  ----------
<S>                                                         <C>         <C>

          Basic Earnings  Per Share:
             Weighted average common shares outstanding      1,806,390   1,601,167
                                                            ==========  ==========

             Net income                                     $  842,135  $  638,240
                                                            ==========  ==========

             Basic earnings  per share                      $     0.47  $     0.40
                                                            ==========  ==========

          Diluted Earnings Per Share:
             Weighted average common shares outstanding      1,806,390   1,601,167
             Net effect of the assumed exercise of stock
                options based on the treasury stock method
                using average market prices for the year           490           -
                                                            ----------  ----------
             Total weighted average common shares and
                common stock equivalents outstanding         1,806,880   1,601,167
                                                            ==========  ==========

             Net income                                     $  842,135  $  638,240
                                                            ==========  ==========

             Diluted earnings per share                     $     0.47  $      .40
                                                            ==========  ==========
</TABLE>

NOTE 11.  COMMITMENTS AND CONTINGENCIES

          LOAN COMMITMENTS

               The  Company 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 and standby letters of credit. They
               involve, to varying degrees, elements of credit risk and interest
               rate  risk  in  excess  of  the  amount recognized in the balance
               sheets.  The  majority  of  all  commitments to extend credit and
               standby  letters  of  credit  are  variable  rate  instruments.

               The  Company's  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 is
               represented  by  the contractual amount of those instruments. The
               Company  uses  the same credit policies in making commitments and
               conditional  obligations  as  it  does  for  on-balance  sheet
               instruments.  A  summary  of  the  Company's  commitments  is  as
               follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                         ------------------------
                                                            2003         2002
                                                         -----------  -----------
<S>                                                      <C>          <C>

          Commitments to extend credit                   $14,321,075  $11,425,991
          Financial standby letters of credit                168,275      115,394
                                                         -----------  -----------
                                                         $14,489,350  $11,541,385
                                                         ===========  ===========
</TABLE>


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

          LOAN  COMMITMENTS  (CONTINUED)

               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  are expected to expire without
               being drawn upon, the total commitment amounts do not necessarily
               represent  future  cash  requirements.  The  amount of collateral
               obtained,  if  deemed  necessary by the Company upon extension of
               credit,  is based on management's credit evaluation of the party.
               Collateral  held  varies,  but  may  include accounts receivable,
               inventory,  property  and  equipment, residential real estate and
               income-producing  commercial  properties.

               Standby  letters  of credit are conditional commitments issued by
               the Company to guarantee the performance of a customer to a third
               party.  Those  guarantees  are primarily issued to support public
               and  private  borrowing arrangements. The credit risk involved in
               issuing  letters  of  credit  is  essentially  the  same  as that
               involved  in extending loans to customers. Collateral held varies
               as specified above and is required in instances which the Company
               deems  necessary.

               At December 31, 2003 and 2002, the carrying amount of liabilities
               related  to  the  Company's obligation to perform under financial
               standby  letters of credit was insignificant. The Company has not
               been  required  to  perform  on  any financial standby letters of
               credit,  and the Company has not incurred any losses on financial
               standby  letters  of credit for the years ended December 31, 2003
               and  2002.

          CONTINGENCIES

               In  the  normal  course  of  business, the Company is involved in
               various  legal  proceedings.  In  the  opinion of management, any
               liability  resulting  from  such  proceedings  would  not  have a
               material  adverse  effect  on the Company's financial statements.


NOTE 12.  CONCENTRATIONS OF CREDIT

               The  Company  originates  primarily  commercial,  commercial real
               estate,  residential real estate, and consumer loans to customers
               in  Forsyth  County  and surrounding counties. The ability of the
               majority  of  the  Company's customers to honor their contractual
               loan  obligations  is  dependent  on  the economy in these areas.

               Eighty percent of the Company's loan portfolio is concentrated in
               loans  secured  by real estate, of which a substantial portion is
               secured  by  real  estate  in  the Company's primary market area.
               Accordingly, the ultimate collectibility of the loan portfolio is
               susceptible  to  changes  in  market  conditions in the Company's
               primary  market  area.  The  other  significant concentrations of
               credit  by  type  of  loan  are  set  forth  in  Note  3.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.  CONCENTRATIONS OF CREDIT (CONTINUED)

          The  Company,  as a matter of policy, does not generally extend credit
          to  any single borrower or group of related borrowers in excess of 25%
          of  statutory  capital,  or  approximately  $1,875,000.

NOTE 13.  REGULATORY MATTERS

          The Bank is subject to certain restrictions on the amount of dividends
          that  may  be  declared without prior regulatory approval. At December
          31,  2003,  approximately $460,000 of retained earnings were available
          for  dividend  declaration  without  regulatory  approval  in  2004.

          The  Company  and  the  Bank are subject to various regulatory capital
          requirements  administered by the 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 consolidated
          financial  statements.  Under  capital  adequacy  guidelines  and  the
          regulatory  framework  for  prompt  corrective action, the Company and
          Bank  must  meet specific capital guidelines that involve quantitative
          measures  of the Company's and Bank's assets, liabilities, and certain
          off-balance  sheet  items  as  calculated  under regulatory accounting
          practices.  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 and the Bank to maintain minimum amounts
          and  ratios  of  Total  and Tier I capital to risk-weighted assets, as
          defined,  and  of  Tier  I  capital  to  average  assets,  as defined.
          Management believes, as of December 31, 2003 and 2002, the Company and
          the  Bank  met  all  capital  adequacy  requirements to which they are
          subject.

          As of December 31, 2003, the most recent notification from the Federal
          Deposit Insurance Corporation categorized 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 I risk-based, and Tier I leverage ratios as set forth
          in  the  following table. There are no conditions or events since that
          notification  that  management  believes  have  changed  the  Bank's
          category.  Prompt  corrective  provisions  are  not applicable to bank
          holding  companies.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13.  REGULATORY MATTERS (CONTINUED)

          The Company and Bank's actual capital amounts and ratios are presented
          in  the  following  table:

<TABLE>
<CAPTION>
                                                                                        TO BE WELL
                                                                       FOR CAPITAL   CAPITALIZED UNDER
                                                                        ADEQUACY     PROMPT CORRECTIVE
                                                        ACTUAL          PURPOSES     ACTION PROVISIONS
                                                    ---------------  ---------------  ----------------
                                                    AMOUNT   RATIO   AMOUNT   RATIO   AMOUNT   RATIO
                                                    -------  ------  -------  ------  -------  -------
<S>                                                 <C>      <C>     <C>      <C>     <C>      <C>
                                                    --------------------------------------------------
                                                                  (DOLLARS IN THOUSANDS)
                                                    --------------------------------------------------
          DECEMBER 31, 2003:
          TOTAL CAPITAL TO RISK WEIGHTED ASSETS:
               CONSOLIDATED                         $13,738  14.48%  $ 7,593      8%  $    N/A    N/A
               BANK                                 $10,212  10.87%  $ 7,513      8%  $  9,391    10%
          TIER I CAPITAL TO RISK WEIGHTED ASSETS:
               CONSOLIDATED                         $12,705  13.39%  $ 3,757      4%  $    N/A    N/A
               BANK                                 $ 9,179   9.77%  $ 3,757      4%  $  5,635     6%
          TIER I CAPITAL TO AVERAGE ASSETS:
               CONSOLIDATED                         $12,705  10.64%  $ 4,739      4%  $    N/A    N/A
               BANK                                 $ 9,179   7.75%  $ 4,739      4%  $  5,923     5%


          December 31, 2002:
          Total Capital to Risk Weighted Assets:
               Consolidated                         $12,298  15.34%  $ 6,412      8%  $    N/A    N/A
               Bank                                 $ 9,143  11.55%  $ 6,332      8%  $  7,915    10%
          Tier I Capital to Risk Weighted Assets:
               Consolidated                         $11,413  14.24%  $ 3,206      4%  $    N/A    N/A
               Bank                                 $ 8,258  10.43%  $ 3,166      4%  $  4,749     6%
          Tier I Capital to Average Assets:
               Consolidated                         $11,413  11.60%  $ 3,936      4%  $    N/A    N/A
               Bank                                 $ 8,258   8.48%  $ 3,896      4%  $  4,870     5%
</TABLE>


NOTE 14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The  fair  value  of a financial instrument is the current amount that
          would  be  exchanged  between  willing parties, other than in a forced
          liquidation.  Fair  value  is best determined based upon quoted market
          prices.  However, in many instances, there are no quoted market prices
          for the Company's various financial instruments. In cases where quoted


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

          market  prices  are  not  available, fair value is based on discounted
          cash  flows  or  other  valuation  techniques.  These  techniques  are
          significantly affected by the assumptions used, including the discount
          rate  and  estimates of future cash flows. Accordingly, the fair value
          estimates  may  not  be  realized  in  an  immediate settlement of the
          instrument.  SFAS  No. 107, Disclosures about Fair Values of Financial
          Instruments,  excludes  certain  financial  instruments  and  all
          nonfinancial  instruments  from  its  disclosure  requirements.
          Accordingly,  the  aggregate  fair  value  amounts  presented  may not
          necessarily  represent  the  underlying  fair  value  of  the Company.

          The  following  methods  and  assumptions  were used by the Company in
          estimating  the  fair  value  of  its  financial  instruments:

          CASH,  DUE  FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS AND FEDERAL
          FUNDS  SOLD:  The  carrying  amounts  of  cash,  due  from  banks,
          interest-bearing  deposits in banks and federal funds sold approximate
          fair  values.

          SECURITIES:  Fair  values for securities are based on available quoted
          market  prices.  The  carrying  values  of  equity  securities with no
          readily  determinable  fair  value  approximates  fair  value.

          LOANS:  The  carrying  amount  of  variable-rate  loans  that  reprice
          frequently  and have no significant change in credit risk approximates
          fair  value.  The fair value of fixed-rate loans is estimated based on
          discounted  contractual  cash  flows,  using  interest rates currently
          being  offered  for loans with similar terms to borrowers with similar
          credit quality. The fair value of impaired loans is estimated based on
          discounted  contractual  cash  flows  or underlying collateral values,
          where  applicable.

          DEPOSITS:  The  carrying  amount of demand deposits, savings deposits,
          and variable-rate certificates of deposit approximates fair value. The
          fair value of fixed-rate certificates of deposit is estimated based on
          discounted contractual cash flows using interest rates currently being
          offered  for  certificates  of  similar  maturities.

          SECURITIES  SOLD  UNDER REPURCHASE AGREEMENTS: The carrying amounts of
          securities  sold  under  repurchase  agreements approximate their fair
          values.

          ACCRUED INTEREST: The carrying amounts of accrued interest approximate
          their  fair  values.

          OFF-BALANCE  SHEET  INSTRUMENTS: The carrying amount of commitments to
          extend  credit  and standby letters of credit approximates fair value.
          The  carrying amount of the off-balance sheet financial instruments is
          based  on  fees  charged  to  enter  into  such  agreements.


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14.  FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)


          The  carrying  amount  and  estimated  fair  value  of  the  Company's
          financial  instruments  were  as  follows:

<TABLE>
<CAPTION>
                                                  DECEMBER 31, 2003          December 31, 2002
                                              --------------------------  ------------------------
                                                CARRYING        FAIR       Carrying       Fair
                                                 AMOUNT        VALUE        Amount        Value
                                              ------------  ------------  -----------  -----------
<S>                                           <C>           <C>           <C>          <C>

          Financial assets:
             Cash, due from banks, interest-
                bearing deposits in banks,
                and federal funds sold        $  8,307,840  $  8,307,840  $ 5,577,906  $ 5,577,906
             Securities available for sale      24,707,332    24,707,332   18,712,368   18,712,368
             Securities held to maturity                 -             -       31,643       31,643
             Restricted equity securities          277,400       277,400      205,900      205,900
             Loans                              81,921,054    83,798,000   69,661,211   71,214,000
             Accrued interest receivable           572,437       572,437      579,295      579,295

          Financial liabilities:
             Deposits                          107,724,436   107,369,390   87,966,400   88,605,400
             Securities sold under
                repurchase agreements              416,396       416,396       16,435       16,435
             Accrued interest payable              152,974       152,974      211,772      211,772
</TABLE>


NOTE 15.  SUPPLEMENTAL FINANCIAL DATA

          Components  of other operating expenses in excess of 1% of revenue are
          as  follows:

<TABLE>
<CAPTION>
                                YEARS ENDED DECEMBER 31,
                                ------------------------
                                    2003         2002
                                -----------  -----------
<S>                             <C>          <C>

             Director fees      $    99,025  $   100,975

             Professional fees      155,392      137,229

             Data processing        274,074      258,930

             Office supplies         85,907       78,157
</TABLE>



<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16.  PARENT COMPANY FINANCIAL INFORMATION

          The  following  information  presents  the  condensed  balance sheets,
          statements of income, and cash flows of Forsyth Bancshares, Inc. as of
          and  for  the  years  ended  December  31,  2003  and  2002:

<TABLE>
<CAPTION>
                              CONDENSED BALANCE SHEETS

                                                            2003         2002
                                                         -----------  -----------
<S>                                                      <C>          <C>
          ASSETS
             Cash                                        $ 2,506,610  $ 2,158,649
             Investment in subsidiary                      9,346,021    8,620,941
             Premises and equipment                          945,910      970,698
             Other assets                                     73,010       25,232
                                                         -----------  -----------

                   TOTAL ASSETS                          $12,871,551  $11,775,520
                                                         ===========  ===========

          STOCKHOLDERS' EQUITY                           $12,871,551  $11,775,520
                                                         ===========  ===========
</TABLE>

<TABLE>
<CAPTION>
                           CONDENSED STATEMENTS OF INCOME

                                                                     2003       2002
                                                                  ----------  ---------
<S>                                                               <C>         <C>
          INCOME:
            Interest income                                       $  29,310   $ 11,262
                                                                  ----------  ---------

          EXPENSES:
            Depreciation                                             22,788     15,848
            Other expenses                                          133,633     64,401
                                                                  ----------  ---------
                                                                    156,421     80,249
                                                                  ----------  ---------

                    INCOME (LOSS) BEFORE INCOME TAX BENEFITS
                      AND EQUITY IN UNDISTRIBUTED INCOME
                      OF SUBSIDIARY                                (127,111)   (68,987)

          INCOME TAX BENEFITS                                       (47,967)   (26,033)
                                                                  ----------  ---------

                    INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED
                      INCOME OF SUBSIDIARY                          (79,144)   (42,954)

          EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY              921,279    681,194
                                                                  ----------  ---------

                    NET INCOME                                    $ 842,135   $638,240
                                                                  ==========  =========
</TABLE>


<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16.  PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                CONDENSED STATEMENTS OF CASH FLOWS

                                                                             2003         2002
                                                                          -----------  -----------
<S>                                                                       <C>          <C>
          OPERATING ACTIVITIES
              Net income                                                  $  842,135   $  638,240
              Adjustments to reconcile net income to net cash
                  used in operating activities:
                  Depreciation                                                22,788       15,848
                  Equity in undistributed income of subsidiary              (921,279)    (681,194)
                  Net other operating activities                             (22,683)      15,829
                                                                          -----------  -----------

                      NET CASH USED IN OPERATING ACTIVITIES                  (79,039)     (11,277)
                                                                          -----------  -----------

          INVESTING ACTIVITIES
              Purchase of premises and equipment                             (10,000)           -
              Proceeds from sale of premises and equipment                    12,000            -
              Proceeds from sale of premises and equipment to subsidiary           -      620,000
                                                                          -----------  -----------

                      NET CASH PROVIDED BY INVESTING ACTIVITIES                2,000      620,000
                                                                          -----------  -----------

          FINANCING ACTIVITIES
              Proceeds from exercise of stock options                        425,000    1,487,500
                                                                          -----------  -----------

                      NET CASH PROVIDED BY FINANCING ACTIVITIES              425,000    1,487,500
                                                                          -----------  -----------

          Net increase in cash                                               347,961    2,096,223

          Cash at beginning of year                                        2,158,649       62,426
                                                                          -----------  -----------

          Cash at end of year                                             $2,506,610   $2,158,649
                                                                          ===========  ===========
</TABLE>


NOTE 17.  SUBSEQUENT EVENT

          As  of  December  31, 2003, the Company had entered into a contract to
          purchase  land  for future branch expansion. The Company closed on the
          purchase  of  the  land  on  January  22,  2004 at a cost of $928,000.


<PAGE>