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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB

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

[X]      Annual Report under Section 13 or 15(d) of the Securities Exchange Act
         of 1934 for the fiscal year ended December 31, 1997

                        Commission file number: 333-10909


                            FORSYTH BANCSHARES, INC.

             (Exact name of registrant as specified in its charter)



       Georgia                                             58-2231953
(Name of Small Business                    (I.R.S. Employer Identification No.)
Issuer in its Charter)


501 Tri-County Plaza, Highways 9 and 20, Cumming, Georgia        30040
       (address of principal executive office)                 (Zip Code)


        (Issuer's telephone number, including area code): (770) 886-9500


             Securities registered under Section 12(b) of the Act:

  Title of Each Class             Name of Each Exchange on Which Registered
  -------------------             -----------------------------------------
          None                                      None


             Securities registered under Section 12(g) of the Act:

                                      None
                                      ----
                                (Title of Class)


         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes  X   No
           ---     ---

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         State the issuer's revenues for its most recent fiscal year. ($321,820)

         State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: As of March 15, the
aggregate market value of voting stock of the Registrant held by non-affiliates
of the registrant, was approximately $8,000,000.

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of March 15, 1998, there
were 800,000 shares of the Registrant's common stock outstanding.

         Documents Incorporated by Reference:  None.

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                                      INDEX


<TABLE>
<S>                                                                             <C>
PART I ....................................................................      1

         Item 1     Business...............................................      1

         Item 2     Properties.............................................     15

         Item 3     Legal Proceedings......................................     15

         Item 4     Submission of Matters to a Vote of Security Holders....     15

PART II ...................................................................     16

         Item 5     Market for Registrant's Common Equity and
                    Related Stockholder Matters............................     16

         Item 6     Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations of Forsyth BancShares, Inc...............     16

         Item 7     Financial Statements and Supplementary Data............     33

         Item 8     Changes and Disagreements with
                    Accountants on Accounting and Financial
                    Disclosure.............................................     49

PART III ..................................................................     49

         Item 9     Directors and Executive Officers
                    of the Registrant......................................     49

         Item 10    Executive Compensation.................................     52

         Item 11    Security Ownership of Certain Beneficial
                    Owners and Management..................................     55

         Item 12    Certain Relationships and Related Transactions.........     56

         Item 13    Exhibits, Financial Statement Schedules
                    and Reports on Form 8-K................................     56

         Signatures........................................................     58

         Exhibit Index ....................................................     61
</TABLE>




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                                     PART I

ITEM 1.  BUSINESS

GENERAL

         Forsyth Bancshares, Inc. (the "Company") was incorporated as a Georgia
corporation on February 14, 1996, primarily to own and control all of the
capital stock of The Citizens Bank of Forsyth County (the "Bank"). The Company
initially engages in no business other than owning and managing the Bank.

         The Bank received final regulatory approval on January 30, 1997 from
Department of Banking and Finance of the State of Georgia (the "DBF") and the
Federal Deposit Insurance Corporation (the "FDIC") to begin business on February
3, 1997. The Company received final approval to acquire the capital stock of the
Bank from the DBF on October 15, 1996 and from the Federal Reserve Bank of
Atlanta (the "Federal Reserve"), as delegate of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") on November 25, 1996. The
Bank commenced operations on February 3, 1997 as a commercial bank engaging in a
general commercial and retail banking business, emphasizing the needs of small
to medium-sized businesses, professional concerns and individuals, primarily in
Cumming, Georgia and the surrounding area, including Forsyth County (the
"Forsyth County Area").

         The organizers of the Company and the Bank (the "Organizers") chose a
holding company structure under which the Company acquired all of the capital
stock of the Bank because, in the judgment of management, the holding company
structure provides flexibility that would not otherwise be available. The
holding company structure can assist the Bank in maintaining its required
capital ratios because, subject to compliance with Federal Reserve Board debt
guidelines, the Company may borrow money and contribute the proceeds to the Bank
as primary capital. Moreover, a holding company may engage in certain
non-banking activities that the Federal Reserve Board has deemed to be closely
related to banking. See "-- Supervision and Regulation." Although the Company
has no present intention of engaging in any of these activities, if
circumstances should lead the Company's management to believe that there is a
need for these services in the Bank's market area and that such activities could
be profitably conducted, management of the Company would have the flexibility of
commencing these activities upon filing a notice or application with the Federal
Reserve.

MARKETING FOCUS

         Most of the banks in the Forsyth County Area are now local branches of
large regional banks. Although size gives the larger banks certain advantages in
competing for business from large corporations, including higher lending limits
and the ability to offer services in other areas of Georgia and the Forsyth
County Area, management believes that there is a void in the community banking
market in the Forsyth County Area and that the Bank can successfully fill this
void. As a result, the Company generally will not attempt to compete for the
banking relationships of large corporations, but will concentrate its efforts on
small to medium-sized businesses and on individuals.



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         The Bank plans to advertise aggressively, using a wide range of media
to target market segments and will emphasize the Company's local ownership,
community bank nature and ability to provide more personalized service than its
competition. Management, as long-time residents and business people in the
Forsyth County Area, has determined the credit needs of the area through
personal experience and communications with their business colleagues.
Management believes that the area will react favorably to the Bank's emphasis on
service to small businesses, professional concerns and individuals. However, no
assurances in this respect can be given.

LOCATION AND SERVICE AREA

         The Bank is a general commercial and retail banking business,
emphasizing the needs of small to medium-sized businesses, professional concerns
and individuals, primarily in Cumming, Georgia and the surrounding area,
including Forsyth County. The principal executive offices and telephone number
of both the Company and the Bank are located at 501 Tri-County Plaza, Highways 9
and 20, Cumming, Georgia 30040, (770) 886-9500.

         The Bank's primary service area is Forsyth County, Georgia, which is
located in North Georgia. Forsyth County had an estimated population of 52,700
in 1994, 60,311 in 1995 and 84,000 in 1997. The average estimated effective
buying income per household was $49,035 in 1994 and $64,000 in 1997. The
estimated unemployment rates in Forsyth County were 3.8%, 3.3%, and 2.6% in
1993, 1994 and 1997, respectively. The estimated number of households in Forsyth
County grew from 21,828 in 1995 to 25,761 in 1997. Cumming is the only city in
the county and may be reached via major highways including Georgia Highways 9,
20, 141, 306, 369 and 400.

         The principal components of the economy of Forsyth County are wholesale
and retail trade, manufacturing, services and construction industries. According
to the Cumming/Forsyth County Chamber of Commerce, the largest employers in the
county include Tyson Foods, Inc., Siemans Industrial Automation and Scientific
Games, Inc. Dozens of manufacturing industries operate in Forsyth County and
industrial and business developments may expand and establish additional
facilities in Forsyth County.

DEPOSITS

         The Bank offers a full range of deposit services that are typically
available in most banks and savings and loan associations, including checking
accounts, NOW accounts, savings accounts and other time deposits of various
types, ranging from daily money market accounts to longer-term certificates of
deposit. The transaction accounts and time certificates will be tailored to the
Bank's principal market area at rates competitive to those offered in the
Forsyth County Area. In addition, the Bank offers certain retirement account
services, such as Individual Retirement Accounts ("IRAs"). All deposit accounts
are insured by the FDIC up to the maximum amount allowed by law (generally,
$100,000 per depositor, subject to aggregation rules). The Bank solicits these
accounts from individuals, businesses, associations, organizations and
governmental authorities. As of December 31, 1997, the Bank's deposits were
allocated among certain categories as follows: 8.70% demand deposits, 28.89% NOW
accounts, 61.33% time deposits and no government deposits.





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LENDING ACTIVITIES

         General. The Bank emphasizes a range of lending services, including
real estate, commercial and consumer loans, to small to medium-sized businesses,
professional concerns and individuals that are located in or conduct a
substantial portion of their business in the Bank's market area. The Bank has
established policies, which are subject to change, that limit, subject to
certain exceptions, the loans in each general category to the following
percentages: 35% real estate loans, 25% commercial loans and 40% consumer loans.

         Credit Risk. There are certain risks inherent in making all loans. A
principal economic risk inherent in making loans is the creditworthiness of the
borrower. Other risks inherent in making loans include risks with respect to the
period of time over which loans may be repaid, risks resulting from changes in
economic and industry conditions, risks inherent in dealing with individual
borrowers and, in the case of a collateralized loan, risks resulting from
uncertainties as to the future value of the collateral. Management will maintain
an allowance for loan losses based on, among other things, an evaluation of
economic conditions and regular reviews of delinquencies and loan portfolio
quality. Based upon such factors, management makes various assumptions and
judgments about the ultimate collectibility of the loan portfolio and provides
an allowance for potential loan losses based upon a percentage of the
outstanding balances and for specific loans when their ultimate collectibility
is considered questionable. Certain specific risks with regard to each category
of loans are described under the separate subheading for each type of loan
below.

         Real Estate Loans. A primary component of the Bank's loan portfolio is
loans secured by first or second mortgages on real estate. These loans generally
consist of commercial real estate loans, construction and development loans and
residential real estate loans (but exclude home equity loans, which are
classified as consumer loans). Loan terms generally are limited to five years or
less, although payments may be structured on a longer amortization basis.
Interest rates may be fixed or adjustable, and are more likely fixed in the case
of shorter term loans. The Bank generally charges an origination fee. Management
will attempt to reduce credit risk in the commercial real estate portfolio by
emphasizing loans on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does not exceed 80%.
The Bank's policy is for the loan-to-value ratio for (i) first and second
mortgage loans and (ii) construction loans not to exceed 80% and 75%,
respectively. In addition, the Bank may require personal guarantees of the
principal owners of the property backed with a review by the Bank of the
personal financial statements of the principal owners. The principal economic
risk associated with each category of anticipated loans, including real estate
loans, is the creditworthiness of the Bank's borrowers. The risks associated
with real estate loans vary with many economic factors, including employment
levels and fluctuations in the value of real estate. The Bank will compete for
real estate loans with a number of bank competitors which are well-established
in the Forsyth County Area. Most of these competitors have substantially greater
resources and lending limits than the Bank. As a result, the Bank may have to
charge lower interest rates to attract borrowers. See "-- Competition". The Bank
may also originate loans for sale into the secondary market. The Bank intends to
limit interest rate risk and credit risk on these loans by locking the interest
rate for each loan with the secondary investor and receiving the investor's
underwriting approval prior to originating the loan.




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         Commercial Loans. The Bank makes loans for commercial purposes in
various lines of businesses. Commercial loans include both secured and unsecured
loans for working capital (including inventory and receivables), business
expansion (including acquisition of real estate and improvements) and purchases
of equipment and machinery. Equipment loans are typically made for a term of
five years or less at fixed or variable rates, with the loan fully amortized
over the term and secured by the financed equipment and with a loan-to-value
ratio of 80% or less. Working capital loans typically have terms not exceeding
one year and will usually be secured by accounts receivable, inventory or
personal guarantees of the principals of the business. For loans secured by
accounts receivable or inventory, principal is typically repaid as the assets
securing the loan are converted into cash, and in other cases principal will
typically be due at maturity. The principal economic risk associated with each
category of anticipated loans, including commercial loans, is the
creditworthiness of the Bank's borrowers. The risks associated with commercial
loans vary with many economic factors, including the economy in the Forsyth
County Area. The well-established banks in the Forsyth County Area will make
proportionately more loans to medium to large-sized businesses than the Bank.
Many of the Bank's current and future commercial loans are and will likely be
made to small to medium-sized businesses which may be less able to withstand
competitive, economic and financial conditions than larger borrowers.

         Consumer Loans. The Bank makes a variety of loans to individuals for
personal and household purposes, including secured and unsecured installment and
term loans, home equity loans and lines of credit and revolving lines of credit
such as credit cards. These loans typically carry balances of less than $25,000
and, in the case of non-revolving loans, are amortized over a period not
exceeding 48 months or are 90-day term loans, in each case bearing interest at a
fixed rate. The revolving loans typically bear interest at a fixed rate and
require monthly payments of interest and a portion of the principal balance. The
underwriting criteria for home equity loans and lines of credit generally are
the same as applied by the Bank when making a first mortgage loan, as described
above, and home equity lines of credit typically expire 10 years or less after
origination. As with the other categories of loans, the principal economic risk
associated with consumer loans is the creditworthiness of the Bank's borrowers,
and the principal competitors for consumer loans are the established banks in
the Forsyth County Area.

         Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds that individual officer's lending authority, the
loan request is considered and approved by an officer with a higher lending
limit or the officers' loan committee. The Bank has established officers'
lending limits, and any loan in excess of this lending limit will be approved by
the loan committee. The Bank will not make any loans to any director, officer or
employee of the Bank unless the loan is approved by the Bank's Board of
Directors, or a committee thereof, and is made on terms not more favorable to
such person than would be available to a person not affiliated with the Bank.

         Lending Limit. Under the Georgia Financial Institutions Code (the
"Financial Institutions Code"), the Bank is limited in the amount it can loan to
a single borrower (including the borrower's related interests) by the amount of
the Bank's statutory capital base. The limit is 15% of the statutory capital
base unless each loan in excess of the 15% is approved by the Bank's Board of
Directors, or a committee thereof, and unless the entire amount of the loan is
secured by good collateral or other ample security. In no event, however, may
the aggregate amount loaned to any borrower exceed 25% of the Bank's statutory
capital base, subject to certain exceptions




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relating to the type and adequacy of the collateral for such loan. These limits
will increase and decrease as the Bank's statutory capital base increases and
decreases. The Bank does not have any internal policy restrictions concerning
loans to one borrower other than the limits imposed by the Financial
Institutions Code and those relating to loans to affiliates. See "--Supervision
and Regulation -- The Bank -- Transaction With Affiliates and Insiders." Unless
the Bank is able to sell participations in its loans to other financial
institutions, the Bank will not be able to meet all the lending needs of loan
customers requiring aggregate extensions of credit above these limits.

OTHER BANKING SERVICES

         Other bank services provided by the Bank include cash management
services, safe deposit boxes, travelers checks, direct deposits of payroll and
social security checks and automatic drafts for various accounts. The Bank is
associated with a shared network of automated teller machines that may be used
by Bank customers throughout Georgia and other regions. The Bank does not
currently and does not plan to exercise trust powers during its initial years of
operation. The Bank may in the future offer a full-service trust department, but
cannot do so without the prior approval of the DBF.

COMPETITION

         The banking business is highly competitive. The Bank competes as a
financial intermediary with other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Forsyth County Area and elsewhere.
As of December 31, 1997, there were seven commercial banks, with 10 commercial
bank branches and one credit union operating in Forsyth County. A number of
these competitors are well-established in the Forsyth County Area. Most of these
institutions have substantially greater resources and lending limits than the
Bank and offer certain services, such as extensive and established branch
networks and trust services, that the Bank either does not currently nor expect
to provide. In addition, non-depository institution competitors are generally
not subject to the extensive regulations applicable to the Company and the Bank.
Recent federal legislation permits commercial banks to establish operations
nationwide, further increasing competition from out-of-state financial
institutions. Furthermore, recently enacted Georgia legislation greatly
diminishes the historical legal restrictions on establishing branch banks across
county lines in Georgia, thus creating further opportunities for other financial
institutions to compete with the Bank. Generally, from July 1, 1996 to July 1,
1998, any bank located in Georgia may branch into any three additional Georgia
counties regardless of the location of the parent bank. After July 1, 1998,
banks may establish branch banks statewide without limitation. In addition,
on-line computer banking via the Internet or otherwise may also become an
increasing source of competition for community financial institutions such as
the Bank. As a result of these competitive factors, the Bank may from time to
time be required to pay higher rates of interest to attract deposits. Management
believes that the Bank will be able to compete effectively with these
institutions in the Bank's proposed markets, but no assurances can be given in
this regard.

         Forsyth County is a rapidly growing market area. Currently, the Bank is
the only locally owned and operated bank in Forsyth County. Management believes
that this enhances the Bank's ability to maintain strong local support and to
continue its growth.




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SUPERVISION AND REGULATION

         The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with the FDICIA,
which was enacted in 1991, numerous additional regulatory requirements have been
placed on the banking industry in the past five years, and additional changes
have been proposed. The banking industry is also likely to change significantly
as a result of the passage of the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"). The operations of the
Company and the Bank may be affected by legislative changes and the policies of
various regulatory authorities. The Company is unable to predict the nature or
the extent of the effect on its business and earnings that fiscal or monetary
policies, economic control, or new federal or state legislation may have in the
future.

THE COMPANY

         General. Because it owns the outstanding capital stock of the Bank, the
Company is a bank holding company within the meaning of the Federal Bank Holding
Company Act of 1956 (the "BHCA") and the Financial Institutions Code. The
activities of the Company will also be governed by the Glass-Steagall Act of
1933 (the "Glass-Steagall Act").

         The BHCA. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and will be required to file periodic reports
of its operations and such additional information as the Federal Reserve may
require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks; furnishing services to or performing services for
its subsidiaries and engaging in other activities that the Federal Reserve
determines to be so closely related to banking, managing or controlling banks as
to be a proper incident thereto.

         Investments, Control and Activities. With certain limited exceptions,
the BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before: (i) acquiring substantially all the assets of any bank;
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares); or (iii) merging or consolidating with another bank holding
company.

         In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Control is rebuttably presumed to exist if a person acquires
10% or more, but less than 25%, of any class of voting securities and either the
Company has registered securities under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or no other




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person will own a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure for
challenge of the rebuttable control presumption.

         Under the BHCA, a bank holding company is generally prohibited from
engaging in, or acquiring direct or indirect control of, more than 5% of the
voting shares of any company engaged in non-banking activities, unless the
Federal Reserve Board, by order or regulation, has found those activities to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve Board has
determined by regulation to be proper incidents to the business of a bank
holding company include making or servicing loans and certain types of leases,
engaging in certain insurance and discount brokerage activities, performing
certain data processing services, acting in certain circumstances as a fiduciary
or investment or financial adviser, owning savings associations and making
investments in certain corporations or projects designed primarily to promote
community welfare.

         The Federal Reserve Board will impose certain capital requirements on
the Company under the BHCA, including a minimum leverage ratio and a minimum
ratio of "qualifying" capital to risk-weighted assets. These requirements are
described below under "-- Capital Regulations." Subject to its capital
requirements and certain other restrictions, the Company will be able to borrow
money to make a capital contribution to the Bank, and such loans may be repaid
from dividends paid from the Bank to the Company (although the ability of the
Bank to pay dividends will be subject to regulatory restrictions as described
below in "-- The Bank -- Dividends"). The Company will also be able to raise
capital for contribution to the Bank by issuing securities without having to
receive regulatory approval, subject to compliance with federal and state
securities laws.

         Source of Strength. In accordance with Federal Reserve Board policy,
the Company is expected to act as a source of financial strength to the Bank and
to commit resources to support the Bank in circumstances in which the Company
might not otherwise do so. Under the BHCA, the Federal Reserve Board may require
a bank holding company to terminate any activity or relinquish control of a
non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the
Federal Reserve Board's determination that such activity or control constitutes
a serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or non-bank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.

         The Financial Institutions Code. All Georgia bank holding companies
must register with the DBF under the Financial Institutions Code. A registered
bank holding company must provide the DBF with information with respect to the
financial condition, operations, management and inter-company relationships of
the holding company and its subsidiaries. The DBF may also require such other
information as is necessary to keep itself informed about whether the provisions
of Georgia law and the regulations and orders issued thereunder by the DBF have
been complied with, and the DBF may make examinations of any bank holding
company and its subsidiaries.

         Under the Financial Institutions Code, it is unlawful without the prior
approval of the DBF: (i) for any bank holding company to acquire direct or
indirect ownership or control of more




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than 5% of the voting shares of the bank; (ii) for any bank holding company or
subsidiary thereof, other than a bank, to acquire all or substantially all of
the assets of a bank; or (iii) for any bank holding company to merge or
consolidate with any other bank holding company. It is also unlawful for any
bank holding company to acquire direct or indirect ownership or control of more
than 5% of the voting shares of any bank unless such bank has been in existence
and continuously operating or incorporated as a bank for a period of five years
or more prior to the date of application to the DBF for approval of such
acquisition. In addition, in any such acquisition by an existing bank holding
company, the initial banking subsidiary of such bank holding company must have
been incorporated for not less than two years before the holding company can
acquire another bank.

         The Financial Institutions Code and applicable provisions of federal
law allow interstate banking by permitting bank holding companies to acquire
Georgia banking organizations so long as the Georgia-based banks to be acquired
have been in existence and continuously operated as banks for five years or
more. Georgia bank holding companies are likewise permitted to acquire banking
organizations in other states, subject to similar aging requirements. Effective
June 1, 1997, banks located in substantially all states may merge or consolidate
with Georgia-based banks that satisfy the five-year age requirement. Following
such mergers or consolidations, the resulting bank may expand in each state
where its predecessors were located, subject to the branching laws of that
particular state. Those acquisitions and transactions are generally subject to
federal and Georgia approval as described above. See "-- The Bank -- Branching."

         Glass-Steagall Act. The Company will also be restricted in its
activities by the provisions of the Glass-Steagall Act, which will prohibit the
Company from owning subsidiaries that are engaged principally in the issue,
flotation, underwriting, public sale or distribution of Securities. The
interpretation, scope and application of the provisions of the Glass-Steagall
Act currently are being considered and reviewed by regulators and legislators,
and the interpretation and application of those provisions have been challenged
in the federal courts.

THE BANK

         General. The Bank will operate as a state-chartered non-member bank
organized under the laws of the State of Georgia and subject to examination by
the DBF. Deposits in the Bank will be insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The DBF and
the FDIC will regulate or monitor virtually all areas of the Bank's operations,
including security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits, interest
rates or fees chargeable on loans, establishment of branches, corporate
reorganizations, maintenance of books and records and adequacy of staff training
to carry on safe lending and deposit gathering practices. The DBF will require
the Bank to maintain certain capital ratios and will impose limitations on the
Bank's aggregate investment in real estate, bank premises, furniture and
fixtures. The Bank will be required by the DBF to prepare quarterly reports on
the Bank's financial condition and to conduct an annual audit of its financial
affairs in compliance with minimum standards and procedures prescribed by the
DBF.

         Under FDICIA, all insured institutions must undergo regular on site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any




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affiliates may be assessed by the appropriate agency against each institution or
affiliate as it deems necessary or appropriate. Insured institutions are
required to submit annual reports to the FDIC and the appropriate agency (and
state supervisor when applicable). FDICIA also directs the FDIC to develop with
other appropriate agencies a method for insured depository institutions to
provide supplemental disclosure of the estimated fair market value of assets and
liabilities, to the extent feasible and practicable, in any balance sheet,
financial statement, report of condition or any other report of any insured
depository institution. FDICIA also requires the federal banking regulatory
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating, among other
things, to: (i) internal controls, information systems and audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
and (v) asset quality.

         State non-member banks and their holding companies which have been
chartered or registered or have undergone a change in control within the past
two years or which have been deemed by the DBF or the Federal Reserve Board,
respectively, to be troubled institutions must give the DBF or the Federal
Reserve Board, respectively, 30 days prior notice of the appointment of any
senior executive officer or director. Within the 30-day period, the DBF or the
Federal Reserve Board, as the case may be, may approve or disapprove any such
appointment. The Company and the Bank will meet the criteria which trigger this
additional approval during the first two years after they are registered or
chartered, respectively.

         Deposit Insurance. The FDIC establishes rates for the payment of
premiums by federally insured banks and thrifts for deposit insurance. A
separate Bank Insurance Fund ("BIF") and Savings Association Insurance Fund
("SAIF") are maintained for commercial banks and thrifts, respectively, with
insurance premiums from the industry used to offset losses from insurance
payouts when banks and thrifts fail. In recent years, the amount of the BIF
premium has been substantially reduced. As a result of the enactment of the
Federal Deposit Insurance Funds Act of 1996 on September 30, 1996, commercial
banks are now required to pay part of the interest on the Financing
Corporation's ("FICO") bonds issued to deal with the savings and loan crisis of
the late 1980s. As a result, commercial bank deposits are now also subject to
assessment by FICO upon the approval by the FDIC Board ("FICO Assessment") of
such assessment. Beginning in 1997 and until the earlier of December 31, 1999 or
the date on which the last saving association ceases to exist, the assessment
rate FICO imposes on a commercial bank must be at a rate equal to one-fifth the
assessment rate applicable to deposits assessable by the SAIF. The Bank's FICO
Assessment for 1997 was $850, and the Bank believes it will be at least
approximately $8,000 for 1998. Increases in deposit insurance premiums will
increase the Bank's cost of funds, and there can be no assurance that deposit
insurance premiums will not increase in the future.

         Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. The aggregate of
all covered transactions is limited in amount, as to any one affiliate, to 10%
of a bank's capital and surplus and, as to all affiliates combined, to 20% of a
bank's capital and surplus. Furthermore, within the foregoing limitations as to
amount, each covered transaction must meet specified collateral requirements.
Compliance is also required with certain provisions designed to avoid the taking
of low quality assets.




                                       9
<PAGE>   12



         The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act which, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal shareholders and their related interests. Such extensions of credit:
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties; and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.

         Dividends. The principal source of the Company's cash revenues will
come from dividends received from the Bank. Under the Financial Institutions
Code, cash dividends on the Bank's common stock may be declared and paid only
out of its retained earnings, and dividends may not be declared at any time at
which the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
DBF's current rules and regulations require prior DBF approval before cash
dividends may be declared and paid if: (i) the Bank's ratio of equity capital to
adjusted total assets is less than 6%; (ii) the aggregate amount of dividends
declared or anticipated to be declared in that calendar year exceeds 50% of the
Bank's net profits, after taxes but before dividends, for the previous calendar
year; or (iii) the percentage of the Bank's assets classified as adverse as to
repayment or recovery by the DBF at the most recent examination of the Bank
exceeds 80% of the Bank's equity capital as reflected at such examination. In
addition, the Federal Reserve Board has stated that bank holding companies
should refrain from or limit dividend increases or reduce or eliminate dividends
under circumstances in which the bank holding company fails to meet minimum
capital requirements or in which its earnings are impaired. Current federal law
would prohibit, except under certain circumstances and with prior regulatory
approval, an insured depository institution, such as the Bank from paying
dividends or making any other capital distribution if, after making the payment
or distribution, the institution would be considered "undercapitalized," as the
term is defined in the applicable regulations.

         Branching. The Bank currently has no plans to establish a branch
office. Recently, Georgia legislation greatly diminishes the historical legal
restrictions on establishing branch banks across county lines in Georgia. Under
Georgia law currently in effect, generally, from July 1, 1996 to July 1, 1998,
any bank located in Georgia may branch into three additional Georgia counties
regardless of the location of the parent bank. After July 1, 1998, banks may
establish branch banks statewide without limitation. In addition, the Company,
with prior regulatory approval, and following the passage of 24 months from the
date of incorporation of the Bank, will be permitted to acquire interests in and
operate banks throughout the state and under current Georgia law, any bank
acquired by the Company could be merged into the Bank and its offices could then
be operated as branches of the Bank. Although the Bank currently has no
definitive plans for opening any branch offices, depending on profitability and
community needs, other branches may be considered in the future.

         Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC and the DBF shall
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those institutions. These
factors




                                       10
<PAGE>   13



are also considered in evaluating mergers, acquisitions and applications to open
a branch or facility.

         Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as: (i) the federal
Truth-In-Lending Act, governing disclosures of credit terms to consumer
borrowers; (ii) the Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution will be fulfilling its obligation to
help meet the housing needs of the community it serves; (iii) the Equal Credit
Opportunity Act, prohibiting discrimination on the basis of race, creed or other
prohibited factors in extending credit; (iv) the Fair Credit Reporting Act of
1978, governing the use and provision of information to credit reporting
agencies; (v) the Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and (vi) the rules and
regulations of the various federal agencies charged with the responsibility of
implementing such federal laws. The deposit operations of the Bank also are
subject to the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records, and the Electronic
Funds Transfer Act and Regulation E issued by the Federal Reserve Board to
implement that act, which governs automatic deposits to and withdrawals from
deposit accounts and customers' rights and liabilities arising from the use of
automated teller machines and other electronic banking services.

CAPITAL REGULATIONS

         The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among banks and bank holding companies and account for off-balance sheet items.
The guidelines are minimums, and the federal regulators have noted that banks
and bank holding companies contemplating significant expansion programs should
not allow expansion to diminish their capital ratios and should maintain ratios
in excess of the minimums. Neither the Company nor the Bank has received any
notice indicating that either entity will be subject to higher capital
requirements. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders' equity, qualifying perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible Securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock and general
reserves for loan and lease losses up to 1.25% of risk-weighted assets.

         Under these guidelines, Bank's and bank holding companies' assets are
given risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a




                                       11
<PAGE>   14



50% rating. Most investment securities are assigned to the 20% category, except
for municipal or state revenue bonds, which have a 50% rating and direct
obligations of or obligations guaranteed by the United States Treasury or United
States government agencies, which have a 0% rating.

         The federal bank regulatory authorities have also implemented a
leverage ratio, which is equal to Tier 1 capital as a percentage of average
total assets less intangibles, to be used as a supplement to the risk-based
guidelines. The principal objective of the leverage ratio is to place a
constraint on the maximum degree to which a bank holding company may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points.

         FDICIA established a capital-based regulatory scheme designed to
promote early intervention for troubled banks which requires the FDIC to choose
the least expensive resolution of bank failures. This capital-based regulatory
framework contains five categories of compliance with regulatory capital
requirements, including "well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." To qualify as a "well-capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6% and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. The Bank currently qualifies as
"well-capitalized."

         Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to: (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.

         These capital guidelines can affect the Company in several ways. After
completion of this offering, the Company's capital levels will initially be more
than adequate. However, rapid growth, poor loan portfolio performance or poor
earnings performance or a combination of these factors, could change the
Company's capital position in a relatively short period of time, making an
additional capital infusion necessary.

         FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk and the risks of non-traditional activities. It is
uncertain what effect these regulations, when implemented, would have on the
Company and the Bank.

         Failure to meet these capital requirements would mean that a bank would
be required to develop and file a plan with its primary federal banking
regulator describing the means and a schedule for achieving the minimum capital
requirements. In addition, such a bank would generally not receive regulatory
approval of any application that requires the consideration of




                                       12
<PAGE>   15



capital adequacy, such as a branch or merger application, unless the bank could
demonstrate a reasonable plan to meet the capital requirement within a
reasonable period of time.

         The DBF requires the Bank to maintain a ratio (the "Primary Capital
Ratio") of total capital (which is essentially Tier 1 capital plus the allowance
for loan losses) to total assets (defined as balance sheet assets plus the
allowance for loan losses) of at least 6%. In addition, the Bank expects that,
in accordance with DBF policy and prior practice, the Bank will be required to
maintain a Primary Capital Ratio of 8% during its first three years of
operation.

ENFORCEMENT POWERS

         FIRREA expanded and increased civil and criminal penalties available
for use by the federal regulatory agencies against depository institutions and
certain "institution-affiliated parties" (primarily including management,
employees and agents of a financial institution and independent contractors such
as attorneys, accountants and others, who participate in the conduct of the
financial institution's affairs). These practices can include the failure of an
institution to timely file required reports or the filing of false or misleading
information or the submission of inaccurate reports. Civil penalties may be as
high as $1,000,000 a day for such violations. Criminal penalties for some
financial institution crimes have been increased to 20 years. In addition,
regulators are provided with greater flexibility to commence enforcement actions
against institutions and institution-affiliated parties. Possible enforcement
actions include the termination of deposit insurance. Furthermore, FIRREA
expanded the appropriate banking agencies' power to issue cease-and-desist
orders that may, among other things, require affirmative action to correct any
harm resulting from a violation or practice, including restitution,
reimbursement, indemnifications or guarantees against loss. A financial
institution may also be ordered to restrict its growth, dispose of certain
assets, rescind agreements or contracts, or take other actions as determined by
the ordering agency to be appropriate.

RECENT LEGISLATIVE DEVELOPMENTS

         The Interstate Banking Act was passed by Congress in 1994 and provides
for unrestricted interstate bank mergers, unrestricted interstate acquisition of
banks by bank holding companies, and interstate de novo branching by banks,
subject to certain aging and deposit market share limitations. The States,
however, may opt in or opt out of several of such Act's provisions.

         Revisions to the Bank Secrecy Act in 1996 affected numerous issues,
including suspicious activity reporting, funds transfer record keeping, interim
exemption rules, and the definition of "exempt persons" and the way in which
banks designate exempt customers.

         The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was enacted in September 1996. This Act primarily provided
arrangements for the recapitalization of the SAIF and regulatory relief for bank
holding companies in several significant areas. Bank holding companies that also
owned savings associations and were therefore subject to regulation by the
Office of Thrift Supervision ("OTS") as savings and loan holding companies were
relieved of such duplicative regulation, and neither future acquisitions of
savings associations by bank holding companies nor mergers of savings
associations into banks will any longer require application to and approval by
the OTS. Acquisitions of well-capitalized and well-managed bank holding
companies of companies engaging in permissible nonbanking activities





                                       13
<PAGE>   16



(other than savings association) may now be made with only 12 days prior notice
to the Federal Reserve, and de novo engagement in such activities by such bank
holding companies may be commenced without prior notice and with only subsequent
notice to the Federal Reserve. The same legislation also gave regulatory relief
to banks in regard to corporate governance, branching, disclosure (under the
Real Estate Settlement Procedures Act and the Truth in Lending Act) and other
operational areas. On February 20, 1997, the Federal Reserve adopted, effective
April 21, 1997, amendments to its Regulation Y implementing certain provisions
of EGRPRA. Among other things, these amendments to Federal Reserve Regulation Y
reduce the notice and application requirements applicable to bank and nonbank
acquisitions and de novo expansion by well-capitalized and well managed holding
companies; expand the list of non-banking activities permitted under Regulation
Y and reduce certain limitations on previously permitted activities; and amended
Federal Reserve anti-tying restrictions to allow banks greater flexibility to
package products with their affiliates.

         In 1996, the FDIC adopted the Federal Financial Institutions
Examination Council's ("FFIEC") updated statement of policy entitled "Uniform
Financial Institutions Rating System" ("UFIRS") effective January 1, 1997. UFIRS
is an internal rating system used by the federal and state regulators for
assessing the soundness of financial institutions on a uniform basis and for
identifying those institutions requiring special supervisory attention. Under
the previous UFIRS, each financial institution was assigned a confidential
composite rating based on an evaluation and rating of five essential components
of an institution's financial condition and operations including Capital
adequacy, Asset quality, Management, Earnings and Liquidity. The major changes
include an increased emphasis on the quality of risk management practices and
the addition of a sixth component of Sensitivity to market risk. For most
institutions, the FDIC has indicated that market risk primarily reflects
exposures to changes in interest rates. When regulators evaluate this component,
consideration is expected to be given to management's ability to identify,
measure, monitor and control market risk; the institution's size; the nature and
complexity of its activities and its risk profile; and the adequacy of its
capital and earnings in relation to its level of market risk exposure. Market
risk is rated based upon, but not limited to, an assessment of the sensitivity
of the financial institution's earnings or the economic value of its capital to
adverse changes in interest rates, foreign exchange rates, commodity prices, or
equity prices; management's ability to identify, measure and control exposure to
market risk; and the nature and complexity of interest rate risk exposure
arising from non trading positions.

         The Federal Reserve also recently adopted regulations providing for a
streamlined application process in connection with acquisitions of banks and
bank holding companies by well-capitalized, well-managed bank holding companies.
During 1996, changes were also made to the current system used to rate banks.

         The State of Georgia Department of Insurance and Department of Banking
and Finance also recently adopted regulations that will permit banks operating
in Georgia to engage in certain insurance sales activities, subject to
compliance with certain conditions.

         Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions
and bank and bank holding company powers are being considered by the executive
branch of the Federal government, Congress and various state governments,
including Georgia. Among other items under consideration are the possible
combination of the BIF and SAIF, changes in or repeal of the Glass-Steagall Act
which




                                       14
<PAGE>   17



separates commercial banking from investment banking, and changes in the BHC Act
to broaden the powers of "financial services" companies to own and control
depository institutions and engage in activities not closely related to banking.
Certain of these proposals, if adopted, could significantly change the
regulation of banks and the financial services industry. It cannot be predicted
whether any of these proposals will be adopted, and, if adopted, how these
proposals will affect the Company and the Bank.

EFFECT OF GOVERNMENTAL MONETARY POLICIES

         The earnings of the Bank will be affected by domestic economic
conditions and the monetary and fiscal policies of the United States government
and its agencies. The Federal Reserve Board's monetary policies have had, and
will likely continue to have, an important impact on the operating results of
commercial banks through its power to implement national monetary policy in
order, among other things, to curb inflation or combat a recession. The monetary
policies of the Federal Reserve Board have major effects upon the levels of bank
loans, investments and deposits through its open market operations in United
States government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.

EMPLOYEES

         The Bank had 14 full-time and no part-time employees at December 31,
1997. The Company does not have any employees other than its officers.

ITEM 2.  PROPERTIES

         The site of the Bank's principal facility is located at 501 Tri-County
Plaza, Highways 9 and 20, Cumming, Georgia 30040. The Company leases its
principal facility consisting of approximately 6,000 square feet under a
Sublease Agreement, as amended, with NationsBank, N.A. (South), the initial term
of which expires August 31, 2001. The base annual rent under the sublease is
$67,500, $69,525, $71,611 and $75,972 in years 1997, 1998, 1999, 2000 and 2001,
respectively. The Company has completed all necessary building renovations, at a
cost of approximately $118,000. The Company believes that the facilities will
adequately serve the Bank's needs for its first several years of operation.

ITEM 3.  LEGAL PROCEEDINGS

         There are no pending legal matters.

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

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




                                       15
<PAGE>   18



                                     PART II

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

         There is currently no market for the 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 or over-the-counter market. As of March 15, 1998, there
were approximately 630 holders of record of the Company's Common Stock and
800,000 shares of Common Stock issued and outstanding.

         No cash dividends have been paid to date on the Common Stock of the
Company, 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.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS OF FORSYTH BANCSHARES, INC.

         The purpose of this discussion is to focus on significant changes in
the financial condition and results of operations of the Company during the past
two years. The discussion and analysis is intended to supplement and highlight
information contained in the accompanying consolidated financial statements and
related notes to the consolidated financial statements and the selected
financial data presented elsewhere herein.

SUMMARY

         The Company was organized on February 14, 1996 (the "Inception"). On
February 3, 1997, the Bank began operations. Between February 14, 1996 and
February 3, 1997, the Company's principal activities were related to its
organization, conducting of its initial public offering, pursuing the approvals
from the DBF and the FDIC of its application to charter the Bank, and pursuing
the approvals from the Federal Reserve Board for the Company to acquire control
of the Bank. Neither the Company nor the Bank conducted any banking operations
in 1996. Subsequent to February 3, 1997, the Company's principal activities have
been to conduct the business of banking through its subsidiary bank.

         Given the disparate activities conducted by the Company in 1996 and
1997 as described above, the financial and other data as of and for (i) the
period ended December 31, 1996 and (ii) the year ended December 31, 1997, are
not comparable.

PERIOD ENDED DECEMBER 31, 1996

         At December 31, 1996, the Company had total assets of $6,434,527. These
assets consisted principally of restricted cash from stock subscriptions of
$5,986,074, premises and




                                       16
<PAGE>   19



equipment of $303,405, organization costs of $71,288, cash of $38,993 and other
assets of $34,767. Premises and equipment consisted primarily of modifications
for the Bank's main office site. The organization costs relate to the
organization of the Company and the Bank and have been capitalized and will be
amortized over five years.

         The Company's liabilities at December 31, 1996 were $6,612,847, and
consisted primarily of subscribers' deposits of $5,986,074, advances under a
line of credit from a bank of $615,000 and other accrued expenses of $11,773.
The Company's line of credit with The Bankers Bank was in the amount of
$650,000. The line of credit was available to fund future organization expenses
and improvements to be made to the building prior to breaking escrow on the
subscribers' deposits. The Company had a stockholder's deficit of $178,320 at
December 31, 1996.

         The Company had a net loss of $178,370, from February 14, 1996
(Inception) through December 31, 1996, or a pro forma net loss of $0.22 per
share (assuming the sale of the 800,000 shares in the offering were outstanding
during the entire period). This loss resulted from expenses incurred in
connection with activities related to the organization of the Company and the
Bank. These activities included (without limitation) the preparation and filing
of an application with the DBF and the FDIC to charter the Bank, the preparation
of an application with the Federal Reserve Board for approval of the Company to
acquire the Bank, responding to questions and providing additional information
to the DBF, the FDIC and the Federal Reserve Board in connection with the
application process, preparing and filing a registration statement with the
Securities and Exchange Commission (the "Commission") which included a
Prospectus, the selling of the Common Stock, meetings and discussions among
various organizers regarding application and Commission filing information,
target markets and capitalization issues, hiring qualified personnel to work for
the Bank, conducting public relation activities on behalf of the Bank,
developing prospective business contacts for the Bank and the Company and taking
other actions necessary for a successful bank opening. Because the Company was
in the organization stage, it had no operations from which to generate revenues
other than the interest earned on the escrowed deposits.

         The Bank was capitalized with $6,500,000 of the net proceeds of the
Company's initial public offering, and the remainder was used to pay
organization expenses of the Company and provide working capital, including
additional capital for investment in the Bank, if needed.

FOR THE YEAR ENDED DECEMBER 31, 1997


         Net loss for 1997 was $321,820, as compared to the Company's net loss
of $178,370 in 1996. Net loss per common share for 1997 was $.40 or a loss of
$.18 more than in 1996.

FINANCIAL CONDITION

Earning Assets

         Average earning assets in 1997 were $24,331,000, and earning assets as
of December 31, 1997 were $35,306,000.. This disparity is primarily the result
of the sharp increase in loan originations during 1997 as the Bank began to
leverage its deposit funds. At December 31, 1997




                                       17
<PAGE>   20



the earning asset mix was loans at 53%, investment securities at 42% and other
earning asset categories at 5%. The mix of earning assets is monitored to
anticipate and respond to favorable interest rate movements in an effort to
increase the return on earning assets.

Loan Portfolio

         The Company's average loans, net of unearned income, for 1997 were
$9,074,000 and the Company's loans outstanding on December 31, 1997 were
$18,799,000. This disparity similarly resulted from the growth of the Company's
loan portfolio from February 3, 1997. Loan growth for 1997 was primarily funded
through increased deposit growth, and prepayments and maturities from the
investment portfolio. The following table details the classifications of loan by
major categories at December 31, 1997:

                                 LOAN PORTFOLIO
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                 Year Ending
                                                              December 31, 1997
                                                      -----------------------------
                                                       Amount      Percent of Total
                                                      -----------------------------
<S>                                                   <C>          <C>
Commercial, financial and agricultural                 $3,558,625            18.93%
Real estate construction                                4,538,123            24.14%
Real estate mortgage (Residential)                      6,956,526            37.00%
Installment                                             3,746,620            19.93%
                                                      -----------           ------
                                                      $18,799,894           100.00%
                                                                            ======

Less:
   Unearned income                                              0
   Allowance for loan losses                              235,000
                                                      ===========
Total loans                                            18,564,894
                                                      ===========
</TABLE>


         Management of the Company sought to expand loan originating throughout
1997, while at the same time maintaining high credit quality. During 1997,
interest rates remained relatively stable and the national economy continued to
generate moderate growth with low inflation. Loan demand was strong reflecting
economic growth within Forsyth Bank's market. A large factor that will affect
interest rates and the Bank's loan growth during 1998 will be whether
inflationary pressures will cause the Federal Reserve to increase interest
rates. Company management will seek additional loan and deposit growth in 1998,
but the amount of such growth, if any, will depend upon general economic
conditions, including whether or not the Federal Reserve decreases or maintains
current interest rate levels.

         The following table shows maturities of certain loan classifications
and an analysis of the rate structure for such loans due in over one year.




                                       18
<PAGE>   21



                   LOAN MATURITY AND INTEREST RATE SENSITIVITY
                             as of December 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                Rate Structure for Loans
                                                                                 Maturing Over One Year
                                                                            ------------------------------
                                           One Year to                       Predetermined     Floating or
                          One Year or      Five Years     Over Five Years    Interest Rate      Adjustable
                              Less                                                                 Rate
<S>                       <C>              <C>            <C>                <C>               <C>
Commercial, financial,
 agricultural and Real
 Estate                      $10,497        $1,314              $10            $2,971           $8,850
Consumer                       1,492         5,259              228             6,979                0
                         --------------------------------------------------------------------------------
         Total               $11,989        $6,573             $238            $9,950           $8,850
                         ================================================================================
</TABLE>

Investment Portfolio

         The Company's investment securities portfolio was $14,731,000 at year
end 1997. The balance is a result of investing proceeds from the stock sale, as
well as funds made available from deposits in excess of loan fundings. The
Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity.

         During 1997, gross proceeds from calls and maturities of investment
securities were $1,784,000, representing 21% of the average portfolio for the
year. Net gains associated with the sales were $1,002 which accounted for 2% of
noninterest income. Although the Company intends to actively administer the
investment portfolio and take advantage of market rate fluctuations, management
does not believe that a disproportionate share of noninterest income will be
produced by securities gains. Over the course of 1997, market interest rates on
bonds decreased, thus generally enhancing the market values of the interest
sensitive investment securities. As of December 31, 1997, the net unrealized
security gain, net of tax effect, contributes a $50,992 increase in accounting
capital or .06 per share to the Company's stock book value.

         The following table sets forth the carrying amount of the investment
securities portfolio at the end of each of the last two years.




                                       19
<PAGE>   22



                              INVESTMENT PORTFOLIO
                                 (in thousands)

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                              ------------------------
                                                               1997            1996
         <S>                                               <C>                <C>
         Securities Available for Sale:
             U.S. Treasury securities                      $ 4,030,310        $     0
             U.S. Agency obligations                         6,739,625              0


                Total Available for Sale Securities        $10,769,935        $     0
                                                           -----------        -------

         Securities Held To Maturity:
             U.S. Treasury securities                      $         0        $     0
                                                                              -------
             U.S. Agency obligations                         2,990,045              0

             Other securities                                  971,372              0
                                                           -----------        -------
                Total Held to Maturity Securities            3,961,417              0
                                                           -----------        -------

         Total Securities                                  $14,731,352        $     0
                                                           -----------        -------
</TABLE>


         The maturities and weighted average yields of the investment securities
portfolio at the end of 1997 are presented in the table referenced below using
primarily the stated maturities excluding the effects of prepayments. The total
mortgage backed securities for 1997 were $971,372 and as of December 31, 1997,
the average expected life was 7.5 years. The average expected life of the total
investment security portfolio at December 31, 1997 was 3.37 years with an
average tax equivalent yield of 6.29%. Taxable equivalent adjustments, using a
34 percent tax rate, have been made in calculating yields on tax-exempt
obligations.

         As of December 31, 1997, except for the U.S. Government and its
agencies, there was not any issuer who represented 10% or more of shareholders'
equity within the investment portfolio.

         During 1997, average federal funds sold were $6,855,000. This increase
is due primarily to funds from the stock offering. Management expects the
average balance in federal funds sold to decrease in 1998 from the average in
1997 to fund further loan growth. The Bank had no interest earning deposits held
with other banks at year-end 1997. Refer to Note #2 of Financial Statement for
maturities of securities.

Deposits and Short-term Borrowings

         The Company's average deposits were $19,840,000 during 1997 and the
Company's total deposits at December 31, 1997 were $30,346,000. During 1997,
average interest bearing liabilities were $16,239,000 and average noninterest
bearing deposits were $3,601,000. The majority of the growth since beginning
banking operations in February, 1997 reflects the Company's strategy of
emphasizing deposit growth (with an emphasis on core deposits) as the primary
source of funding for balance sheet growth. Through product enhancements,
improved customer service, employee education regarding cross selling bank
products and services, management remains dedicated to pursuing various avenues
to develop its deposit base.




                                       20
<PAGE>   23



         Regarding the Company's deposit mix, savings deposits and both interest
bearing and noninterest bearing transaction deposits were $11,733,000 and
accounted for 39% of total average deposits during 1997. The large certificates
of deposit were $9,688,000, representing 32% of the total average deposits
during 1997. Other time deposits under $100,000 were $8,925,000 or 29% of
average deposits for 1997. The maturities of the time deposits over and under
$100,000 issued by the Company as of December 31, 1997, are summarized in the
following table:


                           MATURITIES OF TIME DEPOSITS
                             as of December 31, 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                           Three months         Over three months
                                              or less         and less than 1 year         Over 1 year
                                       --------------------------------------------------------------------
<S>                                    <C>                    <C>                          <C>
Certificates of deposit over $100,000            $3,696                 $5,667                 $324
Other time deposits under $100,000                2,435                  5,964                  526
                                       --------------------------------------------------------------------
         Total                                   $6,131                $11,631                 $850
                                       ====================================================================
</TABLE>

         The Company had no borrowed funds or agreements to repurchase during
1997.



Capital Resources

         Stockholders' equity increased $7,689,463 to $7,511,143 as of December
31, 1997 over December 31, 1996 amounts.. The growth in stockholders' equity in
1997 was a result primarily of the proceeds from the initial public offering
minus the pre-opening costs and first year operating losses. The Company
consummated its initial public offering on February 3, 1997, pursuant to which
it sold 800,000 shares at $10.00 per share for total gross proceeds of
$8,000,000. The Company has not paid dividends in the past and will likely
retain all earnings for future growth and not pay dividends for the foreseeable
future. The Company is subject to numerous regulatory limitations on its ability
to pay dividends.

         A strong capital position promotes depositor and investor confidence
and provides a foundation for profitability and future growth of the
organization. Average stockholders' equity as a percentage of total average
assets is one measure used to determine capital strength. The ratio of average
shareholders' equity to average assets for 1997 was 23%.


                          RETURNS ON EQUITY AND ASSETS
                          Year ending December 31, 1997

<TABLE>
          <S>                                                             <C>
          Return on average assets                                       (1.26)%
          Return on average equity                                       (5.45)%
          Average equity to average assets ratio                         23.08%
</TABLE>





                                       21
<PAGE>   24



         The various federal bank regulators, including the Federal Reserve and
the FDIC, have risk-based capital requirements for assessing bank holding
company and bank capital adequacy. These standards define capital and establish
minimum capital standards in relation to assets and off-balance sheet exposures,
as adjusted for credit risks. Capital is classified into two tiers. For bank
holding companies, Tier 1 or "core" capital consists of common shareholders'
equity, qualifying noncumulative perpetual preferred stock and minority
interests in the common equity accounts of consolidated subsidiaries, reduced by
goodwill, other intangible assets and certain investments in other corporations
("Tier 1 Capital"). Tier 2 Capital consists of Tier 1 Capital, as well as a
limited amount of the allowance for possible loan losses, certain hybrid capital
instruments (such as mandatory convertible debt), subordinated and perpetual
debt and nonqualifying perpetual preferred stock ("Tier 2 Capital").

         At December 31, 1994, a risk-based capital measure and a minimum ratio
standard was fully phased in, with a minimum total capital ratio of 8.00% and
Tier 1 Capital equal to at least 50% of total capital. The Federal Reserve also
has a minimum leverage ratio of Tier 1 Capital to total assets of 3%. The 3%
Tier 1 Capital to total assets ratio constitutes the leverage standard for bank
holding companies and BIF-insured state-chartered non-member banks, and will be
used in conjunction with the risk-based ratio in determining the overall capital
adequacy of banking organizations. The FDIC has similar capital requirements for
BIF-insured state-chartered non-member banks.

         The Federal Reserve and the FDIC have emphasized that the foregoing
standards are supervisory minimums and that an institution would be permitted to
maintain such minimum levels of capital only if it were rated a composite "one"
under the regulatory rating systems for bank holding companies and banks. All
other bank holding companies are required to maintain a leverage ratio of 3%
plus at least 1% to 2% of additional capital. These rules further provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The Federal Reserve continues to consider a
"tangible Tier 1 leverage ratio" in evaluation proposals for expansion or new
activities. The tangible Tier 1 leverage ratio is the ratio of a banking
organization's Tier 1 Capital less all intangibles, to total average assets less
all intangibles. The regulatory capital ratios of the Company currently exceed
the minimum ratios of 5% leverage capital, 6% Tier 1 and 10% Tier 2 required in
1997 for "well capitalized" banks as defined by federal regulators. The Federal
Reserve Board has not advised the Company of any specific minimum leverage ratio
applicable to it. See "Supervision and Regulation - Capital."

         The following table sets forth the regulatory capital calculations of
the Company and its subsidiaries on a consolidated basis as of December 31,
1997, calculated in accordance with the applicable requirement of the Federal
Reserve in effect on such date:




                                       22
<PAGE>   25



                         RISK BASED CAPITAL CALCULATION
                                 (in thousands)
                                December 31, 1997

<TABLE>
                                                          ------------------------------------
                    <S>                                   <C>                      <C>
                    Stockholders' Equity                     $7,511,143
                                                          ====================================

                    Regulatory capital
                    Tier 1 risk based:
                        Actual                               $7,480,305            42.80%
                        Minimum required                        700,000             4.00%
                                                          ------------------------------------
                        Excess above minimum                 $6,780,305            38.80%
                                                          ====================================

                    Total risk based:
                        Actual                               $7,721,000            44.20%
                        Minimum required                      1,399,000             8.00%
                                                          ------------------------------------
                        Excess above minimum                 $6,322,000            36.20%
                                                          ====================================

                    Leverage:
                        Actual                               $7,480,305            20.9%
                        Minimum required                      1,434,000             4.0%
                                                          ------------------------------------
                        Excess above minimum                 $6,046,305            16.9%
                                                          ====================================

                    Total risk based assets                 $17,488,000
                    Total average assets for period         $35,856,000
                    Total assets                            $38,054,897
                    Total intangible assets                         $58
</TABLE>


BALANCE SHEET MANAGEMENT

Liquidity Management

         Liquidity is the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management involves maintaining the Company's
ability to meet the day-to-day cash flow requirements of its customers, whether
they are depositors wishing to withdraw funds or borrowers requiring funds to
meet their credit needs.

         The primary function of asset/liability management is not only to
assure adequate liquidity in order for the Company to meet the needs of its
customer base, but to maintain an appropriate balance between interest-sensitive
assets and interest-sensitive liabilities so that the Company can profitably
deploy its assets. Both assets and liabilities are considered sources of
liquidity funding and both are, therefore, monitored on a daily basis.

         The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments and maturities of investment securities. Real
estate loan payments are becoming an increasingly important source of liquidity
for the Company as this portfolio continues to grow. Total loans, less unearned
income, maturing in one year or less amounted to $11,969,000 or 64% of the total
loan portfolio at December 31, 1997. Investment securities maturing in the same
time frame totaled $1,000,000 or 7% of the investment securities portfolio at
year-end 1997.




                                       23
<PAGE>   26



Additional sources of liquidity are the investments in federal funds sold and
prepayments from the mortgage backed securities from the investment portfolio.

         The liability portion of the balance sheet provides liquidity through
various customers' interest bearing and noninterest bearing deposit accounts.
Securities sold under agreements to repurchase and other short-term borrowings
are additional sources of liquidity and basically represent the Company's
incremental borrowing capacity. These sources of liquidity are short-term in
nature and are used as necessary to fund asset growth and meet short-term
liquidity needs. At year-end 1997, the Company held $14,371,000 of additional
securities available for pledging as repurchase agreements and had $2,150,000 of
federal funds lines available and unused.

THE COMPANY BELIEVES ITS CURRENT CAPITAL WILL BE SUFFICIENT TO FUND THE
ACTIVITIES OF THE BANK IN ITS INITIAL STAGES OF OPERATIONS, AND THAT THE BANK
WILL GENERATE SUFFICIENT INCOME FROM OPERATIONS TO FUND ITS ACTIVITIES ON AN
ONGOING BASIS. THE BANK OPENED FOR BUSINESS AS A COMMERCIAL BANK TO SERVE THE
FORSYTH COUNTY AREA ON FEBRUARY 3, 1997. THE COMPANY BELIEVES THAT INCOME FROM
THE OPERATIONS OF THE BANK WILL BE SUFFICIENT TO FUND THE ACTIVITIES OF THE
COMPANY ON AN ONGOING BASIS; HOWEVER, THERE CAN BE NO ASSURANCE THAT EITHER THE
BANK OR THE COMPANY WILL ACHIEVE ANY PARTICULAR LEVEL OF PROFITABILITY.

Interest Rate Sensitivity Management

         Interest rate sensitivity is a function of the repricing
characteristics of the Company's portfolio of assets and liabilities. These
repricing characteristics are the time frames within which the interest bearing
assets and liabilities are subject to change in interest rates either at
replacement, repricing or maturity during the life of the instruments. Interest
rate sensitivity management focuses on repricing relationships of assets and
liabilities during periods of changes in market interest rates. Interest rate
sensitivity with a view to maintaining a mix of assets and liabilities that
respond to changes in interest rates within an acceptable time frame, thereby
managing the effect of interest rate movements on net interest income. Interest
rate sensitivity is measured as the difference between the volumes of assets and
liabilities that are subject to repricing at various time horizons.

         Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis report. Prepayments may have significant effects
on the Company's net interest margin. Because of these factors and in a static
test, interest sensitivity gap reports may not provide a complete assessment of
the Company's exposure to changes in interest rates. Management utilizes
computerized interest rate simulation analysis to determine the Company's
interest rate sensitivity. Overall, due to the factors cited, current simulation
results indicate a relatively moderate sensitivity to up or down shifts in
interest rates. A liability sensitive company will generally benefit from a
falling interest rate environment as the cost of interest bearing liabilities
falls faster than the yields on interest bearing assets, thus creating the net
interest margin. Conversely, an asset sensitive company will benefit from a
rising interest rate environment as the yields on earning assets rise faster
than costs of interest bearing liabilities. Management also evaluates economic
conditions, the pattern of market interest rates and other economic data to
determine the appropriate mix and repricing characteristics of assets and
liabilities required to produce a targeted net interest margin.




                                       24
<PAGE>   27



RESULTS OF OPERATIONS

Net Interest Income

         Net interest income is the principal component of a financial
institution's income stream and represents the difference or spread between
interest and fee income generated from earning assets and the interest expense
paid on deposits and other borrowed funds. Fluctuations in interest rates as
well as volume and mix changes in earning assets and interest bearing
liabilities can materially impact net interest income. The discussion of net
interest income is presented on a taxable equivalent basis, unless otherwise
noted, to facilitate comparisons among various taxable and tax-exempt assets.

         Banking operations began on February 3, 1997 and as a result there were
no loan or investment balances in the prior year. Net interest income for the
year ended December 31, 1997 was $1,048,680 and net income after provision for
loan losses was $813,680. Interest income was $1,909,899 which was primarily
generated by the growth in the loan portfolio as well as interest from federal
fund as investments. The loan portfolio earned an average rate of 11% for the
period while the interest income on investments earned an average rate of 6%.
Interest expense for the year was $861,219 of which $854,227 was the result of
interest paid on deposits. The average rate paid on deposits for the year was
5%. The Company's yield on average assets was 8%, which was offset by a cost of
funds of 5% resulting in a net interest margin of 3%.

         The interest rate spread measures the difference between the average
yield on earning assets and the average rate paid on interest bearing sources of
funds. The interest rate spread eliminates the impact of noninterest bearing
funds and gives a direct perspective on the effect of market interest rate
movements. During recent years, the net interest margins and interest rate
spreads have generally in the banking industry been under intense pressure to
maintain historical levels due in part to tax laws that discouraged investment
in tax-exempt instruments, intense competition for funds with non-bank
institutions and changing regulatory supervision for some financial
intermediaries. These pressures are not unique to the Company and were
experienced by the banking industry nationwide.

See the accompanying schedule entitled "Consolidated Average Balances, Interest
Income/Expense and Yields/Rates" for more information.




                                       25
<PAGE>   28



CONSOLIDATED AVERAGE BALANCES,
     INTEREST INCOME/EXPENSE AND YIELDS/RATES
Taxable Equivalent Basis
         (in thousands)

Year Ending December 31, 1997
<TABLE>
<CAPTION>
                                                      Average Balance Income/Expense Yield/Rate
                         ASSETS
<S>                                                   <C>             <C>            <C>
Earning Assets:
    Loans, net of unearned                                $ 9,074       $  974         10.73%
    Investment securities:                                  8,402          528          6.28%
    Other earning assets                                    6,855          408          5.95%
                                                          -------       ------
       Total earning assets                               $24,331       $1,910          7.85%
Allowance for loan losses                                      88
Cash and other assets                                       1,361
                                                          =======
                  TOTAL ASSETS                            $25,604
                                                          =======

          LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
    Interest demand                                       $ 5,286          205          3.88%
    Savings                                                   271            7          2.58%
    Time less than 100,000                                  4,671          296          6.34%
    CD's greater than 100,000                               6,015          346          5.75%
    Borrowing at Holding Company                               47            7         14.89%

                                                          -------       ------
               Total interest bearing liabilities         $16,290       $ $861          5.29%
                                                                        ======
Net interest spread                                                     $1,049          2.56%
                                                                        ======
Noninterest bearing deposits                                3,601
Accrued expenses and other liabilities                         73
Stockholders' equity                                        5,687
                                                          =======
               TOTAL LIABILITIES AND
               STOCKHOLDERS' EQUITY                       $25,651
                                                          =======
Net yield on earning assets                                                             4.31%
                                                                                        ====
</TABLE>

Provision for Loan Losses, Net Charge-Offs and allowance for Loan Losses

         The provision for loan losses is the expense of providing an allowance
or reserve for anticipated future losses on loans. The amount of the provisions
for each period is dependent upon many factors including loan growth, net
charge-offs, changes in the composition of the loan portfolio, delinquencies,
management's assessment of loan portfolio quality, the value of collateral and
general economic factors.

         Should the economy continue to grow at a moderate pace, improved
property values and commercial developments will enhance the asset quality of
the loan portfolio and, therefore, lower the probability for further
write-downs, charge-offs and the transfer of currently performing loans to a
nonaccrual status in the real estate and commercial loan categories. The mix of
loans in the commercial real estate construction and development portfolios are
balanced in areas such as office buildings and retail stores. In addition, the
Bank's lending review areas monitor large real estate credits on a continuing
basis.

         Since beginning banking operations, the Company has imposed strict
underwriting and loan review standards in order to reduce the effect that
economic cycles might have on credit




                                       26
<PAGE>   29



quality. Loan reports are prepared and used in conjunction with the
identification and monitoring of loans on a monthly basis. Management's
involvement continues throughout the process and will, when necessary, include
participation in the work-out process and recovery activity. A determination of
a potential loss will result in a charge to the provision for loan losses,
thereby increasing the allowance for possible loan losses available for the
potential risk. Management monitors the entire loan portfolio in an attempt to
identify problem loans so that risks in the portfolio can be timely identified
and an appropriate allowance maintained. During 1997, the Company had no charge
off or recoveries while providing $235,00 for potential loan loss. As a result,
the allowance for loan loss to average loans outstanding was 1.25%.

         Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations of loans to
specific borrowers or industries and existing and prospective economic
conditions when determining the adequacy of the loan loss reserve. The allowance
for possible loan losses was initially established in 1997 as the Company
provided $235,000 during 1997 reflecting primarily the growth in the Company's
loan portfolio. The Company does not allocate the allowance for loan losses by
category of loan as insufficient historical data has been collected to determine
the allocation. The Company's management has determined a coverage ratio of
1.25% of loans should be sufficient to cover any potential losses in the
portfolio based on historical information on its peer group and other factors
deemed relevant by this Company.

ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS

         Interest on loans is normally accrued from the date an advance is made.
The performance of loans is evaluated primarily on the basis of a review of each
customer relationship over a period of time and the judgment of lending officers
as to the ability of borrowers to meet the repayment terms of loans. If there is
reasonable doubt as to the repayment of a loan in accordance with the agreed
terms, the loan may be placed on a nonaccrual basis pending the sale of any
collateral or a determination as to whether sources of repayment exist. This
action may be taken even though the financial condition of the borrower or the
collateral may be sufficient ultimately to reduce or satisfy the obligation.
Generally, when a loan is placed on a nonaccrual basis, all payments are applied
to reduce principal to the extent necessary to eliminate doubt as to the
repayment of the loan. Any interest income on a nonaccrual loan is recognized
only on a cash basis. See "Nonperforming Assets."

         Lending officers are responsible for the ongoing review and
administration of each particular loan. As such, they make the initial
identification of loans which present some difficulty in collection or where
circumstances indicate that the probability of loss exists. The responsibilities
of the lending officers include the collection effort on a delinquent loan.
Senior management and the Board of Directors are informed of the status of
delinquent and "watch" or problem loans on a monthly basis.

         Senior management reviews the allowance for possible loan losses and
makes recommendations to the Board of Directors as to loan charge-offs on a
monthly basis. The Bank's policies are generally to discontinue the accrual of
interest on loans when payment of principal and interest is 90 days or more in
arrears and the loans are otherwise considered non-collectible.




                                       27
<PAGE>   30



         At December 31, 1997 the Company had no loans accounted for on a
nonaccrual basis or loans past due 90 days or more as to principal and interest
payments.

         The allowance for possible loan losses represents management's
assessment of the risks associated with extending credit and its evaluation of
the quality of the loan portfolio. Management analyzes the loan portfolio to
determine the adequacy of the allowance for possible loan losses and the
appropriate provision required to maintain a level considered adequate to absorb
anticipated loan losses. In assessing the adequacy of the allowance, management
reviews the size, quality and risk of loans in the portfolio. Management also
considers such factors as the Bank's loan loss experience, the amount of past
due and nonperforming loans, specific known risk, the status and amount of
nonperforming assets, underlying collateral values securing loans, current and
anticipated economic conditions and other factors which affect the allowance for
potential credit losses.

         While it is the Bank's policy to charge off in the current period the
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.

         In assessing the adequacy of the allowance, management relies
predominately on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses which must be charged off
and to assess the risk characteristics of the portfolio in the aggregate. This
review takes into consideration the judgments of the responsible lending
officers, senior management and those of bank regulatory agencies that review
the loan portfolio as part of the Bank's examination process. While all
information available is used by management to recognize losses in the loan
portfolio, there can be no assurances that future additions to the allowance
will not be necessary. Each member of the Bank's Board reviews the assessments
of management in determining the adequacy of the allowance for loan losses.

         The Bank's allowance for possible loan losses is also subject to
regulatory examinations and determinations as to adequacy, which may take into
account such factors as the methodology used to calculate the allowance for
possible loan loss reserves and the size of the loan loss reserve in comparison
to a group of peer banks identified by the regulators. During its routine
examinations of banks, the FDIC has, from time to time, required additions to
Bank's provisions for possible loan losses and allowances for possible loan
losses as the regulators' credit evaluations and allowance for possible loan
loss methodology have differed from those of the management of such banks.
During the last several years, several large bank holding companies, located in
various portions of the United States, have substantially increased their
provisions and reserves for loan losses following regulatory examinations. Such
regulatory examinations have focused on loan quality, particularly that of real
estate loans. The Bank's attempt to reduce the risks of real estate lending
through maximum loan-to-value requirements as well as systematic cash flow and
initial customer credit history analyses.

         Management believes that the $235,000 in the allowance for possible
loan losses at December 31, 1997 (1.25% of total outstanding loans) was adequate
to absorb known risks in the portfolio. No assurance can be given, however, that
adverse economic circumstances will not




                                       28
<PAGE>   31



result in increased losses in the Bank's loan portfolios, and require greater
provisions for possible loan losses in the future.

NONPERFORMING ASSETS AND IMPAIRED ASSETS

         The Company has policies, procedures and underwriting guidelines
intended to assist in maintaining the overall quality of its loan portfolio. The
Company monitors its delinquency levels for any adverse trends. Nonperforming
assets consist of loans on nonaccrual status, loans that have been renegotiated
at more favorable terms than those for similar credits, real estate and other
assets acquired in partial or full satisfaction of loan obligations and loans
that are past due 90 days or more. As of December 31, 1997, the Company did not
have any impaired loans or nonperforming assets.

         During the past few years, the Southeastern region of the country has
experienced a general improvement in the real estate loan market. In view of
these market conditions, management has closely monitored and will continue to
monitor the Company's real estate and commercial loan portfolio during 1998.
Particular attention will be focused on those credits targeted by the loan
monitoring and review process. Management's continued emphasis is to seek and
maintain a relatively low level of nonperforming assets.

NONINTEREST INCOME

         Noninterest income consists of revenues generated from a broad range of
financial services and activities. Various recurring noninterest income items
include bank services such as travelers check fees, safe deposit box fees,
origination fees on long term mortgages, ATM fees and official check sales. In
addition, gains or losses realized from the sale of investment portfolio
securities are included in noninterest income. Total noninterest income for 1997
was $50,092.


<TABLE>
<CAPTION>
                                                      NONINTEREST INCOME
                                                      (in thousands)

                                                           1997
                                                         -------
      <S>                                             <C>
      Service charge on deposit accounts                 $34,043
      Net securities gains realized                        1,002
      Other                                               15,047
                                                         =======
                        Total                            $50,092
                                                         =======
</TABLE>


         Fee income from service charges on deposit accounts was $34,043 in
1997. Emphasis on checking account services, appropriate pricing for transaction
deposit accounts and fee collection practices for other deposit services will
continue to be important factors to increasing noninterest income for future
years.

         The Company did not receive any trust fees or income from fee-based
fiduciary activities in 1997. The Company realized gains on the sale of
investment securities in 1997 of $1,002.




                                       29
<PAGE>   32



NONINTEREST EXPENSE

         Noninterest expense for 1997 was $1,185,592 and included the following:
Occupancy and equipment expenses were $224,352 in 1997. Occupancy and equipment
expense in 1997 relates primarily to the depreciation related to technology
related equipment purchased in 1996 and 1997 as well as equipment replacements
and upgrades necessary to support increased business growth.


<TABLE>
<CAPTION>
                                                  NONINTEREST EXPENSES
                                                     (in thousands)


                                                         1997
                                                     ----------
          <S>                                     <C>
          Salaries and benefits                      $  579,552
          Net occupancy expense                         224,352
          FDIC insurance                                    850
          Other                                         380,838
                                                     ==========
                            Total                    $1,185,592
                                                     ==========
</TABLE>


         The other expenses include professional service expenses, bank, travel
and entertainment expenses, telephone, supplies, postage expense and
amortization of intangible assets. The primary factor for the increase in
non-interest expense was related to continued bank growth in 1997.

INCOME TAXES

         No income tax benefit was provided for the tax effect of the net loss,
as the recognition of this benefit is heavily dependent on future taxable
income. For more information about the tax attributes of the Company at December
31, 1997, see the notes to the Audited Financial Statements included herewith.

EFFECTS OF INFLATION AND CHANGING PRICES

         Inflation generally increases the cost of funds and operating overhead,
and to the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' increased cost of goods and services purchased, the cost
of salaries and benefits, occupancy expense, and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely effort liquidity, earnings, and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and can reduce the Bank's earnings from such activities
and the income from the sale of residential mortgage loans in the secondary
market.

         Various information shown elsewhere in this Annual Report will assist
in the understanding of how well the Company is positioned to react to changing
interest rates and




                                       30
<PAGE>   33



inflationary trends. In particular, the summary of net interest income, the
maturity distributions and the compositions of the loan and security portfolios
and the data on the interest sensitivity of loans and deposits should be
considered.

FORWARD-LOOKING STATEMENTS

         The Company may from time to time make written or oral forward-looking
statements, including statements contained in the Company's filings with the
Securities and Exchange Commission (the "Commission") and its reports to
shareholders. Statements made in the Annual Report, other than those concerning
historical information, should be considered forward-looking and subject to
various risks and uncertainties. Such 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. The Company's 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, savings and loan associations,
mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market mutual funds and other
financial institutions operating in the Company's market area and elsewhere,
including institutions operating through the Internet, changes in 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. The Company cautions that such factors are
not exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by, or on behalf of, the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed in equal prominence with the other financial statements. The term
"comprehensive income" is used in the statement to describe the total of all
components of comprehensive income including net income. "Other comprehensive
income" refers to revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current accounting
standards. Currently "other comprehensive income" for the Bank consists of items
recorded directly in equity under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 130 is effective for
financial statements for years beginning after December 15, 1997.

         In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes new standards
for the disclosures made by public business enterprises to report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for





                                       31
<PAGE>   34



related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for both interim
and annual periods beginning after December 15, 1997. The Bank does not have any
separate segments that are considered material.

YEAR 2000 ISSUE

         The Company recognizes the scope and potential problems associated with
the Year 2000 compliance program. The Company has adopted a plan of action and
has in place a team of key managers to implement steps that will solve the
problem for all of the Company's mission critical systems and hardware. The
Company has progressed through the awareness and assessment phases and has
entered into the renovation phase where the actual work is done to bring systems
into compliance. In addition to systems compliance, the Company is actively
evaluating all credit relationships to determine any risks represented to the
Company by the impact of Year 2000 on customer operations. Also, the Company has
incorporated Year 2000 compliance into its loan policy and underwriting
standards.

         Based on a preliminary study by the management of the Company and given
that all of the Bank's technology has been installed during 1997, the Company
expects to incur expenses of only a nominal amount to modify its information
systems appropriately to accurately process information for the year 2000 and
beyond.

         The Company continues to evaluate appropriate courses of corrective
action including replacement of certain systems whose associated costs would be
recorded as assets and amortized. Management expects that the costs to convert
the Company's information systems to Year 2000 compliance will not have a
material impact on the Company's consolidated financial statements or results of
operation. The amount expensed in 1997 in connection with the Company's Year
2000 compliance program was immaterial.





                                       32
<PAGE>   35





ITEM 7.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
FORSYTH BANCSHARES, INC.                                                      PAGE
                                                                              ----

<S>                                                                           <C>
Report of Independent Certified Public Accountants............................34

Consolidated Balance Sheets as of December 31, 1997 and 1996..................35

Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996....................................................36

Consolidated Statements of Changes in Stockholder's Equity for the years
ended December 31, 1997 and 1996..............................................37

Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996....................................................38

Notes to Consolidated Financial Statements
December 31, 1997.............................................................39
</TABLE>





                                       33
<PAGE>   36




                                     [LOGO]
                     [PORTER KEADLE MOORE, LLP LETTERHEAD]



         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





To the Board of Directors
Forsyth Bancshares, Inc.

We have audited the accompanying balance sheets of Forsyth Bancshares, Inc. and
subsidiary (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' equity and cash flows for the
year ended December 31, 1997 and for the period from February 14, 1996
(inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Forsyth Bancshares, Inc. and
subsidiary as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for the year ended December 31, 1997 and for the period
from February 14, 1996 (inception) to December 31, 1996 in conformity with
generally accepted accounting principles.

                                              /S/ Porter Keadle Moore, LLP




Atlanta, Georgia
February 3,1998





                                       34
<PAGE>   37



                            FORSYTH BANCSHARES, INC.

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                1997                1996
                                                                           ------------         ------------
<S>                                                                        <C>                  <C>
                                                   Assets
Cash and due from banks                                                    $  1,786,751               38,993
Federal funds sold                                                            2,010,000                   --
                                                                           ------------         ------------
         Cash and cash equivalents                                            3,796,751               38,993

Restricted cash                                                                      --            5,986,074
Investment securities available for sale                                     10,769,935                   --
Investment securities held to maturity (market value of $3,988,007)           3,961,417                   --
Loans, net                                                                   18,564,894                   --
Premises and equipment, net                                                     429,096              303,405
Accrued interest receivable and other assets                                    532,804              106,055
                                                                           ------------         ------------

                                                                           $ 38,054,897            6,434,527
                                                                           ============         ============

                                       Liabilities and Shareholders' Equity
Deposits:
  Demand                                                                   $  2,640,686                   --
  Interest bearing demand accounts                                            8,766,978                   --
  Savings                                                                       325,508                   --
  Time                                                                        8,924,928                   --
  Time over $100,000                                                          9,687,497                   --
                                                                           ------------         ------------


         Total deposits                                                      30,345,597                   --

Subscribers' deposits                                                                --            5,986,074
Notes payable                                                                        --              615,000
Accrued interest payable and other liabilities                                  198,157               11,773
                                                                           ------------         ------------

         Total liabilities                                                   30,543,754            6,612,847
                                                                           ------------         ------------

Commitments

Shareholders' equity:
  Common stock, no par value; 10,000,000 shares authorized;
    800,000 and 5 issued, respectively                                        7,960,341                   50
  Accumulated deficit                                                          (500,190)            (178,370)
  Net unrealized gain on investment securities available for
   sale                                                                          50,992                   --
                                                                           ------------         ------------
      Total shareholders' equity
                                                                              7,511,143             (178,320)
                                                                           ------------         ------------
                                                                           $ 38,054,897            6,434,527
                                                                           ============         ============
</TABLE>




See accompanying notes to consolidated financial statements.



                                       35
<PAGE>   38

                            FORSYTH BANCSHARES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1997
   AND FOR THE PERIOD FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                   1997              1996
                                                                ----------          -------
<S>                                                             <C>                 <C>
Interest income:
  Interest and fees on loans                                    $  973,537               --
  Interest on federal funds sold                                   408,363               --
  Interest on investment securities:
    U.S. Treasury                                                  200,624               --
    U.S. Government agency and mortgage-backed securities          327,375               --
  Interest income on restricted cash                                    --           28,939
                                                                ----------          -------
         Total interest income                                   1,909,899           28,939
                                                                ----------          -------
Interest expense:
  Interest on demand deposits                                      204,761               --
  Interest on savings and time deposits                            649,466               --
  Other                                                              6,992           10,751
                                                                ----------          -------
         Total interest expense                                    861,219           10,751
                                                                ----------          -------
         Net interest income                                     1,048,680           18,188
  Provision for loan losses                                        235,000               --
                                                                ----------          -------
         Net interest income after provision for loan losses       813,680           18,188
                                                                ----------          -------
Other income:
  Service charges on deposit accounts                               34,043               --
  Other income                                                      16,049               --
                                                                ----------          -------
         Total other income                                         50,092               --
                                                                ----------          -------

Other expenses:
  Salaries and employee benefits                                   579,552          133,129
  Occupancy and equipment                                          224,352           38,950
  Other operating                                                  381,688           24,479
                                                                ----------          -------
         Total other expenses                                    1,185,592          196,558
                                                                ----------          -------
         Net loss                                               $  321,820          178,370
                                                                ==========          =======
Net loss per share                                              $      .40              .22
                                                                ==========          =======
</TABLE>







See accompanying notes to consolidated financial statements.





                                       36
<PAGE>   39




                            FORSYTH BANCSHARES, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                      FOR THE YEAR ENDED DECEMBER 31, 1997
   AND FOR THE PERIOD FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1996





<TABLE>
<CAPTION>

                                                                              Net Unrealized
                                                                                 Gain on
                                                                                Investment
                                               Common           Accumulated     Securities
                                               Stock              Deficit    Available for Sale          Total
                                             -----------         ---------   ------------------        --------
<S>                                          <C>               <C>           <C>                       <C>

Proceeds from the sale of
   organization shares                       $        50               --                    --              50

Net loss                                              --         (178,370)                   --        (178,370)
                                             -----------         --------    ------------------       ---------

Balance, December 31, 1996                            50         (178,370)                   --        (178,320)


Redemption of organization shares                    (50)              --                    --             (50)

Issuance of 800,000 shares no par stock,
    net of offering expenses                   7,960,341               --                    --       7,960,341

Change in unrealized gain on investment
    securities available for sale                     --               --                50,992          50,992

Net loss                                              --         (321,820)                   --        (321,820)
                                             -----------         --------      ----------------       ---------
Balance, December 31, 1997                   $ 7,960,341         (500,190)               50,992       7,511,143
                                             ===========         ========      ================       =========
</TABLE>


















See accompanying notes to consolidated financial statements.


                                       37
<PAGE>   40




                            FORSYTH BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                      FOR THE YEAR ENDED DECEMBER 31, 1997
   AND FOR THE PERIOD FROM FEBRUARY 14, 1996 (INCEPTION) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                                 1997          1996
                                                                                 ----          ----
<S>                                                                       <C>               <C>
Cash flows from operating activities:
 Net loss                                                                 $    (321,820)     (178,370)
 Adjustments to reconcile net loss to net cash
  used by operating activities:
    Depreciation, amortization, and accretion                                    90,349            --
    Provision for loan losses                                                   235,000            --
    Gain on call of securities                                                   (1,002)           --
    Change in:
      Accrued interest receivable and other assets                             (426,749)      (14,298)
      Accrued interest payable and other liabilities
                                                                                186,384        11,773
                                                                          -------------     ---------
         Net cash used by operating activities                                 (237,838)     (180,895)
                                                                          -------------     ---------

Cash flows from investing activities:
  Proceeds from calls and maturities of investment securities
    held to maturity                                                          1,282,714            --
  Proceeds from calls and maturities of investment securities
    available for sale                                                          501,002            --
  Purchases of investment securities held to maturity                        (5,244,697)           --
  Purchases of investment securities available for sale                     (11,220,686)           --
  Net change in loans                                                       (18,799,894)           --
  Organization costs                                                                 --       (71,288)
  Deferred stock offering expenses                                                   --       (20,469)
  Purchase of premises and equipment
                                                                               (213,731)     (303,405)
                                                                          -------------     ---------
       Net cash used by investing activities                                (33,695,292)     (395,162)
                                                                          -------------     ---------

Cash flows from financing activities:
  Net change in deposits                                                     30,345,597            --
  Proceeds from (repayments of) notes payable                                  (615,000)      615,000
  Proceeds from (redemption of) the sale of organization shares                     (50)           50
  Proceeds from sale of common stock, net of offering costs                   7,960,341            --
                                                                          -------------     ---------
       Net cash provided by financing activities                             37,690,888       615,050

Net change in cash and cash equivalents                                       3,757,758        38,993
Cash and cash equivalents at beginning of year                                   38,993            --
                                                                          -------------     ---------

Cash and cash equivalents at end of year                                  $   3,796,751        38,993
                                                                          =============     =========

Supplemental schedule of noncash investing activities:
   Change in net unrealized gain on investment
      securities available for sale                                       $      50,992            --


Supplemental disclosures of cash flow information:
   Cash paid during the year for interest                                 $     753,690         3,978
</TABLE>


During the period ended December 31, 1996 restricted cash increased $5,986,074
as a result of subscriptions for common stock and corresponding deposits to the
escrow account.

See accompanying notes to consolidated financial statements.



                                       38
<PAGE>   41


                            FORSYTH BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
        The following is a summary of the significant policies and procedures.

        Basis of Presentation
        The consolidated financial statements include the accounts of Forsyth
        Bancshares, Inc. (the "Company") and its wholly owned subsidiary, The
        Citizens Bank of Forsyth County (the "Bank"). All intercompany accounts
        and transactions have been eliminated in consolidation. The 1996
        financial statements include the accounts of the Company only, as the
        Bank did not open for business until February 14, 1997. Certain 1996
        amounts have been reclassified to conform to the 1997 presentation.

        The Company, which is subject to regulation by the Federal Reserve Bank,
        conducts its business through the Bank which operates in Forsyth County,
        Georgia.

        The Company raised $8,000,000 through an offering of its no par value
        common stock of which $6,500,000 was used to initially capitalize the
        Bank. The organizers subscribed for approximately $1,627,000 of the
        Company's stock. Operations of the Company for the period from inception
        (February 14, 1996) to December 31, 1996 related primarily to
        expenditures by the organizers for incorporating and organizing the Bank
        including raising capital and securing banking facilities. The Company
        was reported on as a development stage corporation for the period ended
        December 31, 1996.

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

        Cash and Cash Equivalents
        For presentation purposes in the consolidated statements of cash flows,
        cash and cash equivalents include cash on hand, amounts due from banks,
        and federal funds sold.

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

        Available for sale securities are recorded at fair value. Held to
        maturity securities are recorded at cost, adjusted for the amortization
        or accretion of premiums or discounts. Unrealized holding gains and
        losses on securities available for sale are excluded from earnings and
        are reported as a separate component of shareholders' equity until
        realized. Transfers of securities between categories are recorded at
        fair value at the date of transfer.

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

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




                                       39
<PAGE>   42


                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
        Loans and Allowance for Loan Losses
        Loans are stated at principal amount outstanding, net of unearned
        interest and the allowance for loan losses. Unearned interest on
        discounted loans is recognized as income over the term of the loans
        using a method which approximates a level yield. Interest on other loans
        is calculated by using the simple interest method on daily balances of
        the principal amount outstanding.

        A loan is impaired when, based on current information and events, it is
        probable that all amounts due according to the contractual terms of the
        loan agreement will not be collected. Impaired loans are measured based
        on the present value of expected future cash flows discounted at the
        loan's effective interest rate, or at the loan's observable market
        price, or at the fair value of the collateral of the loan if the loan is
        collateral dependent. Interest income from impaired loans is recognized
        using a cash basis method of accounting. There were no impaired loans as
        of December 31, 1997.

        Accrual of interest is discontinued on a loan when management believes,
        after considering economic and business conditions and collection
        efforts, that the borrower's financial condition is such that collection
        of interest is doubtful.

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

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

        Management believes that the allowance for loan losses is adequate.
        While management uses available information to recognize losses on
        loans, future additions to the allowance may be necessary based on
        changes in economic conditions. In addition, various regulatory
        agencies, as an integral part of their examination process, periodically
        review the Bank's allowance for loan losses. Such agencies may require
        the Bank to recognize additions to the allowance based on judgements
        different than those of management.

        Premises and Equipment
        Premises and equipment are stated at cost less accumulated depreciation.
        Depreciation is provided using the straight-line method over the
        estimated useful lives of the assets which is generally 5 years.
        Leasehold improvements are amortized on the straight-line method over
        the shorter of the estimated useful lives of the improvements or the
        terms of the related leases. Costs incurred for maintenance and repairs
        are expensed currently.

        Organization Costs
        Costs incurred for the organization of the Company and the Bank
        (consisting primarily of legal, accounting, consulting and incorporation
        fees) are capitalized and included in other assets and are being
        amortized over five years beginning with the commencement of Bank
        operations.

        Line of Credit
        Organization, offering and pre-opening costs incurred prior to opening
        for business were funded under a $650,000 line of credit. The line of
        credit, which was guaranteed by the organizers, was repaid upon
        consummation of the stock offering.



                                       40
<PAGE>   43



                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
        Income Taxes
        Deferred tax assets and liabilities are recognized for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax bases. Future tax benefits, such as net operating loss
        carryforwards, are recognized to the extent that realization of such
        benefits is more likely than not. Deferred tax assets and liabilities
        are measured using enacted tax rates expected to apply to taxable income
        in the years in which those temporary differences are expected to be
        recovered or settled. The effect on deferred tax assets and liabilities
        of a change in tax rates is recognized in income in the period that
        includes the enactment date.

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

        SFAS No. 128 requires the presentation on the face of the statement of
        operations of earnings per share with and without the dilutive effects
        of potential common stock issuances from instruments such as options,
        convertible securities and warrants. Additionally, the new statement
        requires the reconciliation of the amounts used in the computation of
        both "earnings per share" and "diluted earnings per share". There were
        no dilutive instruments outstanding as of December 31, 1997 and 1996.
        Net loss per share is calculated for all periods presented by dividing
        net loss by 800,000 shares of stock which were successfully sold in the
        initial public offering.

        Recent Accounting Pronouncements In June 1997, the Financial Accounting
        Standards Board issued SFAS No. 130, "Reporting Comprehensive Income"
        and SFAS No. 131, "Disclosures about Segments of an Enterprise and
        Related Information". SFAS No. 130 establishes standards for the
        reporting and display of comprehensive income and its components in a
        full set of general-purpose financial statements. SFAS No. 131 specifies
        the presentation and disclosure of operating segment information
        reported in the annual report and interim reports issued to
        stockholders. The provisions of both statements are effective for fiscal
        years beginning after December 15, 1997. The Company believes that the
        adoption of these statements will not have a material impact on the
        Company's financial position, results of operations, or liquidity.



                                       41
<PAGE>   44


                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(2)    INVESTMENT SECURITIES
       There were no investment securities outstanding as of December 31, 1996.
       Investment securities at December 31, 1997 are as follows:


<TABLE>
<CAPTION>

SECURITIES AVAILABLE FOR SALE:                    December 31, 1997
                              ----------------------------------------------------------
                                               Gross           Gross           Estimated
                                Amortized    Unrealized      Unrealized          Fair
                                  Cost         Gains           Losses            Value
                              -----------    ----------      -----------      -----------
<S>                           <C>            <C>             <C>              <C>
U.S. Treasuries               $ 3,999,102        31,208               --        4,030,310
U.S. Government agencies        6,719,841        19,784               --        6,739,625
                              -----------    ----------      -----------      -----------

       Total                  $10,718,943        50,992               --      $10,769,935
                              ===========    ==========      -----------      ===========
</TABLE>

<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY:                      December 31, 1997
                              -----------------------------------------------------------
                                               Gross           Gross           Estimated
                                Amortized    Unrealized      Unrealized          Fair
                                  Cost         Gains           Losses            Value
                              -----------    ----------      -----------      -----------
<S>                           <C>            <C>             <C>              <C>

U.S. Government agencies      $ 2,990,045        22,670               --        3,012,715
Mortgage Backed Securities        971,372         3,920               --          975,292
                              -----------    ----------      -----------      -----------

       Total                  $ 3,961,417        26,590               --        3,988,007
                              ===========    ==========      ===========      ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                   Securities Available             Securities Held
                                        for Sale                      to Maturity
                               --------------------------      ------------------------
                                 Amortized      Estimated      Amortized      Estimated
                                    Cost       Fair Value        Cost        Fair Value
                               -----------     ----------      ---------     ----------

<S>                            <C>             <C>             <C>           <C>
U.S. Treasury and U.S.
  Government agencies:
  Within one year              $   997,641        999,220             --             --
  1 to 5 years                   9,721,302      9,770,715      2,990,045      3,012,715
                               -----------     ----------      ---------      ---------

                                10,718,943     10,769,935      2,990,045      3,012,715

Mortgage-backed securities              --             --        971,372        975,292
                               -----------     ----------      ---------      ---------
                               $10,718,943     10,769,935      3,961,417      3,988,007
                               ===========     ==========      =========      =========

</TABLE>

Proceeds from calls of securities available for sale during 1997 were $501,002,
yielding gross gains of $1,002.


                                       42
<PAGE>   45




                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(3)     LOANS
        Major classifications of loans at December 31, 1997 are summarized as
follows:

<TABLE>
             <S>                                             <C>
             Commercial, financial and agricultural          $  3,558,625
             Real estate - construction                         4,538,123
             Real estate - mortgage                             6,956,526
             Consumer                                           3,746,620
                                                             ------------

                                                               18,799,894
             Less:   Allowance for loan losses                    235,000
                                                             ------------

                                                             $ 18,564,894
                                                             ============
</TABLE>

         The Bank grants loans and extensions of credit to individuals and a
         variety of businesses and corporations located in its general trade
         area of Forsyth County, Georgia. Although the Bank has a diversified
         loan portfolio, a substantial portion of the loan portfolio is
         collateralized by improved and unimproved real estate and is dependent
         upon the real estate market.

         The Bank provided $235,000 to the allowance for loan losses for the
         year ended December 31, 1997 for potential problem loans.

(4)      PREMISES AND EQUIPMENT Major classifications of premises and equipment
         are summarized as follows:

<TABLE>
                                                 1997        1996
                                              --------      -------
<S>                                           <C>           <C>
         Furniture and fixtures               $404,493      223,614
         Leasehold improvements                112,643       79,791
                                              --------      -------

                                               517,136      303,405
         Less: Accumulated depreciation         88,040           --
                                              --------      -------

                                              $429,096      303,405
                                              ========      =======
</TABLE>

        Depreciation expense amounted to $88,040 in 1997.

(5)     DEPOSITS
        Maturities of time deposits at December 31, 1997 are as follows:

<TABLE>
                  Maturing in:
                  <S>                         <C>
                  1998                        $ 17,763,399
                  1999                             401,920
                  2000                             104,364
                  2001                              16,824
                  2002                             325,918
                                              ------------

                                              $ 18,612,425
                                              ============
</TABLE>


                                       43
<PAGE>   46


                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(6)     INCOME TAXES
        At December 31, 1997, the Company had federal and state net operating
        loss carryforwards for tax purposes of approximately $116,000 and
        $260,641, respectively, which will expire beginning in 2011 if not
        previously utilized. No income tax expense or benefit was recorded for
        the periods ended December 31, 1997 or 1996 due to this loss
        carryforward.

        The following summarizes the components of the net deferred tax asset:

<TABLE>
<CAPTION>
                                                              1997         1996
                                                           ---------      ------
<S>                                                        <C>            <C>
Deferred income tax assets:
 Allowance for loan losses                                 $  74,765          --
 Premises and equipment                                        9,661          --
 Pre-opening costs                                            79,649      63,676
 Operating loss carryforwards                                 54,423       4,085
 Other                                                            77          --
                                                           ---------      ------

    Total gross deferred income tax assets                   218,575      67,761

Less valuation allowance                                     199,708      67,761
                                                           ---------      ------

Net deferred tax asset                                        18,867          --

Deferred income tax liabilities, consisting of
 net unrealized gain on securities available for sale        (18,867)         --
                                                           ---------      ------

     Net deferred income tax asset                         $      --          --
                                                           =========      ======
</TABLE>


      The future tax consequences of the differences between the financial
      reporting basis of the Company's assets and liabilities resulted in a net
      deferred tax asset. A valuation allowance was established for the net
      deferred tax asset, as the realization of these deferred tax assets is
      dependent on future taxable income.

(7)   LINES OF CREDIT During 1997, the Bank entered into two lines of credit
      totaling $2,150,000 with two other financial institutions for overnight
      borrowings. There was no outstanding balance as of December 31, 1997.

(8)   STOCKHOLDERS' EQUITY
      Dividends paid by the Bank are the primary source of funds available to
      the Company. Banking regulations limit the amount of dividends that may be
      paid without prior approval of the regulatory authorities. These
      restrictions are based on the level of regulatory capital and retained net
      earnings in prior years. At December 31, 1997, the Bank could not pay the
      Company a dividend without obtaining prior regulatory approval.

(9)   SUPPLEMENTARY INCOME STATEMENT INFORMATION
      Components of other operating expenses in excess of 1% of total income in
      the respective years are as follows:

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

             <S>                                 <C>         <C>
             Professional fees                   63,293        --
             Data Processing                     52,092        --
             Insurance                           35,322        --
</TABLE>



                                       44
<PAGE>   47




                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(10)    COMMITMENTS
        The Bank leases various equipment and real estate under operating lease
        arrangements. Future minimum lease payments required for all operating
        leases having a remaining term in excess of one year at December 31,
        1997 are as follows:

<TABLE>
             <S>                                      <C>
             1998                                     $   75,198
             1999                                         73,707
             2000                                         74,681
             2001                                         44,317
                                                      ----------

                                                      $  267,903
                                                      ==========
</TABLE>

        The total rental expense was $73,087 and $38,950 in 1997 and 1996,
        respectively.

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

        The Bank's exposure to credit loss in the event of non-performance 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 Bank uses the same credit policies in
        making commitments and conditional obligations as it does for
        on-balance-sheet instruments.

        In most cases, the Bank does require collateral to support financial
        instruments with credit risk. At December 31, 1997, the Bank extended
        commitments to extend credit with contractual amounts of approximately
        $4,259,000.

        Commitments to extend credit are agreements to lend to a customer as
        long as there is no violation of any condition established in the
        contract. Commitments generally have fixed expiration dates or other
        termination clauses and may require payment of a fee. Since many of the
        commitments may expire without being drawn upon, the total commitment
        amounts do not necessarily represent future cash requirements. The Bank
        evaluates each customer's creditworthiness on a case-by-case basis. The
        amount of collateral obtained, if deemed necessary by the Bank, upon
        extension of credit is based on management's credit evaluation.
        Collateral held varies but may include unimproved and improved real
        estate, certificates of deposit or personal property.

        Standby letters of credit are conditional commitments issued by the Bank
        to guarantee the performance of a customer to a third party. The credit
        risk involved in issuing letters of credit is essentially the same as
        that involved in extending loan facilities to customers. The Bank holds
        collateral supporting these commitments for which collateral is deemed
        necessary. There were no letters of credit outstanding at December 31,
        1997.

(11)    RELATED PARTY TRANSACTIONS
        The Bank conducts transactions with directors and officers, including
        companies in which they have a beneficial interest, in the normal course
        of business. It is the Bank's policy to comply with federal regulations
        that require that loan transactions with directors and executive
        officers be made on substantially the same terms as those prevailing at
        the time made for comparable loans to other persons. The following
        summary reflects activity for related party loans for 1997:

<TABLE>
<CAPTION>

                     <S>                                <C>
                     Beginning balance                  $         --
                     New loans                             4,320,778
                     Repayments                           (1,195,467)
                                                        ------------
                     Ending balance                     $  3,125,311
                                                        ============
</TABLE>

        As of December 31, 1997, the Company had related party deposits of
        $3,105,000.




                                       45
<PAGE>   48




                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(12)    REGULATORY MATTERS
        The Bank is 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 Bank's financial statements.
        Under certain adequacy guidelines and the regulatory framework for
        prompt corrective action, the Bank must meet specific capital guidelines
        that involve quantitative measures of the Bank's assets, liabilities,
        and certain off-balance-sheet items as calculated under regulatory
        accounting practices. The Bank's capital amounts and classification are
        also subject to qualitative judgments by the regulators about
        components, risk weightings, and other factors.

        Quantitative measures established by regulation to ensure capital
        adequacy require the Bank to maintain minimum amounts and ratios of
        Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital
        to average assets. Management believes, as of December 31, 1997, that
        the Bank meets all capital adequacy requirements to which it is subject.

        The consolidated actual capital amounts and ratios are presented in the
        table below:

<TABLE>
<CAPTION>
                                                                                                        To Be Well
                                                                                                    Capitalized Under
                                                                              For Capital           Prompt Corrective
                                                      Actual               Adequacy Purposes        Action Provisions
                                             ----------------------       ------------------        -----------------
                                                Amount        Ratio        Amount      Ratio        Amount      Ratio
                                             -----------      -----       ---------    -----        ------      -----
           <S>                               <C>              <C>         <C>          <C>          <C>         <C>
           As of December 31, 1997:
            Total Capital
           (to Risk Weighted Assets)         $ 7,721,000       44.2%      1,399,000      8.0%         N/A         N/A
           Tier 1 Capital
           (to Risk Weighted Assets)         $ 7,480,305       42.8%        700,000      4.0%         N/A         N/A
           Tier 1 Capital
           (to Average Assets)               $ 7,480,305       20.9%      1,434,000      4.0%         N/A         N/A
</TABLE>


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

<TABLE>
<CAPTION>
                                                                                                To Be Well
                                                                                             Capitalized Under
                                                                       For Capital           Prompt Corrective
                                               Actual               Adequacy Purposes        Action Provisions
                                      ----------------------        ------------------       -----------------
                                        Amount         Ratio        Amount       Ratio       Amount      Ratio
                                      -----------      -----        ---------   ------       ------      -----
<S>                                   <C>              <C>          <C>         <C>          <C>         <C>
As of December 31, 1997:
  Total Capital
 (to Risk Weighted Assets)            $ 6,341,000       36.3%       1,399,000      8.0%      1,749,000   10.0%
 Tier 1 Capital
 (to Risk Weighted Assets)            $ 6,122,000       35.0%         700,000      4.0%      1,049,000    6.0%
 Tier 1 Capital
 (to Average Assets)                  $ 6,122,000       17.1%       1,434,000      4.0%      1,793,000    5.0%
</TABLE>

      As a condition to the Bank's charter approval, the Georgia Department of
      Banking and Finance has also required that the Bank maintain a ratio of
      equity capital to adjusted assets of not less than 8% during the first
      three years of the Bank's operation and that the Bank not declare
      dividends to the Company until the Bank is cumulatively profitable. There
      have been no dividends declared by the Company as of December 31, 1997.



                                       46
<PAGE>   49




                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

                                 Balance Sheets

                           December 31, 1997 and 1996

                                     Assets

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

<S>                                                  <C>              <C>
Cash                                                 $1,305,588          38,993
Restricted cash                                              --       5,986,074
Investment in subsidiary                              6,179,860              --
Premises and equipment                                       --         303,405
Other assets                                             30,695         106,055
                                                     ----------       ---------
                                                     $7,516,143       6,434,527
                                                     ==========       =========


                      Liabilities and Shareholders' Equity

Subscribers' deposits                                $       --       5,986,074
Other liabilities                                         5,000         626,773
Shareholders' equity                                  7,511,143        (178,320)
                                                     ----------       ---------
                                                     $7,516,143       6,434,527
                                                     ==========       =========

                             Statements of Earnings

                 For the Years Ended December 31, 1997 and 1996

                                                         1997            1996
                                                       --------         -------
Income:
  Interest income                                      $ 16,370          28,939
                                                       --------         -------
Expenses:
  Interest expense                                        6,993          10,751
  Other operating                                        25,933         196,558
                                                       --------         -------

        Total expenses                                   32,926         207,309
                                                       --------         -------

        Loss before equity in undistributed
             loss of subsidiary                          16,556         178,370

Equity in undistributed loss of subsidiary              305,264              --
                                                       --------         -------

        Net loss                                       $321,820         178,370
                                                       ========         =======
</TABLE>



                                       47
<PAGE>   50


                            FORSYTH BANCSHARES, INC.

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


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

                            Statements of Cash Flows

                 For the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
           <S>                                                             <C>               <C>
           Cash flows from operating activities:
             Net loss                                                      $  (321,820)      (178,370)
             Adjustments to reconcile net loss to
              net cash provided  (used) by operating activities:
               Equity in undistributed loss of subsidiary                      305,264             --
               Amortization                                                      7,664             --
               Change in:
                 Other assets                                                   67,696        (14,298)
                 Other liabilities                                              (6,773)        11,773
                                                                           -----------       --------

                     Net cash provided (used) by operating activities           52,031       (180,895)
                                                                           -----------       --------
           Cash flows from investing activities:
             Capitalization of subsidiary                                   (6,434,132)            --
             Change in premises and equipment                                  303,405       (303,405)
             Organization costs                                                     --        (71,288)
             Deferred stock offering cost                                           --        (20,469)
                                                                           -----------       --------

                     Net cash used by investing activities                  (6,130,727)      (395,162)
                                                                           -----------       --------

           Cash flows from financing activities:
             Change in credit line                                            (615,000)       615,000
             Proceeds from sale of common stock                              7,960,341             --
             Redemption of organization shares                                     (50)            50
                                                                           -----------       --------

                     Net cash provided by financing activities               7,345,291        615,050

           Net increase in cash                                              1,266,595         38,993

           Cash at beginning of year                                            38,993             --
                                                                           -----------       --------

           Cash at end of year                                             $ 1,305,588         38,993
                                                                           ===========       ========
           Supplemental schedule of noncash investing activities:
             Change in net unrealized gain on investment
              securities available for sale                                $    50,992             --

           Supplemental disclosures of cash flow information:
             Cash paid during the year for interest                        $    13,766          3,978
</TABLE>


During the period ended December 31, 1996, restricted cash increased $5,986,074
as a result of subscription for common stock and corresponding deposits to
escrow account.


                                       48
<PAGE>   51



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

     Not Applicable.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information regarding the
Company's executive officers and directors:

<TABLE>
<CAPTION>


         NAME (AGE)              POSITION WITH COMPANY           POSITION WITH BANK
---------------------------      --------------------------      --------------------------
<S>                              <C>                             <C>
Catherine M. Amos (44)           Director                        Director
Jeffrey S. Bagley (34)           Vice Chairman of the Board      Vice Chairman of the Board
Bill H. Barnett (55)             Director                        --
Danny M. Bennett (35)            Director                        Director
Michael P. Bennett (51)          Director                        Director
Bryan L. Bettis (34)             Director                        --
Talmadge W. Bolton (62)          Director                        Director
Thomas L. Bower III (44)         Director                        --
Charles R. Castleberry (42)      Director                        --
David H. Denton (51)             President, Chief Executive      President, Chief Executive
                                 Officer and Director            Officer and Director
Jimmy S. Fagan (60)              Executive Vice President        Executive Vice President
Charles D. Ingram (53)           Secretary and Director          Director
Herbert A. Lang, Jr. (44)        Director                        Director
John P. McGruder (54)            Director                        Director
Vicki D. Melton (44)             Chief Financial Officer         Vice President and Chief
                                                                 Financial Officer
James J. Myers (46)              Chairman of the Board           Chairman of the Board
Timothy M. Perry (36)            --                              Senior Lending Officer and
                                                                 Senior Vice President
Danny L. Reid (43)               Director                        Director
Charles R. Smith (67)            Director                        Director
Wyatt L. Willingham (43)         Director                        Director
Jerry M. Wood (47)               Director                        --
</TABLE>


         Biographical information concerning management is set forth below. None
of the members of management are related, except that John P. McGruder's wife is
a first cousin to Catherine M. Amos.

         Catherine M. Amos is a native of Forsyth County and has been the
President of Amos Properties, Inc., an owner of commercial real estate
properties since 1989, and the Secretary/Treasurer of Amos Plumbing & Electrical
Co., Inc., a contracting firm, since 1978. Ms.



                                       49
<PAGE>   52


Amos is currently the Chairman of Lake Lanier Islands Authority, as well as a
member of several other civic, social and community organizations.

         Jeffrey S. Bagley is a native of Forsyth County, Georgia and is
presently a Judge for the State Court of Forsyth County. Mr. Bagley practiced
law with the law firm of Boling, Rice, Bettis, Bagley & Martin beginning in 1987
and he became a partner in such firm in 1992. In 1997, Mr. Bagley became a judge
in the State Court of Forsyth County and he continues to serve in such capacity.

         Bill H. Barnett is a native of Forsyth County and is a former member of
the Georgia House of Representatives and the Forsyth County Board of
Commissioners. Mr. Barnett has been the President of Bill H. Barnett, Inc., a
real estate investment and development company in Cumming, Georgia, since 1991.

         Danny M. Bennett is a native of Forsyth County, Georgia and is the
President of GeoCorp Development Co., Inc., a land development company in
Cumming, Georgia. Mr. Bennett is also Vice President and a construction engineer
for Georgia North Contracting, Inc. Mr. Bennett has been an officer of each of
these companies since 1988.

         Michael P. Bennett is a resident of Forsyth County, Georgia and is on
the Board of Directors for Forsyth County Farm Bureau. Mr. Bennett is also the
Chief Financial Officer and Secretary of 5 Bennett Farms, Inc. and served on the
Forsyth County Commission from 1987 to 1994. Mr. Bennett has been a
self-employed farmer since 1975.

         Bryan L. Bettis is a native of Forsyth County, Georgia and has been the
Vice President of Midway Building Supply, Inc. in Alpharetta, Georgia since
1983. Mr. Bettis is also the President of Bettis Construction, Inc., a
residential construction company, and a member of the South Forsyth Rotary Club.

         Talmadge W. Bolton is a native of Forsyth County, Georgia and has been
the Chief Executive Officer of Bolton's Truck Parts, Inc. since 1978. He is a
member of Lafayette Masonic Lodge No. 44 and a board member of Forsyth County
Department of Family & Children Services and Forsyth County Zoning Department.

         Thomas L. Bower III has been a resident of Gainesville, Georgia for 21
years. Mr. Bower is the Secretary/Treasurer of Clipper Petroleum, Inc., with
whom he has been associated since 1974, and a partner in B&B Associates, a real
estate and convenience store partnership. Mr. Bower also serves on the Board of
Directors for the Hall County Humane Society.

         Charles R. Castleberry is a native of Forsyth County and has been
employed by Progressive Lighting, Inc. as a manager and representative since
1985. Mr. Castleberry is a member of South Forsyth Rotary Club, a member and
past director of the Cumming Chamber of Commerce and past Chairman of the Board
for the Forsyth County Planning and Development Board.

         David H. Denton is a resident of Forsyth County, Georgia and has over
30 years of banking experience in the State of Georgia. Mr. Denton is a graduate
of the University of Georgia and the Graduate School of Banking of the South. He
is a member of the Rotary Club of




                                       50
<PAGE>   53





South Forsyth County, Boy Scouts of America, Band Boosters of Forsyth Central
High School and South Forsyth High School and an alumni of Leadership Forsyth.
Mr. Denton has been the President and CEO of the Company and the Bank since
Inception.

         Jimmy S. Fagan is a long-time resident of Cumming, Georgia and has over
31 years of banking experience in Forsyth County, Georgia. Mr. Fagan has been
Executive Vice President of the Company and Executive Vice President of the Bank
since Inception. Prior to joining the Company, he served as Vice Chairman and
President of The Peoples Bank of Forsyth County with whom he was associated
since 1984. He is a member of the South Forsyth Rotary Club and Forsyth
Development Authority.

         Charles D. Ingram is a native of Forsyth County, Georgia and has been a
co-owner, Secretary and Treasurer of Ingram-Stafford Ford-Mercury, Inc. since
1989. He has served on the advisory board of directors for Wachovia Bank and is
a graduate of the Graduate School of Banking of the South.

         Herbert A. Lang, Jr. is a long-time resident of Forsyth County and has
been the owner of Lang Signs, a sign manufacturer, since 1973. Mr. Lang is a
member of the South Forsyth Rotary Club.

         John P. McGruder is a resident of Cumming, Georgia and has been the
co-owner of Crestview Animal Hospital since 1984. Mr. McGruder serves as a
member of the Forsyth County Humane Society.

         Vicki D. Melton is a resident of north Gwinnett County and has over 15
years of banking experience in the State of Georgia. Ms. Melton has been the
Chief Financial Officer of the Company and the Vice President and Chief
Financial Officer of the Bank since Inception. Prior to joining the Company, she
served as Senior Vice President, Operations and Chief Financial officer of White
County Bank from 1993 through 1995 and was Senior Vice President, Operations and
Chief Financial Officer of Eastside Bank & Trust Company from 1989 through 1993.
Ms. Melton is a graduate of the University of Georgia, the Georgia Bankers
School and the American Institute of Banking.

         James J. Myers is a resident of Cumming, Georgia and has been the owner
of James J. Myers, CPA, PC since 1991. Mr. Myers has been a CPA since 1976 and
serves as a member of South Forsyth Rotary Club, Cumming Forsyth Optimist Club
and Leadership Forsyth County Georgia.

         Timothy M. Perry is a resident of Cumming, Georgia and has over 15
years of banking experience in the State of Georgia. Mr. Perry has been Senior
Lending Officer and Senior Vice President of the Bank since Inception. Prior to
joining the Company, he was associated with First National Bancorp since 1986 as
Senior Vice President/Senior Credit Officer of Barrow Bank & Trust Company from
1995 through June 1996 and Vice President, Commercial Lending of The Peoples
Bank of Forsyth County from 1986 through 1995. Mr. Perry is a graduate of West
Georgia College and the Graduate School of Banking of the South.

         Danny L. Reid is a native of Forsyth County, Georgia and has been a
co-owner of Reid & Reid Grading and Pipeline, Inc., a grading contractor and
developer, since 1970.



                                       51
<PAGE>   54



         Charles R. Smith is a resident of Forsyth County and has been as a
Judge of the Municipal Court of Cumming, Georgia since 1992. Mr. Smith is a
retired former partner of Smith & Smith, Attorneys and was an organizer,
director and former Chairman of the Board of Peoples Bank of Forsyth County.

         Wyatt L. Willingham is a resident of Cumming, Georgia and is the Vice
President and General Manager of North Georgia Fast Foods, Inc., with whom he
has been employed since 1973 Mr. Willingham is a member of the Mount Zion Lodge
and the Yaarab Temple.

         Jerry M. Wood is a long-time resident of Forsyth County and has been
President of Jerry Wood Hardware Co., doing business as Wood Ace Hardware, in
Alpharetta, Georgia and Cumming, Georgia since 1980. Mr. Wood is a founding
member of the South Forsyth Rotary Club and has served as Chairman of Finance
for the Midway United Methodist Church.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         The Company is not currently subject to filings required by Section 16
of the Exchange Act. The Company is filing this Annual Report pursuant to
Section 15(d) of the Exchange Act.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION OF EXECUTIVE OFFICERS

         The following table sets forth the total compensation paid by the
Company to its President and Chief Executive Officer for the years ended
December 31, 1997 and 1996. Other than as set forth below, no other executive
officer of the Company earned over $100,000 in salary and bonus for the years
ended December 31, 1997 and 1996.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                ANNUAL COMPENSATION
                                                    -------------------------------------------
                                                                                              OTHER
                                                                                             ANNUAL
            NAME AND POSITION                  YEAR           SALARY        BONUS         COMPENSATION
            -----------------                  ----          -------        -----         ------------
<S>                                            <C>           <C>            <C>           <C>
David H. Denton                                1997          $96,974          0                --
    President and                              1996           41,083          0                --
    Chief Executive Officer
Jimmy S. Fagan                                 1997          109,069          0                --
    Executive Vice President                   1996          $18,150          0                --
</TABLE>




                                       52
<PAGE>   55




EMPLOYMENT AGREEMENT

         David H. Denton and the Company have entered into an Employment
Agreement pursuant to which Mr. Denton will serve as the President and Chief
Executive Officer of the Company and the Bank. The Employment Agreement provides
that Mr. Denton will be paid a salary of $98,000 plus his yearly medical
insurance premium. Mr. Denton is eligible to participate in any management
incentive program of the Bank or any long-term equity incentive program and will
be eligible for grants of stock options and other awards thereunder.
Additionally, Mr. Denton will participate in the Bank's retirement, welfare and
other benefit programs and is entitled to reimbursement for automobile expenses
and travel and business expenses. The Company maintains a key man life insurance
policy on Mr. Denton providing for death benefits in the amount of $600,000
payable to the Company and $400,000 payable to Mr. Denton's family.

         The Employment Agreement provides for an initial term of five years
beginning on June 28, 1996, and can be extended by the Bank at the end of each
year of the term for an additional year, so that the remaining term shall
continue to be five years. If the Company terminates Mr. Denton's employment
without cause or if Mr. Denton's employment is terminated due to a sale, merger
or dissolution of the Company or the Bank, the Company will be obligated to
continue his salary and bonus for the first twelve months thereafter plus
one-half of his salary for the second twelve months thereafter. Furthermore, the
Company must remove any restrictions on outstanding incentive awards so that all
such awards vest immediately and the Company must continue to provide his life
insurance and medical benefits until he reaches the age of 65.

         In addition, the Employment Agreement provides that following
termination of his employment with the Bank and the Company and for a period of
twelve months thereafter, Mr. Denton may not: (i) be employed in the banking
business as a director, officer at the vice president level or higher, or
organizer or promoter of, or provide executive management services to, any
financial institution within Forsyth County; (ii) solicit major customers of the
Bank for the purpose of providing financial services; or (iii) solicit employees
of the Bank for employment.

DIRECTOR COMPENSATION

         The directors receive no compensation for attending Company or Bank
Board of Directors meetings or meetings of committees of the Board of Directors.

COMPANY 401(K) PLAN

         The Company established, effective January 1, 1998, a qualified salary
deferral plan pursuant to Section 401(k) of the Internal Revenue Code (the
"401(k) Plan"). The 401(k) Plan is open to all employees, including executive
officers, on the first day of the month coinciding with or following the date on
which the employee attains age 21 and completes twelve months of service and
1,000 hours of service during such twelve months ("Year of Service"). Effective
January 1, 1998, employees who are normally scheduled to work 24 or more hours
per week may participate in the 401(k) payroll deduction portion of the 401(k)
Plan on the first day of the month after the eligible employee completes one
year of employment and attain age 18. Employees who are normally scheduled to
work fewer than 24 hours per week may participate after attaining age 21 and
completing a Year of Service. All Employees must still complete a Year of
Service and attain age 21 before becoming eligible for a Company matching
contribution. Pursuant to the




                                       53
<PAGE>   56




401(k) Plan, each participating employee is permitted to authorize payroll
deductions of up to 6% of his or her total compensation during the calendar year
(the "Basic Contributions"), and is permitted to make supplemental contributions
of up to 10% of his or her total compensation during the calendar year (the
"Supplemental Contributions"). An employee's aggregate contributions are subject
to limits set by law. The Company may, but is not required to, make matching
contributions in cash or the Company's Common Stock equal to 20% of each
participant's Basic Contributions. The Company does not intend to make any
matching contributions to the 401(k) Plan until such time that the Bank is
cumulatively profitable and the thereafter matching contributions will only be
made in the discretion of the Company Board of Directors. Participants are
immediately 100% vested in their Basic and Supplemental Contributions.

EXECUTIVE DEFERRED COMPENSATION AGREEMENTS

         The Company has deferred compensation agreements with certain of the
Company's executive officers under which each executive has agreed to reduce his
salary in exchange for annual benefits upon retirement. Amounts of compensation
deferred pursuant to the deferred compensation agreements are included in the
salaries of the Named Executive Officers disclosed in the Summary Compensation
Table in the year such compensation is earned. Such compensation will not be
included in such individuals' salary in the Summary Compensation Table in the
later year in which he actually receives such compensation. The Named Executive
Officers are entitled to the following amounts upon retirement or attaining age
65 under such deferred compensation agreements: Jimmy S. Fagan - $11,400
annually.

         Each of the deferred compensation agreements provide that in the event
of a change of control of the Company (as defined in the agreements), the
officer (i) if he has not yet qualified for early retirement benefits, shall
have the right to demand his withdrawal benefits (which is an amount
approximately equal to the amount of salary deferred under the agreement by the
officer) in a single lump sum payment, or (ii) if he has qualified for early
retirement benefits or has begun receiving a retirement benefit under his
deferred compensation agreement, shall have the right to demand his benefits in
a single lump sum payment in an amount equal to the annual amount to which the
officer is entitled times the number of years remaining in his life expectancy
based on the actuarial assumptions used in connection with the Company's Pension
Plan at that time, reduced to present value using 6% per annum.




                                       54
<PAGE>   57




ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 1, 1997 with respect to the following: (i)
each director; (ii) each executive officer; and (iii) all directors and
executive officers of the Company as a group. No person known to the Company is
the beneficial owner of more than 5% of the Common Stock. This information has
been provided to the Company by each of the persons listed below.

<TABLE>
<CAPTION>

                                                              SHARES BENEFICIALLY OWNED(1)
                                                   ----------------------------------------------------

          NAME OF BENEFICIAL OWNER                          NUMBER                    PERCENT
          ------------------------                          ------                    -------
          <S>                                               <C>                        <C>
          Catherine M. Amos...................              19,500                     2.44
          Jeffrey S. Bagley...................               5,000                        *
          Bill H. Barnett.....................              10,250                     1.28
          Danny M. Bennett....................              10,000                     1.25
          Michael P. Bennett..................               7,500                        *
          Bryan L. Bettis.....................               5,000                        *
          Talmadge W. Bolton..................              10,000                     1.25
          Thomas L. Bower III.................              10,000                     1.25
          Charles R. Castleberry..............               5,000                        *
          David H. Denton.....................               7,000                        *
          Jimmy S. Fagan......................              10,000                     1.25
          Charles D. Ingram...................               5,000                        *
          Herbert A. Lang, Jr.................              10,000                     1.25
          John P. McGruder....................              10,000                     1.25
          Vicki D. Melton.....................                 500                        *
          James J. Myers......................               7,500                        *
          Timothy M. Perry....................               2,000                        *
          Danny L. Reid.......................              10,000                     1.25
          Charles R. Smith....................              25,000                     3.13
          Wyatt L. Willingham.................               7,500                        *
          Jerry M. Wood.......................               5,000                        *
          All directors and executive
          officers as a group (21                          181,750                    23.38
          persons)............................
</TABLE>


-------------------------
*        Represents less than one percent of the outstanding Common Stock.
(1)      Beneficial ownership includes shares of Common Stock as to which a
person possesses sole or shared voting and/or investment power and shares which
may be acquired within 60 days after December 31, 1997 upon the exercise of
outstanding stock options. Shares which may be acquired upon the exercise of
stock options are deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by a particular individual but are not deemed
to be outstanding for the purpose of computing the percentage ownership of any
other person. To the Company's knowledge, the named persons have sole voting and
investment power with regard to the shares shown as owned by them except as
otherwise referenced below.





                                       55
<PAGE>   58




ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company and the Bank have had, and expect to have in the future,
banking and other transactions in the ordinary course of business with the
directors and officers of the Company and the Bank and their affiliates,
including members of their families or corporations, partnerships or other
organizations in which such officers or directors have a controlling interest,
on substantially the same terms (including price, or interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties. Such transactions do not currently and are not expected to
involve more than the normal risk of collectibility nor present other
unfavorable features to the Company and the Bank. Loans to individual directors
and officers must also comply with the Bank's lending policies and statutory
lending limits, and directors with a personal interest in any loan application
will be excluded from the consideration of such loan application. The Company
intends for all of its transactions with directors, officers and other
affiliates of the Company or the Bank to be on terms no less favorable to the
Company than could be obtained from an unaffiliated third party and to be
approved by a majority of the Company's disinterested directors.

         Loans outstanding to Company and Bank officers, directors and their
affiliates totaled $3,125,311, which represented 41.60% of the Company's
shareholders' equity at December 31, 1997. Deposit accounts with the Company and
Bank officers, directors and their affiliates totaled $3,105,000 at December 31,
1997.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
         REPORTS ON FORM 8-K

         (a)      1.       Financial Statements

                           The financial statements listed in the index set
                           forth in Item 8 of this Annual Report are filed as
                           part of this Annual Report.

                  2.       Financial Statement Schedules

                           Not Applicable.

                  3.       Exhibits

                           3.1.     Articles of Incorporation.(1)

                           3.2.     Bylaws.(1)

                           4.1.     Specimen Stock Certificate.(1)

                           10.1.    Sublease Agreement by and among the Company,
                                    the Bank and NationsBank, N.A. (South) dated
                                    February 9, 1996.(1)





                                       56
<PAGE>   59







                           10.2     First Amendment to Sublease Agreement by and
                                    among the Company, the Bank and NationsBank,
                                    N.A. (South), dated February 16, 1996.(1)

                           10.3     Second Amendment to Sublease Agreement by
                                    and among the Company, the Bank and
                                    NationsBank, N.A. (South) dated May 10,
                                    1996.(1)

                           10.4.    Employment Agreement by and between the
                                    Company and David H. Denton dated June 28,
                                    1996.(1)

                           21.1     Subsidiaries of the Company.

                           27.1     Financial Data Schedule (for SEC use only).

                           ------------------------
                           (1)      Incorporated by reference to exhibits of the
                                    same number in the Company's Registration
                                    Statement on Form S-1 (File No. 333-10909).

         (b)      Reports on Form 8-K

                  None.

         (c)      Exhibits

                  See Item 14(a) above.

         (d)      Financial Statement Schedule

                  See Item 14(a) above.




                                       57
<PAGE>   60




                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                   FORSYTH BANCSHARES, INC.


                                   By:      /s/  David H. Denton
                                      ------------------------------------------
                                           David H. Denton
                                           President and Chief Executive Officer

                                   Date:   March 27, 1998


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.

<TABLE>
<CAPTION>

                Signature                                    Title                             Date
                ---------                                    -----                             ----

<S>                                         <C>                                           <C>
        /s/ Catherine M. Amos                              Director                       March 27, 1998
--------------------------------------
            Catherine M. Amos

        /s/ Jeffrey S. Bagley                     Vice Chairman of the Board              March 27, 1998
--------------------------------------
            Jeffrey S. Bagley

         /s/ Bill H. Barnett                               Director                       March 27, 1998
--------------------------------------
             Bill H. Barnett

        /s/ Danny M. Bennett                               Director                       March 27, 1998
--------------------------------------
            Danny M. Bennett

       /s/ Michael P. Bennett                              Director                       March 27, 1998
--------------------------------------
           Michael P. Bennett

         /s/ Bryan L. Bettis                               Director                       March 27, 1998
--------------------------------------
             Bryan L. Bettis

       /s/ Talmadge W. Bolton                              Director                       March 27, 1998
--------------------------------------
           Talmadge W. Bolton

       /s/ Thomas L. Bower III                             Director                       March 27, 1998
--------------------------------------
           Thomas L. Bower III

     /s/ Charles R. Castleberry                            Director                       March 27, 1998
--------------------------------------
         Charles R. Castleberry

         /s/ David H. Denton                President, Chief Executive Officer            March 27, 1998
--------------------------------------                and Director
             David H. Denton
</TABLE>




                                       58
<PAGE>   61



<TABLE>


<S>                                                 <C>                                   <C>
        /s/ Charles D. Ingram                       Secretary and Director                March 27, 1998
--------------------------------------
            Charles D. Ingram

      /s/ Herbert A. Lang, Jr.                             Director                       March 27, 1998
--------------------------------------
          Herbert A. Lang, Jr.

        /s/ John P. McGruder                               Director                       March 27, 1998
--------------------------------------
            John P. McGruder

         /s/ Vicki D. Melton                        Chief Financial Officer               March 27, 1998
--------------------------------------
             Vicki D. Melton

         /s/ James J. Myers                          Chairman of the Board                March 27, 1998
--------------------------------------
             James J. Myers

          /s/ Danny L. Reid                                Director                       March 27, 1998
--------------------------------------
              Danny L. Reid

        /s/ Charles R. Smith                               Director                       March 27, 1998
--------------------------------------
            Charles R. Smith

       /s/ Wyatt L. Willingham                             Director                       March 27, 1998
--------------------------------------
           Wyatt L. Willingham

          /s/ Jerry M. Wood                                Director                       March 27, 1998
--------------------------------------
              Jerry M. Wood
</TABLE>




                                       59
<PAGE>   62




           SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
      PURSUANT TO SECTION 15(D) OF THE SECURITIES ACT OF 1933, AS AMENDED,
        (THE "ACT") BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
                        PURSUANT TO SECTION 12 OF THE ACT

         Subsequent to the filing of this Annual Report on Form 10-KSB, the
Company will distribute to its securities holders an Annual Report to
Shareholders and Proxy Statement in connection with its 1998 annual Meeting of
Shareholders. The Company will furnish four copies of such materials to the
Commission when such materials are sent to the shareholders.




                                       60
<PAGE>   63





                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

         ITEM                        DESCRIPTION
         ----                        -----------

         <S>      <C>
         3.1.     Articles of Incorporation.(1)

         3.2.     Bylaws.(1)

         4.1.     Specimen Stock Certificate.(1)

         10.1.    Sublease Agreement by and among the Company, the Bank and
                  NationsBank, N.A. (South) dated February 9, 1996.(1)

         10.2     First Amendment to Sublease Agreement by and among the
                  Company, the Bank and NationsBank, N.A. (South), dated
                  February 16, 1996.(1)

         10.3     Second Amendment to Sublease Agreement by and among the
                  Company, the Bank and NationsBank, N.A. (South) dated May 10,
                  1996.(1)

         10.4.    Employment Agreement by and between the Company and David H.
                  Denton dated June 28, 1996.(1)

         21.1     Subsidiaries of the Company.

         27.1     Financial Data Schedule (for SEC use only).
</TABLE>
----------------------------

(1)      Incorporated by reference to exhibits of the same number in the
         Company's Registration Statement on Form S-1 (File No. 333-10909).


                                       61