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

                                  FORM 10-KSB

               Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934
                                        
For the fiscal year ended December 31, 1998     Commission file number 333-12293
 

                             PEOPLES BANCORP, INC.
                (Name of small business issuer in its charter)

Georgia                                                               58-2265412
(State of Incorporation)                    (I.R.S. Employer Identification No.)

516 Bankhead Highway, Carrollton, GA                                       30117
(Address of principal executive office)                               (Zip Code)


                                (770) 838-9608
               (Issuer's telephone number, including area code)

Securities Registered pursuant to Section 12(b) of the Act:  None
Securities Registered pursuant to Section 12(g) of the Act:  Common stock, par
value $.01

Check whether Issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 pursuant to Item 405 of
Regulation S-B in this form, and will not 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  ]
                    ----- 

Registrant's revenues for its fiscal year ended December 31, 1998 were
$2,339,693.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 1, 1999 was $4,067,040 based on the initial offering price
of $10.00 per share, although there is no established trading market.

There were 800,000 shares of Registrant's common stock outstanding at March 15,
1999.

Documents Incorporated By Reference: None.

Transitional Small Business Disclosure Format (check one):
Yes _______      No    X
                    -------
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                                    PART I

ITEM 1.   DESCRIPTION OF BUSINESS.

(A)    BUSINESS DEVELOPMENT

Peoples Bancorp, Inc. (the "Company" or "PBI"), Carrollton, Georgia, was
incorporated as a Georgia business corporation for the purpose of becoming a
bank holding company by acquiring all of the common stock of Peoples Bank of
West Georgia, Carrollton, Georgia (the "Bank") upon its formation. The Company
filed applications to the Board of Governors of the Federal Reserve System (the
"Board") and the Georgia Department of Banking and Finance (the "DBF") for prior
approval to become a bank holding company. The Company received Board approval
on December 30, 1996, and the DBF approval on December 18, 1996. The Company
became a bank holding company within the meaning of the federal Bank Holding
Company Act (the "Act") and the Georgia bank holding company law (the "Georgia
Act") on March 3, 1997. The Bank currently is the sole operating subsidiary of
the Company. On October 11, 1996, the Bank received the approval of its Articles
of incorporation from the DBF and its permit to begin business was issued by the
DBF on February 28, 1997. The Bank opened for business on March 3, 1997. The
deposits at the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC").

(B)    BUSINESS OF ISSUER

The Bank conducts a general commercial banking business in its primary service
area, emphasizing the banking needs of individuals and small- to medium-sized
businesses. The Company and the Bank conduct business from the office located at
516 Bankhead Highway, Carrollton, Georgia 30117. The Company was a developmental
stage enterprise that as of December 31, 1996, had no active business operations
other than in connection with its initial offering of the shares of its common
stock. As of December 31, 1998, PBI and the Bank had consolidated total assets
of approximately $34.5 million, total deposits of approximately $26.4 million
and total stockholders' equity of approximately $7.9 million.

The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable Federal regulatory restrictions on the
activities of bank holding companies. The Company was formed for the purpose of
becoming a holding company to own 100% of the stock of the Bank. The holding
company structure provides the Company with greater flexibility than the Bank,
while the Company has no present plans to engage actively in any nonbanking
business activities, management anticipates studying the feasibility of
establishing or acquiring subsidiaries to engage in other business activities to
the extent permitted by law.

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

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

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The Bank offers a full range of commercial and consumer loans. The Bank makes
loans to individuals for purposes such as home mortgage financing, personal
vehicles and various consumer purchases, and other personal and family needs.

The Bank makes commercial loans to businesses primarily in the primary service
area for purposes such as providing equipment and machinery purchases,
commercial real estate purchases and working capital.

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

The principal sources of income for the Bank are interest and fees collected on
loans, interest and dividends collected on other investments, and mortgage
brokerage fees. The principal expenses of the Bank are interest paid on
deposits, employee compensation, office expenses, and other overhead expenses.

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

SUPERVISION AND REGULATION

REGULATION OF THE BANK.  The operations of the Bank are subject to state and
federal statutes applicable to state chartered banks whose deposits are insured
by the FDIC and the regulations of the DBF and the FDIC. Such statutes and
regulations relate to, among other things, required reserves, investments,
loans, mergers and consolidations, issuances of securities, payment of
dividends, establishment of branches and other aspects of the Bank's operations.

Under the provisions of the Federal Reserve Act, the Bank is subject to certain
restrictions on any extensions of credit to the Company or, with certain
exceptions, other affiliates, and on the taking of such stock or securities as
collateral on loans to any borrower. In addition, the Bank is prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.

The Bank, as a state chartered bank, will be permitted to branch only to the
extent that banks are permitted to branch under Georgia law. In January 1996,
the Georgia legislature passed a bill designed to eliminate Georgia's current
intra-county branching restrictions. The new legislation provided that effective
after July 1, 1996, banks in Georgia, with prior approval of the DBF (and the
appropriate federal regulatory authority), could establish additional branches
in up to three new

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counties in the state per year. On July 1, 1998, full statewide branching went
into effect as Georgia banks may establish new branches in any county in the
state with prior approval of the appropriate regulatory authorities.

The FDIC adopted final risk-based capital guidelines for all FDIC insured state
chartered banks that are not members of the Federal Reserve System effective
December 31, 1990. As of December 31, 1992, all banks are required to maintain a
minimum ratio of total capital to risk weighted assets of 8 percent (of which at
least 4 percent must consist of Tier 1 capital). Tier 1 capital of state
chartered banks (as defined in regulations) generally consists of (i) common
stockholders equity; (ii) noncumulative perpetual preferred stock and related
surplus; and (iii) minority interests in the equity accounts of consolidated
subsidiaries.

In addition, the FDIC adopted a minimum ratio of Tier 1 capital to total assets
of banks. This capital measure is generally referred to as the leverage capital
ratio. The FDIC has established a minimum leverage capital ratio of 3 percent if
the FDIC determines that the institution is not anticipating or experiencing
significant growth and has well-diversified risk, including no undue interest
rate exposure, excellent asset quality, high liquidity, good earnings and, in
general, is considered a strong banking organization, rated Composite 1 under he
Uniform Financial Institutions Rating System. Other financial institutions are
expected to maintain leverage capital at least 100 to 200 basis points above the
minimum level. Banking regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations, including a proposal
to add an interest rate risk component to risk-based capital requirements. At
December 31, 1998, the Bank exceeded the minimum Tier 1, risk-based and leverage
capital ratios.

The Federal Deposit Insurance Corporation Improvement Act of 1991, enacted in
December 1991 ("FDICIA"), specifies, among other things, the following five
capital standard categories for depository institutions: (i) well capitalized,
(ii) adequately capitalized, (iii) undercapitalized, (iv) significantly
undercapitalized and (v) critically undercapitalized. FDICIA imposes
progressively more restrictive constraints on operations, management and capital
distributions depending on the category in which an institution is classified.
Each of the federal banking agencies has issued final uniform regulations that
became effective December 19, 1992, which, among other things, define the
capital levels described above. Under the final regulations, a bank is
considered "well capitalized" if it (i) has a total risk-based capital ratio of
10% or greater, (ii) has a Tier 1 risk-based capital ratio of 6% or greater,
(iii) has a leverage ratio of 5% or greater, and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" bank is defined as one that has (i)
a total risk-based capital ratio for 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater. An
"undercapitalized" bank is defined as one that has (i) a total risk-based
capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less
than 4% or (iii) a leverage ratio of less than 3%. A "significantly
undercapitalized" bank is defined as one that has (i) a total risk-based capital
ratio of less than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% or
(iii) a leverage ratio of less than 3%. A bank is "critically undercapitalized"
if the bank has a leverage ratio equal to or less than 2%. The applicable
federal regulatory agency for a bank that is "well capitalized" may reclassify
it as "adequately capitalized" or "undercapitalized" and subject the institution
to the supervisory actions applicable to the next lower capital category, if it
determines that the Bank is in an unsafe or unsound condition or deems the bank
to be engaged in an unsafe or unsound practice and not to have corrected the
deficiency. As of December 31, 1998, the Bank met the definition of a "well
capitalized" institution.

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

Under FDICIA, the FDIC is permitted to provide financial assistance to an
insured bank before appointment of a conservator or receiver only if (i) such
assistance would be the least costly method of meeting the FDIC's insurance
obligations, (ii) grounds for appointment of a conservator or a receiver exist
or are likely to exist, (iii) it is unlikely that the bank can meet all capital
standards without assistance and (iv) the bank's management has been competent,
has complied with applicable laws, regulations, rules and supervisory directives
and has not engaged in any insider dealing, speculative practice or other
abusive activity.

The Bank is subject to FDIC deposit insurance assessments for the Bank Insurance
Fund ("BIF"). The FDIC has implemented a risk-based assessment system whereby
banks are assessed on a sliding scale depending on their placement in nine
separate supervisory categories. Recent legislation provides that BIF insured
institutions, such as the Bank, will share the Financial Corporation ("FICO")
bond service obligation. Previously, only Savings Association Insurance Fund
("SAIF") insured institutions were obligated to contribute to the FICO bond
service. The BIF deposit insurance premium will be less than $.02 per $100 of
BIF insured deposits for the highest-rated institutions.

On April 19, 1995, the federal bank regulatory agencies adopted uniform
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set standards for financial institutions.
The revised regulation contains three evaluation tests: (a) a lending test which
will compare the institution's market share of loans in low and moderate income
areas to its market share of loans in its entire service area and the percentage
of a bank's outstanding loans to low and moderate income areas or individuals,
(b) a services test which will evaluate the provision of services that promote
the availability of credit to low and moderate income areas, and (c) an
investment test, which will evaluate an institution's record of investments in
organizations designed to foster community developments, mall and minority owned
businesses and affordable housing lending, including state and local government
housing or revenue bonds. The regulation is designed to reduce the paperwork
requirements of the current regulations and provide regulatory agencies,
institutions, and community groups with a more objective and predictable manner
with which to evaluate the CRA performance of financial institutions. The rule
became effective on January 1, 1996 when evaluation under streamlined

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procedures began for institutions with total assets of less than $250 million
that are owned by a holding company with total assets of less than $1 billion.

Congress and various federal agencies (including, in addition to the bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice (collectively, the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that the prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. The
Justice Department filed suit against financial institutions which it determined
had discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suites have
been settled (some for substantial sums) without a full adjudication on the
merits.

On March 8, 1994, the Federal Agencies, in an effort to clarify what constitutes
discrimination in lending and to specify the factors the agencies will consider
in determining if lending discrimination exists, announced a joint policy
statement detailing specific discriminatory practices prohibited under the Equal
Credit Opportunity Act and the Fair Housing Act. In the policy statement, three
methods of establishing discrimination in lending were identified: (a) overt
evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, or (b) where there is no showing that the treatment was
motivated by intent to discriminate against a person, and (c) evidence of
disparate impact, when a lender applies a practice uniformly to all applicants,
but the practice has a discriminatory effect on a protected class, even where
such practices are neutral on their face and are applied equally, unless the
practice can be justified on the basis of business necessity.

REGULATION OF THE COMPANY.  The Company is a bank holding company within the
meaning of the Federal Bank Holding Company Act (the "Act") and the Georgia bank
holding company law (the "Georgia Act"). As a bank holding company, the Company
is required to file with the Federal Reserve Board (the "Board") an annual
report and such additional information as the Board may require pursuant to the
Act. The Board may also make examinations of the Company and each of its
subsidiaries. Bank holding companies are required by the Act to obtain approval
from the Board prior to acquiring, directly or indirectly, ownership or control
of more than 5% of the voting shares of a bank. The Act also prohibits bank
holding companies, with certain exceptions, from acquiring more than 5% of the
voting shares of any company that is not a bank and from engaging in any
nonbanking business (other than a business closely related to banking as
determined by the Board) or from managing or controlling banks and other
subsidiaries authorized by the Act or furnishing services to, or performing
services for, its subsidiaries without the prior approval of the Board. The
Board is empowered to differentiate between activities that are initiated de
novo by a bank holding company or a subsidiary and activities commenced by
acquisition of a going concern. The Company has no present intention to engage
in nonbanking activities. As a bank holding company, the Company is subject to
capital adequacy guidelines as established by the Board. The Board established
risk based capital guidelines for bank holding companies effective March 15,
1989. Beginning on December 31, 1992, the minimum required ratio for total
capital to risk weighted assets became 8 percent (of which at least 4 percent
must consist of Tier 1 capital). Tier 1 capital (as defined in regulations of
the Board) consists of common and qualifying preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
other intangible assets required to be deducted under the Board's guidelines.
The Board's guidelines apply on a consolidated basis to bank holding companies
with total consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in total consolidated

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assets (such as the Company), the guidelines will be applied on a bank only
basis, unless the bank holding company is engaged in nonbanking activity
involving significant leverage or has significant amount of debt outstanding
that is held by the general public. The Board has stated that risk based capital
guidelines establish minimum standards and that bank holding companies generally
are expected to operate well above the minimum standards. The Company is also a
bank holding company within the meaning of the Georgia Act, which provides that,
without the prior approval of the DBF, it is unlawful (i) for any bank holding
company to acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank, (ii) for any bank holding company or subsidiary
thereof, other than a bank, to acquire all or substantially all of the assets of
a bank, or (iii) for any bank holding company to merge or consolidate with any
other bank holding company. It also is unlawful for any company to acquire
direct or indirect ownership or control of more than 5% of the voting shares of
any bank in Georgia unless such bank has been in existence and continuously
operating or incorporated as a bank for a period of five years or more prior to
the date of application to the DBF for approval of such acquisition. Bank
holding companies themselves are prohibited from acquiring another bank until
the initial bank in the bank holding company has been incorporated for a period
of twenty-four months. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), subject to certain
restrictions, allows adequately capitalized and managed bank holding companies
to acquire existing banks across state lines, regardless of state statutes that
would prohibit acquisitions by out-of-state institutions. Further, effective
June 1, 1997, a bank holding company may consolidate interstate bank
subsidiaries into branches and a bank may merge with an unaffiliated bank across
state lines to the extent that the applicable states have not "opted out" of
interstate branching prior to such effective date. Some states may elect to
permit interstate mergers prior to June 1, 1997. The Interstate Banking Act
generally prohibits an interstate acquisition (other than the initial entry into
a state by a bank holding company) that would result in either the control of
more than (i) 10% of the total amount of insured deposits in the United States,
or (ii) 30% of the total insured deposits in the home state of the target bank,
unless such 30% limitation is waived by the home state on a basis which does not
discriminate against out-of-state institutions. As a result of this legislation,
the Company may become a candidate for acquisition by, or may itself seek to
acquire, banking organizations located in other states. The Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Improvement Act")
provides for the creation of a community development financial institutions'
fund to promote economic revitalization in community development. Banks and
thrift institutions are allowed to participate in such community development
banks. The Improvement Act also contains (i) provisions designed to enhance
small business capital formation and to enhance disclosure with regard to high
cost mortgages for the protection of consumers, and (ii) more than 50 regulatory
relief provisions that apply to banks and thrift institutions, including the
coordination of examinations by various federal agencies, coordination of
frequency and types of reports financial institutions are required to file and
reduction of examinations for well capitalized institutions.

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

The Company and the Bank are subject to the Federal Reserve Act, Section 23A,
which limits a bank's "covered transactions" (generally, any extension of
credit) with any single affiliate to no more than 10% of a bank's capital and
surplus. Covered transactions with all affiliates combined are

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

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

MONETARY POLICY

The earnings of the Bank are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States Government and its agencies.

The Federal Reserve has had, and will 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 mitigate recessionary
and inflationary pressures by regulating the national money supply.

The techniques used by the Federal Reserve include setting the reserve
requirements of member banks and establishing the discount rate on member bank's
borrowings. The Federal Reserve also conducts open market transactions in United
States Government securities.

Periodically, bills are pending before the United States Congress which contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. Among such bills are
proposals to prohibit banks and bank holding companies from conducting certain
types of activities, to subject banks to increased disclosure and reporting
requirements, to eliminate on a regional or other basis the present restriction
on interstate expansion by banks or bank holding companies, to alter the
statutory separation of commercial and investment banking and to alter the
powers of thrift institutions and other competitors of banks. It cannot be
predicted whether or in what form any of these proposals will be adopted or the
extent to which the business of the Company may be affected thereby.

COMPETITION

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

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

EMPLOYEES

As of December 31, 1998, the Bank employed nine full-time employees and two 
part-time employees. Except for the officers of the Bank who presently serve as
officers of the Company, the Company does not have any employees. Neither the
Company nor the Bank is a party to any collective bargaining agreement, and
management believes the Bank enjoys satisfactory relations with its employ ees.

ITEM 2.   DESCRIPTION OF PROPERTIES.

The operations of the Company and the Bank are conducted in an office building
located at 516 Bankhead Highway, Carrollton, Georgia. The office consists of a
two-story brick building with approximately 3,500 square feet of space on the
main floor. During November 1998, the Bank acquired a four-story building
located at 119 Maple Street in Carrollton for renovation and eventual occupancy
as the Bank's and the Company's principal offices.

ITEM 3.   LEGAL PROCEEDINGS.

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

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

No matter was submitted to a vote of security holders during the Company's
fourth quarter of the fiscal year ended December 31, 1998.

                                    PART II

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

There is no established trading market for the Company's common stock, which was
first issued on January 28, 1997 at a price of $10.00 per share. As of March 15,
1999, the Company had 366 shareholders of record.

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Under the Georgia Business Corporation Code, the Company may from time to time
make distributions, including the payment of dividends, to its shareholders in
money, indebtedness or other property (except its own shares) unless, after
giving effect to such distribution, the Company would not be able to pay its
debts as they become due in the usual course of business or the Company's total
assets would be less than the sum of its total liabilities, plus the amount that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy any preferential rights of shareholders upon
dissolution. The Company may also distribute its shares pro rata and without
consideration to its shareholders or to the shareholders of one or more classes
or series, which constitutes a share dividend.

However, the only current source of funds with which the Company can pay
dividends is from amounts received as dividends from the Bank. The Board of
Directors of the Bank is limited in its ability to pay cash dividends on the
outstanding capital stock of the Bank without regulatory approval. The Georgia
Financial Institutions Code provides that dividends may be declared and paid
only from a bank's cumulative retained earnings which have not been appropriated
as permanent capital. Approval from the Department is required prior to the
payment of dividends by a bank under certain circumstances. Generally, a bank
may declare and pay dividends without the prior approval of the Department so
long as (i) a bank's ratio of equity capital to adjusted total assets equals or
exceeds 6%, (ii) the aggregate amount of dividends declared or anticipated to be
declared by a bank in the calendar year does not exceed 50% of such bank's net
profits after taxes but before dividends for the prior calendar year, and (iii)
the total classified assets at the most recently completed and delivered
examination of the bank do not exceed 80% of the equity capital reflected at
such examination.

The Company does not anticipate paying dividends on its common stock in the
immediate future.

No assurance can be given that dividends will be declared by the Company, or if
declared, what the amount of the dividends will be or whether such dividends,
once declared, would continue.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

The following is a discussion of the financial condition of Peoples Bancorp.,
Inc. (PBI) and its bank subsidiary, Peoples Bank of West Georgia at December 31,
1998 and 1997 and the results of operations for the years then ended. The
purpose of this discussion is to focus on information about PBI's financial
condition and results of operations which are not otherwise apparent from the
audited consolidated financial statements. Reference should be made to those
statements and the selected financial data presented elsewhere in this report
for an understanding of the following discussion and analysis.

FORWARD-LOOKING STATEMENTS

PBI may from time to time make written or oral forward-looking statements,
including statements contained in PBI's filings with the Securities and Exchange
Commission and its reports to stockholders. 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. PBI's actual results may differ materially from the results anticipated in
forward-looking statements due to a variety of

                                      -10-
<PAGE>
 
factors, including governmental monetary and fiscal policies, deposit levels,
loan demand, loan collateral values, securities portfolio values, interest rate
risk management; the effects of competition in the banking business from other
commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market
funds and other financial institutions operating in PBI'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. PBI cautions that such factors
are not exclusive. PBI does not undertake to update any forward-looking
statement that may be made from time to time by, or on behalf of, PBI.

OVERVIEW

PBI's 1998 results were highlighted by reporting net income of $174,000 in its
first full year of operations and recouping over 50% of operating losses
incurred through 1997. The year was also highlighted by the acquisition of land
and buildings in downtown Carrollton, Georgia at a cost of approximately $1.9
million to be used for main office banking facilities. PBI expects to move into
these new facilities in the third quarter of 1999.

FINANCIAL CONDITION AT DECEMBER 31, 1998 AND 1997

Following is a summary of PBI's balance sheets for the periods indicated:

<TABLE>
<CAPTION>
                                           December 31,
                                        1998           1997
                                      (Dollars in Thousands)
<S>                                   <C>            <C>       
Cash and due from banks               $ 1,038        $   452   
Interest-bearing deposits in banks        198             --   
Federal funds sold                      1,450          4,730   
Securities                             11,314          6,996   
Loans, net                             17,846          8,695   
Premises and equipment                  2,379            496   
Other assets                              298            265   
                                      -------        -------   
                                                               
                                      $34,523        $21,634   
                                      =======        =======   
                                                               
Total deposits                        $26,391        $13,808 
Other liabilities                         247            134 
Stockholders' equity                    7,885          7,692 
                                      -------        ------- 
                                                               
                                      $34,523        $21,634 
                                      =======        =======  
</TABLE>

                                      -11-
 
<PAGE>
 
FINANCIAL CONDITION AT DECEMBER 31, 1998 AND 1997

As of December 31, 1998, PBI had total assets of $34.5 million, an increase of
60% since December 31, 1997.  The completion of PBI's stock offering in 1997,
which raised $8 million, has provided a strong capital base to support this
growth.  Total interest-earning assets were $30.8 million at December 31, 1998
or 89.24% of total assets as compared to 94.39% at December 31, 1997.  PBI's
primary interest-earning assets at December 31, 1998 were loans, which made up
57.93% of total interest-earning assets as compared to 42.58% at December 31,
1997.  PBI's loan to deposit ratio was 68.44% as compared to 63.70% at December
31, 1997.  Deposit growth of $12.6 million has been used primarily to fund loan
growth of $9.2 million.

PBI's investment portfolio, consisting of U.S. Agency, mortgage-backed, and
equity securities, amounted to $11.3 million at December 31, 1998.  Unrealized
gains on securities amounted to $78,454 at December 31, 1998.  Management has
not specifically identified any securities for sale in future periods which, if
so designated, would require a charge to operations if the market value would
not be reasonably expected to recover prior to the time of sale.

PBI has 63% of its loan portfolio collateralized by real estate located in PBI's
primary market area of Carroll County and surrounding counties.  PBI's real
estate mortgage and construction portfolio consists of loans collateralized by
one- to four-family residential properties (34%), construction loans to build
one- to four-family residential properties (32%), and nonresidential properties
consisting primarily of small business commercial properties (34%).  PBI
generally requires that loans collateralized by real estate not exceed 80% of
the collateral value.

PBI's remaining 37% of its loan portfolio consists of commercial, consumer, and
other loans.  PBI requires collateral commensurate with the repayment ability
and creditworthiness of the borrower.

The specific economic and credit risks associated with PBI's loan portfolio,
especially the real estate portfolio, include, but are not limited to, a general
downturn in the economy which could affect unemployment rates in PBI's market
area, general real estate market deterioration, interest rate fluctuations,
deteriorated or non-existing collateral, title defects, inaccurate appraisals,
financial deterioration of borrowers, fraud, and any violation of banking
protection laws.  Construction lending can also present other specific risks to
the lender such as whether developers can find builders to buy lots for home
construction, whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the buyer can
obtain permanent financing.  Currently, real estate values and employment trends
in PBI's market area are stable with no indications of a significant downturn in
the general economy.  Additionally, PBI has risk associated with its loan
portfolio as it relates to the Year 2000 issue.  (See Year 2000 Disclosures.)

PBI attempts to reduce these economic and credit risks not only by adherence to
loan to value guidelines, but also by investigating the creditworthiness of the
borrower and monitoring the borrower's financial position.  Also, PBI
establishes and periodically reviews its lending policies and procedures as well
as having independent loan review.  State banking regulations limit exposure by
prohibiting secured loan relationships that exceed 25% of the Bank's statutory
capital and unsecured loan relationships that exceed 15% of the Bank's statutory
capital.

                                      -12-
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

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

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

The liquidity and capital resources of the Bank are monitored on a periodic
basis by State and Federal regulatory authorities.  As determined under
guidelines established by those regulatory authorities and internal policy, the
Bank's liquidity was considered satisfactory.

At December 31, 1998, PBI had loan commitments outstanding of $3.5 million.
Because these commitments generally have fixed expiration dates and many will
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.  If needed, the Bank has the ability on a
short-term basis to borrow and purchase Federal funds from other financial
institutions.  At December 31, 1998, the Bank has arrangements with two
commercial banks for short-term advances of $3,000,000.

At December 31, 1998, PBI's and the Bank's capital ratios were considered
adequate based on regulatory minimum capital requirements.  PBI's stockholders'
equity increased due to net income in 1998 of $174,000 and increased accumulated
other comprehensive income of $18,000.

In the future, the primary source of funds available to PBI will be the payment
of dividends by its subsidiary Bank.  Banking regulations limit the amount of
the dividends that may be paid without prior approval of the Bank's regulatory
agency.  Currently, no dividends can be paid by the Bank to PBI without
regulatory approval.

The minimum capital requirements to be considered well capitalized under prompt
corrective action provisions and the actual capital ratios for PBI and the Bank
as of December 31, 1998 are as follows:

<TABLE> 
<CAPTION> 
                                                        Actual
                                          -------------------------------
                                                               Regulatory
                                           PBI      Bank     Requirements
                                          -------------------------------
  <S>                                     <C>       <C>      <C> 
  Leverage capital ratio                   23.55%   17.86%     5.00%  
  Risk-based capital ratios:                                       
    Core capital                           37.46    28.51      6.00   
    Total capital                          38.49    29.54     10.00    
</TABLE>

                                      -13-
<PAGE>
 
At December 31, 1998, PBI expects to incur costs of approximately $750,000 for
capital expenditures relating to its new main office acquisition.

These ratios will decline as asset growth continues, but will still remain in
excess of the regulatory minimum requirements.

Management believes that its liquidity and capital resources are adequate and
will meet its foreseeable short and long-term needs.  Management anticipates
that it will have sufficient funds available to meet current loan commitments
and to fund or refinance, on a timely basis, its other material commitments and
liabilities.

Except for expected continued growth common to a de novo bank, and uncertainties
related to the Year 2000 issue (see Year 2000 Disclosures), management is not
aware of any other known trends, events or uncertainties that will have or that
are reasonably likely to have a material effect on its liquidity, capital
resources or operations.  Management is also not aware of any current
recommendations by the regulatory authorities which, if they were implemented,
would have such an effect.

                                      -14-
<PAGE>
 
Effects of Inflation
--------------------

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

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

Following is a summary of PBI's operations for the periods indicated.

<TABLE>
<CAPTION>
                                  Year Ended December 31, 
                                      1998         1997   
                                   (Dollars in Thousands) 
<S>                               <C>           <C>       
Interest income                   $   2,129      $   972 
                                                         
Interest expense                        957          270 
                                                         
Net interest income                   1,172          702 
                                                         
Provision for loan losses               121          101 
                                                         
Other income                            210           97 
                                                         
Other expenses                        1,087          924 
                                                         
Pretax income (loss)                    174         (226)
                                                         
Income taxes                              -            - 
                                                         
Net income (loss)                       174         (226) 
</TABLE>

PBI commenced its operations on March 3, 1997.  Prior to the commencement, PBI
was engaged in activities involving the formation of PBI, selling its common
stock, and obtaining necessary approvals.  PBI incurred operating losses
totaling $157,000 during its organizational period ($93,000 in 1996 and $64,000
in 1997).

PBI incurred total organizational and stock issue costs of $105,000 of which
$84,000 were to have been capitalized to be amortized over a period of sixty
months (see Non-interest Expense), and $21,000 was recorded as a reduction in
capital surplus.  Through the end of 1997, PBI incurred additional operating
losses of $162,000.

                                      -15-
<PAGE>
 
Net Interest Income
-------------------

PBI's results of operations are determined by its ability to effectively manage
interest income and expense, to minimize loan and investment losses, to generate
non-interest income, and to control operating expenses.  Since interest rates
are determined by market forces and economic conditions beyond the control of
PBI, PBI's ability to generate net interest income is dependent upon its ability
to obtain an adequate net interest spread between the rate paid on interest-
bearing liabilities and the rate earned on interest-earning assets.

The net yield on average interest-earning assets was 4.35% in 1998 as compared
to 5.38% in 1997.  Average loans increased by $8.9 million which accounted for
the majority of a $14.8 million increase in total average interest-earning
assets.  Average interest-bearing liabilities increased by $13.1 million with
average interest-bearing demand and time deposits accounting for the vast
majority of this increase.  The rate earned on average interest-earning assets
increased to 7.89% in 1998 from 7.61% in 1997.  The rate paid on average
interest-bearing liabilities was 5.09% in 1998 and 4.66% in 1997.

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

The provision for loan losses was $121,000 in 1998 as compared to $101,000 in
1997.  The amount provided was due primarily to the growth of the portfolio.
Based upon management's evaluation of the loan portfolio, management believes
the reserve for loan losses to be adequate to absorb possible losses on existing
loans that may become uncollectible.  This evaluation considers past due and
classified loans, underlying collateral values, and current economic conditions
which may affect the borrower's ability to repay.  As of December 31, 1998, and
1997, PBI has no nonperforming loans or assets.  The allowance for loan losses
as a percentage of total loans at December 31, 1998 and 1997 was 1.19% and
1.15%, respectively.

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

Other operating income consists of service charges on deposit accounts and other
miscellaneous revenues and fees.  Other operating income was $210,000 in 1998 as
compared to $97,000 in 1997.  The increases are due to PBI being open for an
entire year versus ten months in 1997, and an increase in mortgage loan
origination fees of $63,000.

Non-interest Expense
--------------------

Other operating expense for 1998 consists of salaries and employee benefits
($585,000), equipment and occupancy expenses ($69,000), and other operating
expenses ($363,000).  The increases over 1997 ($84,000 for salaries and employee
benefits, and $24,000 for other operating expenses) are due primarily to PBI
being open for an entire year versus only ten months in 1997. The decrease in
equipment and occupancy expenses of $15,000 is due primarily to the purchase of
PBI's current banking facilities in late 1997.  The facilities had been rented
in 1997 at a cost of $24,000.  PBI also adopted SOP 98-5 which required the
write-off of $70,000 of organization costs.

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

PBI had no income tax expense due to accumulated deficits of $145,000 and
$319,000 at December 31, in 1998 and 1997, respectively.

                                      -16-
<PAGE>
 
Asset/Liability Management
--------------------------

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

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

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

Changes in interest rates also affect PBI's liquidity position.  PBI currently
prices deposits in response to market rates and it is management's intention to
continue this policy.  If deposits are not priced in response to market rates, a
loss of deposits could occur which would negatively affect PBI's liquidity
position.

At December 31, 1998, PBI's cumulative one year interest rate-sensitivity gap
ratio was 80%.  PBI's targeted ratio is 80% to 120% in this time horizon.  This
indicates that PBI's interest-bearing liabilities will reprice during this
period at a rate faster than PBI's interest-earning assets.

                                      -17-
<PAGE>
 
The following table sets forth the distribution of the repricing of PBI's
interest-earning assets and interest-bearing liabilities as of December 31,
1998, the interest rate- sensitivity gap, the cumulative interest rate-
sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio.  The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms.  However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of PBI's customers.  In addition, various
assets and liabilities indicated as repricing within the same period may in
fact, reprice at different times within such period and at different rates.

<TABLE>
<CAPTION>
                                        After          After
                                        Three           One
                                       Months         Year but
                                  Within      but      Within   After
                                  Three     Within      Five     Five
                                  Months   One Year    Years    Years    Total
                                             (Dollars in Thousands)
<S>                              <C>       <C>        <C>       <C>     <C>
Interest-earning assets:
  Interest-bearing
     deposits in banks           $    --    $   198    $    --  $   --  $   198
  Federal funds sold               1,450         --         --      --    1,450
  Securities                         599      1,370      7,935   1,410   11,314
  Loans                            6,898      6,438      4,725       -   18,061
                                 -------    -------    -------  ------  -------
 
                                   8,947      8,006     12,660   1,410   31,023
                                 -------    -------    -------  ------  -------
 
Interest-bearing liabilities:
  Interest-bearing demand
     deposits                      8,031         --         --      --    8,031
  Savings                            337         --         --      --      337
  Certificates, less than
     $100,000                      1,128      3,365      2,903      --    7,396
  Certificates, $100,000
     and over                      4,371      3,962        700       -    9,033
                                 -------    -------    -------  ------  -------
 
                                  13,867      7,327      3,603       -   24,797
                                 -------    -------    -------  ------  -------
 
Interest rate sensitivity
  gap                            $(4,920)   $   679    $ 9,057  $1,410  $ 6,226
                                 =======    =======    =======  ======  =======
Cumulative interest rate
  sensitivity gap                $(4,920)   $(4,241)   $ 4,816  $6,226
                                 =======    =======    =======  ======
Interest rate sensitivity
  gap ratio                         0.65       1.09       3.51       -
                                 =======    =======    =======  ======
Cumulative interest rate 
  sensitivity gap ratio             0.65       0.80       1.19    1.25
                                 =======    =======    =======  ======
</TABLE>

                                      -18-
<PAGE>
 
              SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

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



                          [INTENTIONALLY LEFT BLANK]

                                      -19-
<PAGE>
 
                   DISTRIBUTION OF ASSETS, LIABILITIES, AND
                             STOCKHOLDERS' EQUITY:
                   INTEREST RATES AND INTEREST DIFFERENTIALS

AVERAGE BALANCES

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

<TABLE>
<CAPTION>
                                                                    From March 3, 1997,
                                                                   Date of Commencement
                                                  Year Ended           of Operations,
                                               December 31, 1998 to December 31, 1997
                                                        (Dollars in Thousands)
<S>                                          <C>                    <C>
          ASSETS
 
  Cash and due from banks                                 $   578                $   398
  Taxable securities                                       10,481                  3,779
  Securities valuation account                                 45                      7
  Federal funds sold                                        3,418                  4,260
  Interest-bearing deposits in banks                          169                      -
  Loans (2)                                                12,907                  3,945
  Reserve for loan losses                                    (152)                   (39)
  Other assets                                              1,078                    389
                                                          -------                -------
                                                          $28,524                $12,739
                                                          =======                =======
 
  Total interest-earning assets                           $26,975                $11,984
                                                          =======                ======== 

     LIABILITIES AND STOCKHOLDERS' EQUITY
 
  Deposits:
     Noninterest-bearing demand                           $ 1,755                $   457
     Interest-bearing demand                                6,858                  2,290
     Savings                                                  195                     88
     Time                                                  11,765                  3,349
                                                          -------                -------
          Total deposits                                  $20,573                $ 6,184
 
     Other liabilities                                        173                     90
                                                          -------                -------
               Total liabilities                           20,746                  6,274
                                                          -------                -------
     Stockholders' equity                                   7,778                  6,465
                                                          -------                -------
                                                          $28,524                $12,739
                                                          =======                =======
 
     Total interest-bearing liabilities                   $18,818                $ 5,727
                                                          =======                =======
</TABLE>


(1)  For each category, average balances were determined using the daily average
     balances during the year for 1998 and for the period from March 3, 1997,
     date of commencement of operations, to December 31, 1997, for 1997.

(2)  There were no nonaccrual loans included in average loans for 1998 or 1997.

                                      -20-
<PAGE>
 
INTEREST INCOME AND INTEREST EXPENSE

The following tables set forth the amount of PBI's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the average interest rate for total interest-earning assets and
total interest-bearing liabilities, net interest spread and net yield on average
interest-earning assets.  These rates do not include the time period prior to
the commencement of its banking operations.

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                                            1998            1997
                                                                Average             Average
                                                     Interest     Rate    Interest    Rate
                                                             (Dollars in Thousands)
<S>                                                  <C>        <C>       <C>       <C>
  INTEREST INCOME:
     Interest and fees on loans (1)                    $1,323     10.25%     $ 430    10.91%
     Interest on taxable securities                       608      5.81        238     6.28
     Interest on Federal funds sold                       188      5.50        244     5.73
     Interest on deposits in banks                         10      5.87          -        -
     Interest earned during the period
        prior to commencement of
        banking operations                                  -         -         60        -
                                                       ------                ------
     Total interest income                             $2,129      7.89        972     7.61
                                                       ------                ------
 
  INTEREST EXPENSE:
     Interest on interest-bearing
       demand deposits                                    263      3.84      $  69     3.02
     Interest on savings deposits                           6      2.84          3     2.85
     Interest on time deposits                            688      5.85        195     5.83
     Interest incurred during the period
        prior to commencement of
        banking operations                                  -         -          3        -
                                                       ------                -----
     Total interest expense                               957      5.09        270     4.66
                                                       ------                -----
  NET INTEREST INCOME                                  $1,172                $ 702
                                                       ======                =====
 
     Net interest spread                                           2.80%               2.95%
                                                                  =====               =====
     Net yield on average interest-earning assets                  4.35%               5.38%
                                                                  =====               =====
</TABLE>

(1)  Interest and fees on loans includes $151,000 and $68,000 of loan fee income
     for the years ended December 31, 1998 and 1997, respectively.  There was no
     interest income recognized on nonaccrual loans during 1998 or 1997.

                                      -21-
<PAGE>
 
RATE AND VOLUME ANALYSIS

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

<TABLE>
<CAPTION>
                                                  Year Ended December 31,       
                                                       1998 vs. 1997            
                                                      Changes Due To:           
                                                                  Increase
                                                 Rate   Volume   (Decrease)
                                                   (Dollars in Thousands)
<S>                                              <C>    <C>        <C> 
 Increase (decrease) in:
  Income from interest-earning assets:
  Interest and fees on loans                     $(27)  $  920      $  893
  Interest on taxable securities                  (20)     390         370
  Interest on Federal funds sold                   (9)     (47)        (56)
  Interest on deposits in banks                     -       10          10
                                                 ----   ------      ------
   Total interest income                          (56)   1,273       1,217
                                                 ----   ------      ------
 
  Expense from interest-bearing liabilities:
  Interest on interest-bearing
   demand deposits                                 23      171         194
  Interest on savings deposits                      -        3           3
  Interest on time deposits                         1      492         493
                                                 ----   ------      ------
   Total interest expense                          24      666         690
                                                 ----   ------      ------
 
   Net interest income                           $(80)  $  607      $  527
                                                 ====   ======      ======
</TABLE>

Interest income earned of $60,000 and interest expense incurred of $3,000 prior
to the commencement of banking operations in 1997 have been excluded from the
above table.

                                      -22-
<PAGE>
 
                             INVESTMENT PORTFOLIO

TYPES OF INVESTMENTS

The carrying amounts of securities at the dates indicated, which are all
classified as available-for-sale, are summarized as follows:

<TABLE>
<CAPTION>
                                                December 31,
                                              1998        1997
                                           (Dollars in Thousands)
<S>                                        <C>         <C>
U.S. Treasury and other U.S. Government
 agencies and corporations                   $  3,029    $  4,520
Mortgage-backed securities                      8,081       2,476
                                             --------    --------
                                               11,110       6,996
Equity securities                                 204           -
                                             --------    --------
                                             $ 11,314    $  6,996
                                             ========    ========
</TABLE>


MATURITIES

The amounts of securities in each category as of December 31, 1998 are shown in
the following table according to contractual maturity classifications (1) one
year or less, (2) after one year through five years, (3) after five years
through ten years and (4) after ten years.  Equity securities are not included
in the table because they have no contractual maturity.

<TABLE>
<CAPTION>
                                                              After one year         After five years
                                    One year or less        through five years       through ten years
                                   Amount    Yield (1)      Amount    Yield (1)      Amount   Yield (1)
<S>                                <C>       <C>            <C>       <C>            <C>      <C>
U.S. Treasury and
 other U.S. Government
 agencies and corporations         $3,029       5.21%       $    -        -%         $   --        -%
                                                                                              
Mortgage-backed securities             --          -         3,393     5.82           3,409     5.99
                                   -------                  ------                   ------    
                                                                                              
                                   $3,029       5.21        $3,393     5.82          $3,409     5.99
                                   =======                  ======                   ======    
</TABLE> 

<TABLE> 
<CAPTION> 
                                After ten years              Total
                              Amount   Yield (1)        Amount  Yield (1)
<S>                           <C>      <C>              <C>     <C> 
U.S. Treasury and
 other U.S. Government
 agencies and corporations   $   --       --%            $ 3,029   5.21%
                                                                   
Mortgage-backed securities    1,279     5.90               8,081   5.90
                             ------                      -------   
                                                                   
                             $1,279     5.90             $11,110   5.71
                             ======                      =======    
</TABLE>                                                      
                                                               
(1)  Yields were computed using coupon interest, adding discount accretion or
     subtracting premium amortization, as appropriate, on a ratable basis over
     the life of each security.  The weighted average yield for each maturity
     range was computed using the carrying value of each security in that range.

                                      -23-
<PAGE>
 
                                LOAN PORTFOLIO

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

<TABLE>
<CAPTION>
                                               December 31,
                                             1998         1997
                                          (Dollars in Thousands)
  <S>                                      <C>           <C>
  Commercial                                 $ 4,298      $3,664
  Real estate-construction                     3,637         401
  Real estate-mortgage                         7,772       3,355
  Consumer instalment loans and other          2,354       1,376
                                             -------      ------
                                              18,061       8,796
  Less allowance for loan losses                (215)       (101)
                                             -------      ------
          Net loans                          $17,846      $8,695
                                             =======      ======
</TABLE>

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

Total loans as of December 31, 1998 are shown in the following table according
to contractual maturity classifications (1) one year or less, (2) after one year
through five years, and (3) after five years.  The disclosure of loans by the
required categories, commercial and financial and real estate - construction, is
not available and would involve undue burden and expense to PBI.  In making this
determination, PBI has considered the estimated cost to compile the required
information and its current electronic data processing capability.

<TABLE>
<CAPTION>
                                          (Dollars in Thousands)
  <S>                                     <C>
  Maturity:
     One year or less                            $  9,306
     After one year through five years              8,755
     After five years                                   -
                                                 --------
                                                 $ 18,061
                                                 ========
</TABLE>

The following table summarizes loans at December 31, 1998 with the due dates
after one year which have predetermined and floating or adjustable interest
rates.

<TABLE>
<CAPTION>
                                             (Dollars in Thousands)
     <S>                                     <C>
     Predetermined interest rates             $ 8,571
     Floating or adjustable interest rates        184
                                              -------
                                              $ 8,755
                                              =======
</TABLE>

                                      -24-
<PAGE>
 
RISK ELEMENTS

Information with respect to nonaccrual, past due, and restructured loans at
December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                            1998        1997
                                                          (Dollars in Thousands)
  <S>                                                     <C>          <C>
  Nonaccrual loans                                          $  0         $  0
  Loans contractually past due ninety
     days or more as to interest or
     principal payments and still accruing                     0            0
  Restructured loans                                           0            0
  Loans, now current about which there are
     serious doubts as to the ability of the
     borrower to comply with loan repayment terms              0            0
  Interest income that would have been recorded
     on nonaccrual and restructured loans under
     original terms                                            0            0
  Interest income that was recorded on
     nonaccrual and restructured loans                         0            0
</TABLE>

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

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

                                      -25-
<PAGE>
 
                        SUMMARY OF LOAN LOSS EXPERIENCE

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

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                        1998          1997
                                                      (Dollars in Thousands)
     <S>                                              <C>           <C>
     Average amount of loans outstanding               $ 12,907     $  3,945
                                                       ========     ========
 
     Balance of allowance for loan losses
       at beginning of period                          $    101     $     --
                                                       --------     --------
 
     Loans charged off
       Commercial and financial                              --           --
       Real estate mortgage                                  --           --
       Instalment                                            12           --
                                                       --------     --------
                                                             12           --
                                                       --------     --------
 
     Loans recovered
       Commercial and financial                              --           --
       Real estate mortgage                                  --           --
       Instalment                                             5           --
                                                       --------     --------
                                                              5           --
                                                       --------     --------
 
     Net charge-offs                                          7           --
                                                       --------     --------
 
     Additions to allowance charged to operating
       expense during period                                121          101
                                                       --------     --------
 
     Balance of allowance for loan losses
       at end of period                                $    215     $    101
                                                       ========     ========
 
     Ratio of net loans charged off during the
     period to average loans outstanding                    .06%          --%
                                                       ========     ========
</TABLE>

                                      -26-
<PAGE>
 
ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio.  Management's evaluation of the loan portfolio includes a
periodic review of loan loss experience, current economic conditions which may
affect the borrower's ability to pay and the underlying collateral value of the
loans.  As of December 31, 1998 and 1997, management had made no allocations of
its allowance for loan losses to specific categories of loans.  Based on
management's best estimate, the allocation of the allowance for loan losses to
types of loans, as of the indicated dates, is as follows:

<TABLE>
<CAPTION>
                                    December 31, 1998       December 31, 1997
                                   Percent of loans in     Percent of loans in
                                      each category           each category
                                Amount  to total loans      Amount  to total loans
                                             (Dollars in Thousands)
<S>                               <C>         <C>          <C>        <C> 
Commercial                            $  54     24%        $  50          42%
Real estate construction loans           54     20            10           5
Real estate mortgage loans               75     43            20          38
Consumer instalment                            
 loans and other                         32     13            21          15
                                      -----    ---         -----         ---
                                      $ 215    100%        $ 101         100%
                                      =====    ===         =====         ===
</TABLE>                                           
                                                   
                                                  
                                                   
                                                   

                                      -27-
<PAGE>
 
                                   DEPOSITS
                                        
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand deposits, savings
deposits, and time deposits, for the period of banking operations is presented
below.(1)

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                              1998                  1997
                                        Amount     Percent    Amount    Percent
                                                  (Dollars in Thousands)
<S>                                    <C>         <C>        <C>       <C>
Noninterest-bearing demand deposits    $ 1,755       --%       $  457       --%
Interest-bearing demand deposits         6,858     3.84         2,290     3.02
Savings deposits                           195     2.84            88     2.85
Time deposits                           11,765     5.85         3,349     5.83
                                       -------                 ------
                                       $20,573                 $6,184
                                       =======                 ======
</TABLE>

(1)  Average balances were determined using the daily average balances during
     the year for 1998 for the period from March 3, 1997, date of commencement
     of operations, to December 31, 1997 for 1997.

The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 1998 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months, (3) over six through twelve months, and (4) over twelve months.

<TABLE>
<CAPTION>
                                         (Dollars in Thousands)
<S>                                      <C>
Three months or less                              $4,371
  Over three months through six months             2,400
  Over six through twelve months                   1,562
  Over twelve months                                 700
                                                  ------
       Total                                      $9,033
                                                  ======
</TABLE>

                                      -28-
<PAGE>
 
                   RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
                                        
 The following rate of return information for the year indicated is presented 
                                    below.

<TABLE>
<CAPTION>
                                 Years Ended December 31,
                                    1998         1997
<S>                              <C>            <C>
  Return on assets (1)              0.61%       (1.49)%
  Return on equity (2)              2.24        (2.94)
  Dividend payout ratio (3)            -            -
  Equity to assets ratio (4)       27.27        50.75
</TABLE>

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

YEAR 2000 READINESS DISCLOSURE

Like many financial institutions, the Company and its subsidiary rely upon
computers for the daily conduct of their business and for data processing
generally. There is concern among industry experts that commencing on January 1,
2000, computers will be unable to "read" the new year and that there may be
widespread computer malfunctions. Management of the Company has assessed the
electronic systems, programs, applications, and other electronic components used
in the operations of the Company and believes that the hardware and software
used by the Company and the Bank have been programmed to be able to accurately
recognize the year 2000, and that significant additional costs will not be
incurred in connection with the year 2000 issue, although there can be no
assurances in this regard.

The Federal Financial Institutions Examination Council (FFIEC), an oversight
authority for financial institutions, has issued several interagency statements
on Year 2000 project awareness. These statements require financial institutions
to, among other things, examine the Year 2000 implications of their reliance on
vendors, determine the potential impact of the Year 2000 issue on their
customers, suppliers and borrowers, and to survey its exposure, measure its risk
and prepare a plan to address the Year 2000 issue. In addition, federal banking
regulators have issued safety and soundness guidelines to be followed by
financial institutions to assure resolution of any Year 2000 problems. The
federal banking agencies have asserted that Year 2000 testing and certification
is a key safety and soundness issue in conjunction with regulatory examinations,
and the failure to appropriately address the Year 2000 issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications for mergers or acquisitions, or the
imposition of civil monetary penalties.

The Company is utilizing a three-phase plan for achieving Year 2000 readiness.
The Assessment Phase was intended to determine which computers, operating
systems and applications require remediation and prioritizing those remediation
efforts by identifying mission critical systems. The Assessment Phase has been
completed except for the on-going assessment of new systems. The Remediation and
Testing Phase addressed the correction or replacement of any non-compliant

                                      -29-
<PAGE>
 
hardware and software related to the mission critical systems and testing of
those systems. Since most of the Bank's information technology systems are off-
the-shelf software, remediation efforts have focused on obtaining Year 2000
compliant application upgrades. The Bank's core banking system, which runs
loans, deposits and the general ledger, has been upgraded to the Year 2000
compliant version and has been forward date tested and Year 2000 certified by
the Bank. The Year 2000 releases for all of the Bank's other internal mission
critical systems have also been received, forward date tested and certified. The
next step of this phase, testing mission critical service providers, is
anticipated to be substantially completed by March 31, 1999. During the final
phase, the Implementation Phase, remediated and validated code will be tested in
interfaces with customers, business partners, government institutions, and
others. It is anticipated that the Implementation Phase will be substantially
completed by June 30, 1999.

On August 5, 1998, the Company's data processing service center sold certain
assets and liabilities, consisting primarily of its core data processing
operations to InterCept Group, located in Norcross, Georgia. The change in the
Company's data service provider required the Company to undergo a conversion of
its data processing system. The conversion was completed February 5, 1999.
Testing of the converted data processing systems has been substantially
completed.

The Company may be impacted by the Year 2000 compliance issues of governmental
agencies, businesses and other entities who provide data to, or receive data
from, the Company, and by entities, such as borrowers, vendors, customers, and
business partners, whose financial condition or operational capability is
significant to the Company. Therefore, the Company's Year 2000 project also
includes assessing the Year 2000 readiness of certain customers, borrowers,
vendors, business partners, counterparties, and governmental entities. In
addition to assessing the readiness of these external parties, the Company is
developing contingency plans which will include plans to recover operations and
alternatives to mitigate the effects of counterparties whose own failure to
properly address Year 2000 issues may adversely impact the Company's ability to
perform certain functions. These contingency plans are currently being developed
and are expected to be substantially completed by June 30, 1999.

If Year 2000 issues are not adequately addressed by the Company and significant
third parties, the Company's business, results of operations and financial
position could be materially adversely affected. Failure of certain vendors to
be Year 2000 compliant could result in disruption of important services upon
which the Company depends, including, but not limited to, such services as
telecommunications, electrical power and data processing. Failure of the
Company's loan customers to properly prepare for the Year 2000 could also result
in increases in problem loans and credit losses in future years. It is not,
however, possible to quantify the potential impact of any such losses at this
time. Notwithstanding the Company's efforts, there can be no assurance that the
Company or significant third party vendors or other significant third parties
will adequately address their Year 2000 issues. The Company is continuing to
assess the Year 2000 readiness of third parties but does not know at this time
whether the failure of third parties to be Year 2000 compliant will have a
material effect on the Company's results of operations, liquidity and financial
condition.

The Company currently estimates that its total cost for the Year 2000 project
will approximate $40,000.  During 1998, the Company incurred approximately
$3,000 in charges related to its Year 2000 remediation effort and expects to
incur approximately $37,000 in 1999. Charges include the cost of external
consulting and the cost of accelerated replacement of hardware, but do not
include 

                                      -30-
<PAGE>
 
the cost of internal staff redeployed to the Year 2000 project. The Company does
not believe that the redeployment of internal staff will have a material impact
on its financial condition or results of operations.

The foregoing paragraphs contain a number of forward-looking statements. These
statements reflect Management's best current estimates, which were based on
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. There can be no guarantee that these estimates,
including Year 2000 costs, will be achieved, and actual results could differ
materially from those estimates. A number of important factors could cause
Management's estimates and the impact of the Year 2000 issue to differ
materially from what is described in the forward-looking statements contained in
the above paragraphs. Those factors include, but are not limited to, the
availability and cost of programmers and other systems personnel, inaccurate or
incomplete execution of the phases, results of Year 2000 testing, adequate
resolution of Year 2000 issues by the Company's customers, vendors, competitors,
and counterparties, and similar uncertainties.

The forward-looking statements made in the foregoing Year 2000 discussion speak
only as of the date on which such statements are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events.

ITEM 7.  FINANCIAL STATEMENTS.

The financial statements required by this Item are included in the portions of
the Company's 1998 Annual Report to Shareholders filed as Exhibit 13 to this
Report and incorporated herein by reference.

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

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

                                   PART III

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

The following table sets forth the name of each director of the Company, his or
her age, and a brief description of their principal occupation and business
experience for the preceding five years. Except as otherwise indicated, each
director has been or was engaged in his or her present or last principal
occupation, in the same or similar position for more than five years.  All of
the Company's directors have served in such capacity since the inception of the
Company in 1996 except as indicated below.

                                      -31-
<PAGE>
 
NAME                    AGE  PRINCIPAL OCCUPATION
----                    ---  --------------------

Timothy I. Warren        38  Mr. Warren is the President, Chief Executive
                             Officer and a Director of the Company and the Bank.
                             Mr. Warren was President, Chief Executive Officer
                             and a Director of the Community Bank of Carrollton
                             from April 1991 to July 1996, when that bank was
                             merged into Regions Bank, and the President, Chief
                             Executive Officer and Director of the Bank of Villa
                             Rica from February, 1996 and until that bank was
                             also merged into Regions Bank in July 1996. Mr.
                             Warren then served as an area manager for Regions
                             Bank in the former bank market areas until leaving
                             Regions Bank in August 1996 to assume his current
                             positions with the Company and the Bank.

Steve R. Adams           46  Mr. Adams founded West Georgia Ambulance (providing
                             emergency ambulance service) and Adams
                             Transportation (providing multi-transportation
                             services). In January, 1996, Mr. Adams sold West
                             Georgia Ambulance to AMR, a publicly-traded company
                             listed on the New York Stock Exchange. Mr. Adams
                             remains the Director of Government Affairs of the
                             West Georgia Division of AMR.

Lawrence J. Alligood     60  Mr. Alligood has served as a Director since
                             September 1997. Mr. Alligood is a pathologist who
                             has practiced with the Carroll Pathology Group
                             since August 1994, and who has owned a medical
                             laboratory since 1982.

John B. Bohannon         52  Mr. Bohannon has been President of First Realty
                             Association, Inc. since 1974.

Ann C. Carter            50  Ms. Carter is an interior design specialist.

J. Wayne Garner          47  Mr. Garner became a Director in February 1998. He
                             has been the Commissioner of the Georgia Department
                             of Corrections since December 1995, and the
                             President and owner of First Family Funeral Home
                             located in Carrollton since November 1997. Mr.
                             Garner had been the President of the Whitley-Garner
                             Funeral Home located in Douglasville, Georgia from
                             October 1982 until October 1997.

Lester H. Harmon         53  Mr. Harmon has been the owner and President of West
                             Georgia Crown and Bridge since 1974.

William P. Johnson       66  Mr. Johnson has practiced law in Carrollton,
                             Georgia since 1957, and is a senior partner in the
                             law firm of Johnson, Dangle and Parmer. Mr. Johnson
                             currently is the President of Universal Furniture,
                             and a Director of Temple Manufacturing.

                                      -32-
<PAGE>
 
NAME                    AGE  PRINCIPAL OCCUPATION
----                    ---  --------------------

Phillip Kauffman         52  From December 1989 through December 1996, Mr.
                             Kauffman was the President of Leuco-Henderson, a
                             tooling manufacturer.  Since December 1996, Mr.
                             Kauffman has managed personal investments and
                             investment properties.

Jeff R. Matthews         43  Mr. Matthews has been self-employed as a timber
                             dealer and real estate developer since 1978.

Charles J. Puckett       66  Mr. Puckett was the owner and President of People's
                             Dodge/Chrysler/Jeep from 1977 to January 1998.
                             Since January 1998, Mr. Puckett has managed
                             investment properties.

William C. Seaton        50  Mr. Seaton has been the President of Seaton
                             Development Co., Inc., a real estate development
                             company, since May 1973. From August 1985 until
                             January, 1995, Mr. Seaton co-owned Eagle Outdoor
                             Advertising, Inc., which is involved in building
                             and marketing billboards. Mr. Seaton has been the
                             sole owner of that firm since January 1995.

Mark S. Swindle          50  Mr. Swindle has been President of BSA Activewear, a
                             manufacturer of active sportswear apparel, since
                             May, 1989.

There are no arrangements or understandings between the Company and any person
pursuant to which any of the above persons have been or will be elected a
director.  There are no family relations between any of the directors or
executive officers.  No director is a director of another bank or bank holding
company.

The Company's Articles of Incorporation provide for a classified Board of
Directors with approximately one-third of the members standing for election each
year.  The three directors who were original members of Class I with initial
terms expiring at the 1997 Annual Meeting of Shareholders of the Company and who
will now stand for re-election at the Annual Meeting of Shareholders in 2000 are
Ms. Carter and Messrs. Harmon and Seaton.  The members of Class II whose initial
terms expired at the  Annual Meeting of Shareholders in 1998 and who were
reelected are Messrs. Adams, Bohannon, Matthews and Swindle.  The initial terms
members of Class III whose initial terms expire and who will stand for
reelection at the Annual Meeting of Shareholders in 1999 are Messrs. Johnson,
Kauffman, Puckett and Warren.  When Messrs. Alligood and Garner were added as
members of the Board of Directors, they were added to Class I.  Each of Mr.
Alligood and Mr. Garner was elected at the by the shareholders Annual Meeting of
Shareholders in 1998 to Class I directorships expiring at the Annual Meeting of
Shareholders in 2000.

                                      -33-
<PAGE>
 
The following table sets forth the name of the current Executive Officers of the
Bank who are not directors of the Company, their age and principal occupation
for the last five years. Executive Officers of the Company and the Bank are
elected annually by the Board of Directors.

<TABLE>
<CAPTION>
NAME                 AGE  PRINCIPAL OCCUPATION                    
----                 ---  --------------------                                  
<S>                  <C>  <C>
Elaine B. Lovvorn     55  Elaine Lovvorn is Secretary of the Company and Senior
                          Vice President, Chief Financial Operations Officer of
                          the Bank. Mrs. Lovvorn assisted in the organization of
                          Carroll National Bank in July 1987, and served as that
                          bank's Cashier through September 1991 when it was
                          acquired by Synovus Financial Corporation. She then
                          joined The Community Bank of Carrollton as a Senior
                          Vice President and Controller in March, 1992,
                          remaining there through February 1994 before returning
                          to her home town of Bowdon to serve as the manager of
                          a $40 million branch of Carrollton Federal Savings and
                          Loan Association. Mrs. Lovvorn then rejoined The
                          Community Bank in November 1994 and remained there
                          through August 1996, when that bank was converted into
                          a Regions Bank branch and Mrs. Lovvorn joined the
                          Company.

David L. Bryan        35  David Bryan is the Senior Credit Officer of the Bank.
                          Mr. Bryan served as Assistant Vice President of
                          NationsBank from April 1987 to November 1992. He was
                          an Assistant Vice President of First Commerce Bank
                          Cornelia, Georgia from November of 1992 until
                          September of 1994 when he joined the Bank of Villa
                          Rica. Mr. Bryan served as Senior Credit Officer and
                          Vice President of the Bank of Villa Rica until he
                          joined the Bank in January of 1997.
</TABLE>

ITEM 10.  EXECUTIVE COMPENSATION.
 
EXECUTIVE COMPENSATION

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

                                      -34-
<PAGE>
 
                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                       Annual Compensation                                             
                             --------------------------------------- 
                                                                      Long Term    
                                                                     Compensation  
                                                                        Awards     
                                                                     ------------
                                                                      Securities
Name and                                            Other Annual      Underlying       All Other       
Principal            Fiscal                         Compensation        Options       Compensation    
Position             Year    Salary ($)  Bonus ($)     ($)(1)            (#)(2)           ($)         
---------            ------  ---------   --------   ------------      -----------     ------------    
<S>                  <C>     <C>         <C>        <C>               <C>             <C>             
Timothy I. Warren      1998   $137,066          -              -               -          (2)      
President and
Chief Executive        1997   $135,000          -              -               -
Officer
                       1996   $ 38,047          -              -               -
</TABLE>

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

(2)  Pursuant to Mr. Warren's Employment Agreement with the Bank, Mr. Warren
     will be entitled to one years' annual base salary as severance pay upon
     termination of his employment without cause. In addition, the Company has
     agreed to grant options with respect to 15,000 shares to Mr. Warren under
     the terms of his employment agreement, with an exercise price per share
     equal to the initial offering price of $10.00.

EMPLOYMENT AGREEMENTS

Timothy I. Warren has entered into an employment agreement with the Bank to
serve as President and Chief Executive Officer of the Company and the Bank
providing for an annual minimum base salary of $135,000. Mr. Warren agreed to be
paid at the annual rate of $100,000 until the Company accepted subscriptions for
the minimum 625,000 shares. Mr. Warren may receive a performance bonus ranging
from 0% to 50% of annual base salary and will be awarded based upon the Bank's
performance and upon the Bank's composite rating received in its most recent
report of examination by its primary Federal regulatory authority.

In addition, the Company has implemented an Employee Incentive Stock Option Plan
for employees of the Bank and reserved a total of 75,000 shares out of the
Company's total authorized shares for the plan. Options with respect to 21,500
shares have been issued, including options for 15,000 shares to Mr. Warren.

Mr. Warren's employment agreement also provides for employee benefits such as
annual vacation, the use of a Bank-owned automobile, life and medical insurance
with dependent coverage, dental insurance, country club membership and
reimbursement for reasonable business related expenses.

Mr. Warren's employment agreement provides for a severance pay for Mr. Warren in
the event of Mr. Warren's termination (except for cause) after a change of
control of the Bank. Under the employment agreement, the term "control" means
the acquisition of 25 percent or more of the voting securities of the Bank by
any person, or persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934 or the acquisition of between 10 percent and
25% if the Board of Directors of the Bank or the Comptroller of the Currency,
the Federal Deposit Insurance Corporation or the Federal Reserve Bank has made a
determination that such acquisition constitutes or will constitute control of
the Bank.

                                      -35-
<PAGE>
 
The employment agreement provides that if the employee is terminated after 365
days as a result of change of control, the employee shall be entitled to receive
his salary through the last day of the calendar month of the termination, or
payment in lieu of the notice period. In addition, Mr. Warren would receive an
amount equal to three times his then existing annual base salary. The employment
agreement further provides that the payment shall also be made in connection
with, or within 120 days after, a change of control of the Bank if such change
of control was opposed by Mr. Warren on the Bank's Board of Directors. This
payment would be in addition to any amount otherwise owed to the employee
pursuant to the employment agreement.

In the event of a change of control, the following items would be automatically
considered due and payable to Mr. Warren under the employment agreement: (i) 
non-forfeitable deferred compensation shall be paid in full: (ii) long-term
performance plan objective payments as described in Section II, 2, f, shall be
declared accomplished and earned based upon performance up to date of the change
of control; and (iii) in the event that the employee is a participant in a
restricted stock plan, or share option plan, and such plan is terminated
involuntarily as a result of the change of control, all stock and options shall
be declared 100% vested and distributed.

DIRECTOR COMPENSATION

The Company and the Bank did not compensate any of its directors for their
services as directors prior to 1999. The directors of the Company and the Bank
may begin to receive a fee for attending Board meetings during 1999.

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

                            PRINCIPAL SHAREHOLDERS

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

<TABLE>
<CAPTION>
                                                          Percentage         
Name of Beneficial Owner/(1)/   Number of Shares   Ownership/(3)/ and Options
-----------------------------   ----------------   --------------------------
<S>                             <C>                <C>                       
Steve R. Adams
  Organizer and Director            15,000                    1.8%        

Lawrence M. Alligood
  Director
 115 Fairway Drive
  Carrollton, Georgia  30117        25,000                    7.3%

John B. Bohannon
  Organizer and Director            20,000(4)                 2.4%

Ann C. Carter
  Organizer and Director            10,000                    1.2%
</TABLE> 

                                      -36-
<PAGE>
 
<TABLE>
<CAPTION>
                                                          Percentage         
Name of Beneficial Owner/(1)/   Number of Shares   Ownership/(3)/ and Options
-----------------------------   ----------------   --------------------------
<S>                             <C>                <C>                       
J. Wayne Garner                                                   
  Director                           6,000                    0.8% 

Lester H. Harmon
  Organizer and Director            11,000                    1.4%

William P. Johnson
  Organizer and Director
  306 Tanner Street
  Carrollton, Georgia  30117        60,200                    7.5%

Phillip Kauffman
  Organizer and Director                       
  500 Ind. Ct. West                           
  Villa Rica, Georgia  30180        70,746(5)                 8.8%    

Jeff R. Matthews                                                      
  Organizer and Director            32,700(7)                 4.1%    

Charles J. Puckett                                                     
Organizer and Director                                                 
  2208 Bankhead Highway                                                
  Carrollton, Georgia  30117        88,800(8)                11.1%     

William C. Seaton                                                            
 Organizer and Director             10,000(9)                 1.3%           

Mark S. Swindle                                                              
  Organizer and Director            10,250                    1.3%           

Timothy I. Warren                                                            
  President, Chief Executive                                                 
  Officer, Organizer and Director   40,900(10)                5.0%           

All current directors and                                                    
 executive(2)(3) officers as a                                               
 group (15 persons)                408,996                   49.8%           
</TABLE>

________________

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

(2)  Includes shares deemed to be beneficially owned through the right to
     exercise options (which will be granted) within 60 days.

(3)  Based upon 800,000 shares outstanding as of March 15, 1999.

                                      -37-
<PAGE>
 
(4)  Includes 7,500 shares held by Mr. Bohannon's wife and 12,500 shares owned
     jointly by them and with respect to which Mr. Bohannon will share voting
     and investment power.

(5)  Includes 200 shares held by Mr. Johnson's wife.

(6)  Includes 11,966 shares held by Mr. Kauffman's wife or minor child.

(7)  Includes 2,700 shares held by Mr. Matthews as custodian for his minor
     children.

(8)  Includes 10,000 shares held by Mr. Puckett's spouse.

(9)  Includes 3,000 shares held by Mr. Seaton as custodian for his minor
     children.

(10) Includes 100 Shares owned by Mr. Warren's wife and 300 shares held by Mr.
     Warren as custodian for his minor children. Includes 15,000 shares that are
     subject to options granted to Mr. Warren under the terms of his employment
     agreement. Those options are exercisable at an exercise price of $10.00 per
     share and expire ten years from the date of grant.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Certain executive officers and directors of the Company and the Bank, and
principal shareholders of the Company and affiliates of such persons have, from
time to time, will engage in banking transactions with the Bank. All loans or
other extensions of credit will be made by the Bank to such individuals in the
ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated parties and will be believed by management to not
involve more than the normal risk of collectibility or present other unfavorable
features. As of December 31, 1998, there were an aggregate of $3,916,000 of
loans and open lines of credit to executive officers and directors of the
Company and the Bank, and principal shareholders of the Company and affiliates
of such persons.

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

(A)  EXHIBITS

     Exhibit Numbers
     ---------------

     3.1  Articles of Incorporation (Incorporated by reference to the Company's
          Registration Statement on Form SB-1 (Registration No. 333-12293) (the
          "SB-1"), Exhibit 3.1)

     3.2  Bylaws (Incorporated by reference to the SB-1, Exhibit 3.2)

     10.1 Employment Contract between Timothy I. Warren and the Company
          (Incorporated by reference to the SB-1, Exhibit 10.1)

     11   Computation of Earnings per Share (Incorporated by reference to Note 8
          to Financial Statements filed as Exhibit 13 hereto)

     13   Financial Statements from 1998 Annual Report to Shareholders

                                      -38-
<PAGE>
 
     21   Subsidiaries of the Company (Incorporated by reference to Exhibit 21
          to the Company's Annual Report on Form 10-KSB for the year ended
          December 31, 1997)

     27   Financial Data Schedule

(B)  REPORTS ON FORM 8-K

     No Reports on Form 8-K were filed during the fourth quarter of the year
     ended December 31, 1998.

                                      -39-
<PAGE>
 
                                  SIGNATURES
                                  ----------

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

                                             PEOPLES BANCORP, INC.


Date:  March 26, 1999                        By: /s/ Timothy I. Warren
                                                --------------------------------
                                                 Timothy I. Warren
                                                 President

In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
the dates indicated:

SIGNATURE                               TITLE                         DATE


/s/ Timothy I. Warren         President and Director
--------------------------
Timothy I. Warren             (Principal Executive Officer)       March 26, 1999


/s/ Steve R. Adams            Director                            March 26, 1999
--------------------------                                                      
Steve R. Adams                                                                  
                                                                                
                                                                                
/s/ Lawrence J. Alligood      Director                            March 26, 1999
--------------------------                                                      
Lawrence J. Alligood                                                            
                                                                                
                                                                                
/s/ John B. Bohannon          Director                            March 26, 1999
--------------------------                                                      
John B. Bohannon                                                                
                                                                                
                                                                                
/s/ Ann C. Carter             Director                            March 26, 1999
--------------------------                                                      
Ann C. Carter                                                                   
                                                                                
                                                                                
/s/ J. Wayne Garner           Director                            March 26, 1999
--------------------------
J. Wayne Garner

                                      -40-
<PAGE>
 
/s/ Lester H. Harmon          Director                            March 26, 1999
--------------------------                                                      
Lester H. Harmon                                                                
                                                                                
                                                                                
/s/ William P. Johnson        Director                            March 26, 1999
--------------------------                                                      
William P. Johnson                                                              
                                                                                
                                                                                
                                                                                
/s/ Phillip Kauffman          Director                            March 26, 1999
--------------------------                                                      
Phillip Kauffman                                                                
                                                                                
                                                                                
                                                                                
/s/ Jeff R. Mathews           Director                            March 26, 1999
--------------------------                                                      
Jeff R. Mathews                                                                 
                                                                                
                                                                                
                                                                                
/s/ Charles J. Puckett        Director                            March 26, 1999
--------------------------                                                      
Charles J. Puckett                                                              
                                                                                
                                                                                
                                                                                
/s/ William C. Seaton         Director                            March 26, 1999
--------------------------                                                      
William C. Seaton                                                               
                                                                                
                                                                                
                                                                                
/s/ Mark S. Swindle           Director                            March 26, 1999
--------------------------                                                      
Mark S. Swindle                                                                 
                                                                                
                                                                                
                                                                                
/s/ Elaine B. Lovvorn         Senior Vice President                             
--------------------------                                                      
Elaine B. Lovvorn             and Chief Financial Officer                       
                              (Principal Financial and                          
                              Accounting Officer)                 March 26, 1999

                                      -41-
<PAGE>
 
    SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
          SECTION 15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.

No annual report or proxy statement has yet been provided to the Issuer's
shareholders. Copies of the annual report and proxy statement provided to the
Issuers shareholders will be furnished to the Commission when sent to said
shareholders.

                                      -42-