EXHIBIT 13.1

                       2004 ANNUAL REPORT TO SHAREHOLDERS


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

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

REPORT  OF  INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM.

CONSOLIDATED  FINANCIAL  STATEMENTS  AND  NOTES  TO  CONSOLIDATED  FINANCIAL
STATEMENTS.


                                        1
<PAGE>
                      MARKET FOR THE COMPANY'S COMMON STOCK
                         AND RELATED SHAREHOLDER MATTERS

     There  is currently no market for the Company's shares of Common Stock, and
it  is  not  likely that an active trading market will develop for the shares in
the  future.  There  are  no  present plans for the Company's Common Stock to be
traded  on  any  stock  exchange of over-the-counter market.  As of December 31,
2004,  there  were  approximately  628 holders of record of the Company's Common
Stock  and  1,858,000  shares  of  Common  Stock  issued  and  outstanding.

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

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

<TABLE>
<CAPTION>
                                    NUMBER OF SECURITIES          WEIGHTED AVERAGE        NUMBER OF SECURITIES
                                      TO BE ISSUED UPON          EXERCISE PRICE OF      REMAINING AVAILABLE FOR
                                   EXERCISE OF OUTSTANDING      OUTSTANDING OPTIONS,     FUTURE ISSUANCE UNDER
                                OPTIONS, WARRANTS AND RIGHTS    WARRANTS AND RIGHTS    EQUITY COMPENSATION PLANS
                                -----------------------------  ----------------------  --------------------------
                                             (a)                        (b)                       (c)
<S>                             <C>                            <C>                     <C>
                                -----------------------------  ----------------------  --------------------------
Equity Compensation Plans                              51,200  $                10.82                     107,800
  approved by security holders
Equity Compensation Plans not                               -                       -                           -
  approved by security holders
                                -----------------------------  ----------------------  --------------------------
Total                                                  51,200  $                10.82                     107,800
                                -----------------------------  ----------------------  --------------------------
</TABLE>


                                        2
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The  following  is  a  discussion  of  our financial condition and the financial
condition  of  our  bank  subsidiary,  The  Citizens  Bank of Forsyth County, at
December  31,  2004  and  2003  and the results of operations for the years then
ended.  The  purpose  of  this  discussion  is to focus on information about our
financial  condition  and  results of operations that are not otherwise apparent
from our audited consolidated financial statements.  Reference should be made to
those  statements  and  the  selected financial data presented elsewhere in this
report  for  an  understanding  of  the  following  discussion  and  analysis.

FORWARD-LOOKING  STATEMENTS

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

                          CRITICAL ACCOUNTING POLICIES

We  have  adopted  various  accounting  policies which govern the application of
accounting principles generally accepted in the United States in the preparation
of  our  financial statements. Our significant accounting policies are described
in  the  footnotes to the consolidated financial statements at December 31, 2004
as  filed  on  our  annual  report  on  Form  10-KSB.

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

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


                                        3
<PAGE>
OVERVIEW

In  2004 we enjoyed substantial loan and deposit growth.  This growth caused our
net  income to increase to $967,991, as compared to $842,135 in 2003.  We opened
a  branch  in  the  Free Home community of Cherokee County.  The new office will
allow us to better serve the residents of western Forsyth County and the growing
but  underserved  Free  Home area of Cherokee County.  We also purchased land in
northern  Forsyth  County  at the intersection of Martin Road and State Road 400
for  future  expansion.  Forsyth  County  continues  to  grow and we believe our
expansion plans will help us meet the financial needs of the county's residents.

We  face  increased competition as established banks expand their branch network
and  a  new  community  bank  opened  in  the  county.  The competition will put
additional  pressure  on  our  net  interest  margin.

We  expanded  our  product line by offering internet banking and bill payment to
our customers.  Customers can view balances and recent account activity, perform
transfers  between  their  accounts  and pay bills online.  Internet banking and
bill  payment  was  added  to  accommodate  existing  customers  and attract new
customers.

We  raised  $280,330 in capital through several of our directors and an employee
exercising stock options granted to them.  1.858 million shares were outstanding
at  December  31,  2004.  The additional capital will be used to fund the bank's
growth.

FINANCIAL  CONDITION  AT  DECEMBER  31,  2004  AND  2003

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

<TABLE>
<CAPTION>
                                            December 31,
                                         2004          2003
                                       (Dollars in Thousands)
<S>                                 <C>             <C>
Cash and due from banks             $        1,473  $     3,616
Interest-bearing deposits in banks             270          224
Federal funds sold                           6,090        4,467
Securities                                  18,234       24,985
Loans, net                                 102,372       81,921
Premises and equipment                       7,431        5,324
Other assets                                 1,326          812
                                    --------------  -----------
                                    $      137,196  $   121,349
                                    ==============  ===========

Total deposits                      $      122,401  $   107,724
Other liabilities                              796          753
Stockholders' equity                        13,999       12,872
                                    --------------  -----------
                                    $      137,196    # 121,349
                                    ==============  ===========
</TABLE>

As  of  December 31, 2004, we had total assets of $137.2 million, an increase of
13.1% over December 31, 2003.  Total interest-earning assets were $128.2 million
at  December  31,  2004  or  93.4% of total assets as compared to 92.8% of total
assets  at  December  31, 2003.  Our primary interest-earning assets at December
31,  2004  were  loans,  which made up 80.8% of total interest-earning assets as
compared  to 73.7% at December 31, 2003.  Our loan to deposit ratio was 84.7% at
December  31,  2004  as  compared  to 77.0% at December 31, 2003.  The company's
source  of  funds  came  primarily  from  deposit  growth  of


                                        4
<PAGE>
$14.7 million and decreases of $6.7 million in the securities portfolio and $2.1
million  in cash and due from banks. These funds were primarily used to increase
in  federal  funds sold by $1.6 million, increase premises and equipment by $2.1
million  and  fund  loan  growth  of  $20.7  million.

Our  securities  portfolio,  consisting  of  U.S.  Agency  securities, state and
municipal  securities,  corporate  securities,  mortgage-backed  securities
collateralized  mortgage  obligations and restricted equity securities, amounted
to  $18.2  million  at  December  31,  2004.  Net unrealized gains on securities
amounted  to $48,000 at December 31, 2004 as compared to net unrealized gains of
$268,000  at  December 31, 2003.  Management has not specifically identified any
securities  for sale in future periods, which, if so designated, would require a
charge  to  operations  if  the market value would not be reasonably expected to
recover  prior  to  the  time  of  sale.

We  have  81% of our loan portfolio collateralized by real estate located in our
primary market area of Forsyth County and surrounding counties.  Our real estate
mortgage  portfolio  consists  of  loans  collateralized  by  one-to-four-family
residential  properties  (26%),  construction  loans to build one-to-four family
residential properties (33%), and nonresidential properties consisting primarily
of  small business commercial properties (41%).  We generally require that loans
collateralized  by  real  estate  not  exceed  80%  of  the  collateral  value.

The  remaining  19%  of  the  loan portfolio consist of commercial, consumer and
other  loans.  We require collateral commensurate with the repayment ability and
creditworthiness  of  the  borrower.

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

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

LIQUIDITY  AND  CAPITAL  RESOURCES

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

Scheduled  loan  payments  are  a  relatively  stable  source of funds, but loan
payoffs  and deposit flows fluctuate significantly, being influenced by interest
rates  and  general  economic  conditions  and


                                        5
<PAGE>
competition.  We  attempt  to  price deposits to meet asset/liability objectives
consistent  with  local  market  conditions.

Our  liquidity  and  capital  resources  are  monitored  on  a periodic basis by
management,  state  and  federal  regulatory  authorities.  As  determined under
guidelines  established  by  regulatory  authorities  and  internal  policy, our
liquidity  ratio  of  13.00%  at  December 31, 2004 was considered satisfactory.

At  December  31,  2004,  we  had loan commitments outstanding of $17.2 million.
Because  these  commitments  generally have fixed expiration dates and many will
expire without being drawn upon, the total commitment amounts do not necessarily
represent  future  cash  requirements.  If  needed,  we  have  the  ability on a
short-term  basis  to  borrow  and  purchase  federal funds from other financial
institutions.  At  December  31,  2004,  we had an arrangement with a commercial
bank  for short-term advances of $3,000,000, in addition to $10,000,000 which is
available  to  us,  subject to available collateral, in the form of Federal Home
Loan  Bank  advances.

At  December  31,  2004,  our  capital  ratios were considered adequate based on
regulatory  minimum capital requirements.  Our stockholders' equity increased by
$1.1  million  due  to net income in 2004 of $968,000; to a decrease in the fair
value  of  securities available-for-sale, net of tax, in the amount of $136,000;
and  to  several  of  our  directors and a key employee exercising stock options
granted  to  them,  which  contributed  $280,000.  For  regulatory purposes, net
unrealized gains and losses on securities available-for-sale are excluded in the
computation  of  the  capital  ratios.

The primary source of funds available to Forsyth Bancshares, Inc. is the payment
of dividends by the Bank.  Banking regulations limit the amount of the dividends
that  may  be  paid  without  prior  approval  of  the Bank's regulatory agency.
Currently, the Bank could pay $506,000 in dividends without regulatory approval.
Another  source  of  funds  is  the  stock  options granted to the directors and
employees.  Options  for  33,000 shares were exercised in 2004, raising $280,000
in additional capital for Forsyth Bancshares, Inc.  Directors and employees have
remaining  options  to  purchase  121,700  shares.

The  minimum capital requirements to be considered well capitalized under prompt
corrective  action  provisions  and  the actual capital ratios on a consolidated
basis  and  for  the  Bank  as  of  December  31,  2004  are  as  follows:

<TABLE>
<CAPTION>
                                           Actual
                            ------------------------------------
                                                    Regulatory
                            Consolidated    Bank   Requirements
                            -------------  ------  -------------
<S>                         <C>            <C>     <C>
Leverage capital ratio          10.36%      8.58%       5.00%
Risk-based capital ratios:
    Core capital                12.11%     10.05%       6.00%
    Total capital               13.21%     11.17%      10.00%
</TABLE>

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

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

In  March 2004, the Directors of the Company approved a transfer of land held by
the  Company  to  the  bank as a capital infusion. The land was transferred at a
value  of  $237,467.   The  land, located in


                                        6
<PAGE>
Cherokee  County, is the site of the bank's new Free Home branch which opened in
November  2004.  The Directors also approved increasing the Company's investment
in  the  bank  by  $1 million. These two transfers to the bank will increase the
bank's capital and allow it to continue to grow for the foreseeable future while
maintaining  its  well  capitalized  status.

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

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

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

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

<TABLE>
<CAPTION>
                            Years Ended     December 31,
                                2004            2003
                               (Dollars in Thousands)
<S>                        <C>             <C>
Interest income            $        6,592  $        5,999

Interest expense                    1,756           1,738
                           --------------  --------------
Net interest income                 4,836           4,261

Provision for loan losses             266             201

Other income                          845             962

Other expenses                      3,923           3,722
                           --------------  --------------

Pretax income                       1,492           1,300

Income taxes                          524             458
                           --------------  --------------

Net income                 $          968  $          842
                           ==============  ==============
</TABLE>

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

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


                                        7
<PAGE>
Our  net  yield  on  average interest-earning assets was 4.24% in 2004 and 4.23%
2003.  Average  interest-earning  assets increased by $13.3 million. The largest
component  of  this  increase  was  due  to average loans increasing by of $14.2
million.  Average  interest-bearing  liabilities increased by $10.5 million with
average money market deposits accounting for the majority of this increase.  The
rate  earned  on average interest-earning assets decreased to 5.78% in 2004 from
5.95%  in 2003.  The rate paid on average interest-bearing liabilities decreased
to 1.87% in 2004 from 2.09% in 2003.  The decrease in the rate earned on average
interest-earning  assets  is due primarily to the decrease in yield on loans and
investment  securities.  Increasing  competition  and  loans  with  higher rates
maturing  resulted  in lower rates on loans.  The yield on investment securities
decreased  due to securities called and sold.  The decrease in the rates paid on
our  interest-bearing  liabilities  is  due  to deposits with higher rates being
repriced  upon  maturity  at  a  lower  rate.

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

The  provision  for  loan losses was $266,000 in 2004 as compared to $201,000 in
2003.  The  increase  in the provision for loan losses is due to the increase in
the loan portfolio as net loan charge offs decreased slightly to $29,000 in 2004
compared to $53,000 in 2003. As of December 31, 2004, we had nonperforming loans
and  assets of $319,000 as compared to $12,000 at December 31, 2003.  Based upon
our  evaluation  of the loan portfolio, we believe the allowance for loan losses
to be adequate to absorb losses on existing loans that may become uncollectible.
Our  evaluation  considers  significant  factors relative to the credit risk and
loss  exposure  in  the  loan portfolio including past due and classified loans,
historical  experience,  underlying  collateral  values  and  current  economic
conditions  that  may affect the borrower's ability to repay.  The allowance for
loan  losses is evaluated by segmenting the loan portfolio into unclassified and
classified  loans.  An allowance percentage is applied to the unclassified loans
to  establish  a  general  allowance  for loan losses.  The allowance percentage
determined  is  based  upon  our  experience  specifically  and  the  historical
experience  of  the banking industry generally.  The classified loans, including
impaired  loans,  are  analyzed  individually  in  order to establish a specific
allowance  for  loan  losses.  The total of these allowances are compared to the
minimum  allowance  level  range  in  accordance with internal policy, (1.20% to
1.30% of total loans outstanding), with the greater amount being recorded as the
allowance  for  loan  losses.  The  allowance for loan losses as a percentage of
total  loans at December 31, 2004 was 1.23% as compared to 1.25% at December 31,
2003.


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

Other  income  consists  of  service  charges on deposit accounts, mortgage loan
origination fees, other miscellaneous revenues and fees, and gains and losses on
securities  transactions.  Other  income  was  $845,000  in  2004 as compared to
$962,000  in  2003.  The  decrease  of  $117,000  is  due primarily to decreased
mortgage loan origination fees of $170,000, increased service charges on deposit
accounts  of  $16,000,  increased  net  realized gains on sales of securities of
$15,000,  increased  net  customer  service fees of $22,000 and decreased credit
life  insurance income of $13,000.  The decrease in mortgage origination fees is
due  to  the  increase  in  mortgage rates in 2004 causing a decline in mortgage
refinancing.  The  credit life decrease was due to a one time credit in 2003 for
a  correction  from  the  credit  life  company  to  the  Bank.

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

Other  expense  for  2004  consists  of  salaries  and  employee  benefits ($2.2
million),  equipment  and  occupancy  expenses  ($511,000),  and other operating
expenses  ($1.2  million).  Salaries  and employee benefits increased by $74,000
due  to  annual  salary increases, the hiring of an additional staff for our new
branch  and  offset  by  decreased  commissions paid to our mortgage originator.
Equipment  and  occupancy


                                        8
<PAGE>
expenses  remained  stable,  increasing  by  $2,000.  Other  operating  expenses
increased  by  $125,000  due  to  increased  data  processing  fees  of $61,000,
increased  advertising  expenses  of  $6,000,  decreased  legal fees of $11,000,
increased  telephone  expense  of  $16,000,  increased  insurance,  taxes  and
assessments  of  $14,000,  write  down  of  other  real estate owned of $36,000,
increased  expenses  associated  with  other  real  estate  owned of $11,000 and
decreased  other  operating expenses of $9,000. In 2003, other operating expense
included $38,000 for the lease payout to Bank of America for the old Main Office
Facility.  The  other  increases  are normal and are a reflection of our overall
growth.

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

We  recognized income tax expense of $524,000 in 2004 as compared to $458,000 in
2003.  The  increase was due to higher pretax income in 2004.  The effective tax
rate  was  35%  for  2004  and  2003.

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

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

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

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

A simple interest rate "gap" analysis by itself may not be an accurate indicator
of  how  net  interest  income  will  be  affected by changes in interest rates.
Accordingly,  we  also  evaluate  how  the  repayment  of  particular assets and
liabilities  is  impacted  by changes in interest rates.  Income associated with
interest-earning  assets  and costs associated with interest-bearing liabilities
may  not  be  affected uniformly by changes in interest rates.  In addition, the
magnitude  and  duration  of  changes  in  interest rates may have a significant
impact  on  net  interest  income.  For  example,  although  certain  assets and
liabilities  may have similar maturities or periods of repricing, they may react
in  different  degrees  to  changes in market interest rates.  Interest rates on
certain  types  of  assets  and  liabilities  fluctuate in advance of changes in
general


                                        9
<PAGE>
market  rates,  while  interest  rates  on other types may lag behind changes in
general  market  rates.  In  addition,  certain  assets, such as adjustable rate
mortgage  loans, have features (generally referred to as "interest rate caps and
floors")  that  limit changes in interest rates. Prepayment and early withdrawal
levels  also  could  deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to service their debts also may
decrease  during  periods  of  rising  interest  rates.

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

At  December  31,  2004,  our  cumulative one-year interest rate-sensitivity gap
ratio  was  68%.  Our  targeted ratio is 80% to 120% in this time horizon.  This
indicates  that our interest-bearing liabilities will reprice during this period
at  a rate faster than our interest-earning assets.  We are currently not within
our  targeted  parameters  due  primarily  to  87%  of  certificates  of deposit
repricing within a one-year time frame as opposed to 51% of loans and securities
repricing  within  a  one-year  time  frame  and  a  $12.6  million  increase in
interest-bearing  checking.  The  ratio  in  the  one-year  time  frame  is
significantly  impacted  by  the  classification  of all interest bearing demand
deposits as immediately rate sensitive for purposes of this analysis.  It is our
belief  that competitive market rates are being paid for certificates of deposit
and  as  long  as  the  rates  remain competitive, liquidity, while not assured,
should  not  be  adversely  affected.

The  following  table  sets  forth  the  distribution  of  the  repricing of our
interest-earning  assets  and  interest-bearing  liabilities  as of December 31,
2004,  the  interest  rate-sensitivity  gap,  the  cumulative  interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio.  The table also sets forth the time periods
in which interest-earning assets and interest-bearing liabilities will mature or
may reprice in accordance with their contractual terms.  However, the table does
not  necessarily  indicate  the impact of general interest rate movements on the
net  interest  margin  as  the  repricing  of  various  categories of assets and
liabilities  is subject to competitive pressures and the needs of our customers.
In  addition,  various  assets and liabilities indicated as repricing within the
same  period  may  in fact, reprice at different times within such period and at
different  rates.


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                                  After
                                                                   One
                                                  After Three   Year but
                                       Within     Months but     Within
                                        Three     Within One      Five     After Five
                                       Months        Year         Years       Years         Total
                                                         (Dollars in Thousands)
<S>                                   <C>        <C>            <C>        <C>          <C>
Interest-earning assets:
  Interest-bearing deposits in
    banks                             $    270   $              $          $            $         270
  Federal funds sold                     6,090                                                  6,090
  Securities                               712            623       8,197        8,702         18,234
  Loans                                 43,335         17,684      38,870        3,753        103,642
                                      ---------  -------------  ---------  -----------  -------------
                                        50,407         18,307      47,067       12,455        128,236
                                      ---------  -------------  ---------  -----------  -------------

Interest-bearing liabilities:
  Interest-bearing demand
    deposits                            60,076                                                 60,076
  Savings                                1,797                                                  1,797
  Certificates, less than $100,000       4,775          9,627       2,872                      17,274
  Certificates, $100,000 and over        5,579         18,817       3,075                      27,471
  Other borrowing                          510                                                    510
                                      ---------  -------------  ---------  -----------  -------------
                                        72,737         28,444       5,947            0        107,128
                                      ---------  -------------  ---------  -----------  -------------

Interest rate sensitivity gap         $(22,330)  $    (10,137)  $  41,120  $    12,455  $      21,108
                                      =========  =============  =========  ===========  =============
Cumulative interest rate
    sensitivity gap                   $(22,330)  $    (32,467)  $   8,653  $    21,108
                                      =========  =============  =========  ===========
Interest rate sensitivity gap ratio       0.69           0.64        7.91            -
                                      =========  =============  =========  ===========

Cumulative interest rate
    sensitivity gap ratio                 0.69           0.68        1.08         1.20
                                      =========  =============  =========  ===========
</TABLE>


                                       11
<PAGE>
               SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

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



                                       12
<PAGE>
                    DISTRIBUTION OF ASSETS, LIABILITIES, AND
                              STOCKHOLDERS' EQUITY:
                    INTEREST RATES AND INTEREST DIFFERENTIALS

AVERAGE  BALANCES

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

<TABLE>
<CAPTION>
                                                          Years Ended
                                                          December 31,
                                                       2004          2003
                                                     (Dollars in Thousands)
<S>                                                <C>            <C>
ASSETS
Cash and due from banks                            $      2,464   $    2,322
Taxable securities                                       18,040       18,940
Nontaxable securities                                     1,354        1,356
Interest-bearing deposits in banks                          270          220
Securities valuation account                                183          382
Federal funds sold                                        4,343        4,421
Loans (2)                                                90,134       75,874
Allowance for loan losses                                (1,097)        (942)
Other assets                                              7,813        6,189
                                                   -------------  -----------
      Total assets                                 $    123,504   $  108,762
                                                   =============  ===========

Total interest-earning assets                      $    114,141   $  100,811
                                                   =============  ===========
      LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
   Non-interest bearing                            $     15,941   $   12,936
   Interest-bearing demand                               48,393       35,530
   Savings                                                1,682        1,537
   Time                                                  43,119       46,046
                                                   -------------  -----------
      Total deposits                                    109,135       96,049
Other borrowing                                             501          248
Other liabilities                                           283          152
                                                   -------------  -----------
      Total liabilities                                 109,919       96,449
Stockholders' equity                                     13,585       12,313
                                                   -------------  -----------
      Total liabilities and stockholders' equity   $    123,504   $  108,762
                                                   =============  ===========

Total interest-bearing liabilities                 $     93,695   $   83,361
                                                   =============  ===========
<FN>

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

(2)  Non-accrual loans of $23,000 and $52,000 were included in average loans for
     2004  and  2003,  respectively.
</TABLE>

                                       13
<PAGE>
INTEREST INCOME AND INTEREST EXPENSE

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

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                      2004                 2003
                                                          Average              Average
                                               Interest     Rate    Interest     Rate
<S>                                            <C>        <C>       <C>        <C>
                                                      (Dollars in Thousands)
INTEREST INCOME:
   Interest and fees on loans (1)              $   5,849     6.49%  $   5,168     6.81%
   Interest on taxable securities                    618     3.42         719     3.80
   Interest on nontaxable securities (2)              57     4.25          58     4.28
   Interest on deposits in banks                      10     3.58           9     4.09
   Interest on federal funds sold                     58     1.34          45     1.02
                                               ---------            ---------
      Total interest income                        6,592     5.78       5,999     5.95
                                               ---------            ---------

INTEREST EXPENSE:
   Interest on interest-bearing demand
      deposits                                       696     1.44         388     1.09
   Interest on savings deposits                        5     0.28           8     0.52
   Interest on time deposits                       1,051     2.44       1,339     2.92
   Interest on other borrowing                         4     0.89           3     1.08
                                               ---------            ---------
      Total interest expense                       1,756     1.87       1,738     2.09
                                               ---------            ---------

NET INTEREST INCOME                            $   4,836            $   4,261
                                               =========            =========
Net interest spread                                          3.91%                3.86%
                                                          ========             ========
Net yield on average interest-earning assets                 4.24%                4.23%
                                                          ========             ========
<FN>


(1)  Interest  and  fees  on  loans  includes  $533,000 and $466,000 of loan fee
     income  for the years ended December 31, 2004 and 2003, respectively. There
     was  no interest income recognized on nonaccrual loans during 2004 or 2003.

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

                                       14
<PAGE>
RATE AND VOLUME ANALYSIS

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                           2004 vs. 2003
                                                          Changes Due To:
                                                      Rate     Volume       Net
                                                       (Dollars in Thousands)
<S>                                                 <C>       <C>        <C>
Increase (decrease) in:
   Income from interest-earning assets:
      Interest and fees on loans                    $  (254)  $    935   $     681
      Interest on taxable securities                    (68)       (33)       (101)
      Interest on nontaxable securities                  (1)         -          (1)
      Interest on deposits in banks                      (1)         2           1
      Interest on Federal funds sold                     14         (1)         13
                                                    --------  ---------  ----------
         Total interest income                         (310)       903         593
                                                    --------  ---------  ----------

   Expense from interest-bearing liabilities:
      Interest on interest-bearing demand deposits      144        164         308
      Interest on savings deposits                       (4)         1          (3)
      Interest on time deposits                        (213)       (75)       (288)
      Interest  on other borrowing                        -          1           1
                                                    --------  ---------  ----------
         Total interest expense                         (73)        91          18
                                                    --------  ---------  ----------

         Net interest income                        $  (237)  $    812   $     575
                                                    ========  =========  ==========
</TABLE>


                                       15
<PAGE>
                              INVESTMENT PORTFOLIO

TYPES OF INVESTMENTS

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

<TABLE>
<CAPTION>
                                       December 31,
                                    2004         2003
                                (Dollars in   Thousands)
<S>                             <C>           <C>
U.S. Government agencies        $      6,704  $    10,557
State and municipal securities         1,146        1,423
Corporate securities                   1,088        3,941
Mortgage-backed securities             9,055        8,786
                                ------------  -----------
                                $     17,993  $    24,707
                                ============  ===========
</TABLE>

MATURITIES

The  amounts  of  debt  securities, including the weighted average yield in each
category  as  of December 31, 2004 are shown in the following table according to
contractual maturity classifications (1) one year or less, (2) after one through
five  years,  (3)  after  five  through  ten  years  and  (4)  after  ten years.

<TABLE>
<CAPTION>
                                                       After one through      After five through
                                One year   or less        five years              ten years
                                 Amount    Yield(1)   Amount     Yield(1)     Amount     Yield(1)
<S>                             <C>        <C>       <C>        <C>         <C>         <C>
U. S. Government agencies       $       0         -% $   6,704       3.23%  $        0          -%
State and municipal securities        432      3.83        209       4.15          290        4.20
Corporate securities                    0         -      1,088       5.29            0           -
Mortgage-backed securities              0         -          0          -            0           -
                                ---------            ---------              ----------
                                $     432      3.83  $   8,001       3.53   $      290        4.20
                                =========            =========              ==========
</TABLE>

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


                                       16
<PAGE>
                                 LOAN PORTFOLIO

TYPES OF LOANS

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

<TABLE>
<CAPTION>
                                              December 31,
                                          2004          2003
                                       (Dollars in   Thousands)
<S>                                   <C>            <C>
Commercial                            $     12,131   $    9,807
Real estate-construction                    27,722       24,751
Real estate-mortgage                        56,791       41,291
Consumer installment loans and other         6,998        7,105
                                      -------------  -----------
                                           103,642       82,954
Less allowance for loan losses              (1,270)      (1,033)
                                      -------------  -----------
    Net loans                         $    102,372   $   81,921
                                      =============  ===========
</TABLE>

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES

Total  loans  as of December 31, 2004 are shown in the following table according
to  contractual  maturity  classifications  (1)  one year or less, (2) after one
through  five  years,  and  (3)  after  five  years.

<TABLE>
<CAPTION>
                              (Dollars in Thousands)
<S>                              <C>
Commercial
   One year or less              $         8,124
   After one through five years            3,961
   After five years                           46
                                 ---------------
                                          12,131
                                 ---------------

Construction
   One year or less                       21,137
   After one through five years            6,577
   After five years                            8
                                 ---------------
                                          27,722
                                 ---------------

Other
   One year or less                       18,477
   After one through five years           41,062
   After five years                        4,250
                                 ---------------
                                          63,789
                                 ---------------

                                 $       103,642
                                 ===============
</TABLE>


                                       17
<PAGE>
The  following  table  summarizes  loans at December 31, 2004 with the due dates
after  one  year  that  have  predetermined  and floating or adjustable interest
rates.

<TABLE>
<CAPTION>
                                          (Dollars in Thousands)

<S>                                             <C>
         Predetermined interest rates           $    44,525
         Floating or adjustable interest rates       11,379
                                                -----------
                                                $    55,904
                                                ===========
</TABLE>

RISK  ELEMENTS

Information with respect to nonaccrual, past due, restructured and other problem
loans  at  December  31,  2004  and  2003  is  as  follows:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                              2004          2003
                                                            (Dollars in Thousands)
<S>                                                       <C>            <C>
Nonaccrual loans                                          $           0  $        12
Loans contractually past due ninety days or more as to
  interest or principal payments and still accruing                   0            0
Restructured loans                                                    0            0
Potential problem loans                                               0          353
Interest income that would have been recorded on
  nonaccrual and restructured loans under original terms              0            1
Interest income that was recorded on nonaccrual and
  restructured loans                                                  0            0
</TABLE>

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

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

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


                                       18
<PAGE>
                         SUMMARY OF LOAN LOSS EXPERIENCE

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

<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                               2004            2003
                                                              (Dollars in Thousands)
<S>                                                        <C>            <C>
Average amount of loans outstanding                        $     90,134   $      75,874
                                                           =============  ==============
Balance of allowance for loan losses at beginning of year  $      1,033   $         885
                                                           -------------  --------------
Loans charged off
   Commercial and financial                                          (8)            (20)
   Real estate mortgage                                               -               -
   Installment                                                      (30)            (45)
                                                           -------------  --------------
                                                                    (38)            (65)
                                                           -------------  --------------

Loans recovered
   Commercial and financial                                           4               -
   Real estate mortgage                                               -               -
   Installment                                                        4              12
                                                           -------------  --------------
                                                                      8              12
                                                           -------------  --------------

Net charge-offs                                                     (30)            (53)
                                                           -------------  --------------

Additions to allowance charged to operating expense
   during year                                                      266             201
                                                           -------------  --------------

Balance of allowance for loan losses at end of year        $      1,269   $       1,033
                                                           =============  ==============

Ratio of net loans charged off during the year to average
   loans outstanding                                               0.03%           0.07%
                                                           =============  ==============
</TABLE>


                                       19
<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.  Our  evaluation of the loan portfolio includes a periodic
review  of loan loss experience, current economic conditions that may affect the
borrower's  ability  to  pay  and  the underlying collateral value of the loans.

As  of  December  31,  2004  and  2003, the allocation of our allowance for loan
losses does not specifically correspond to the categories of loans listed below.
Based  on  our best estimate, the allocation of the allowance for loan losses to
types  of  loans,  as  of  the  indicated  dates,  is  as  follows:

<TABLE>
<CAPTION>
                                         December 31, 2004         December 31, 2003
                                                   Percent of               Percent of
                                                 loans in each            loans in each
                                                  category to              category to
                                       Amount     total loans    Amount    total loans
                                                 (Dollars in Thousands)
<S>                                   <C>        <C>             <C>      <C>
Commercial                            $     149          11.70%  $   118          11.82%
Real estate - construction                  335          26.75       293          29.84
Real estate - mortgage                      693          54.80       536          49.78
Consumer installment loans and other         92           6.75        86           8.56
                                      ---------  --------------  -------  --------------
                                          1,269         100.00%    1,033         100.00%
                                      =========  ==============  =======  ==============
</TABLE>

                                    DEPOSITS

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

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                               2004                    2003
                                        Amount        Percent     Amount   Percent
                                                 (Dollars in Thousands)
<S>                                  <C>           <C>            <C>      <C>
Noninterest-bearing demand deposits  $     15,941             -%  $12,936        -%
Interest-bearing demand deposits           48,393           1.44   35,530      1.09
Savings deposits                            1,682           0.28    1,537      0.52
Time deposits                              43,119           2.44   46,046      2.92
                                     ------------                 -------
                                     $    109,135                 $96,049
                                     ============                 =======
</TABLE>

(1)  Average  balances  were  determined using the daily average balances during
     the  year.


                                       20
<PAGE>
The  amounts  of  time  certificates of deposit issued in amounts of $100,000 or
more as of December 31, 2004 are shown below by category, which is based on time
remaining until maturity of (1) three months or less, (2) over three through six
months,  (3)  over  six  through  twelve  months,  and  (4)  over twelve months.

<TABLE>
<CAPTION>
                                   (Dollars in Thousands)
<S>                                     <C>
     Three months or less               $    5,579
     Over three through six months          11,747
     Over six through twelve months          7,070
     Over twelve months                      3,075
                                        ----------
                                        $   27,471
                                        ==========
</TABLE>

                    RETURN ON ASSETS AND STOCKHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
                                      Years Ended December 31,
                                        2004          2003
<S>                                    <C>           <C>
     Return on assets (1)               0.78%          0.77%
     Return on equity (2)               7.13           6.84
     Dividend payout ratio (3)             -              -
     Equity to assets ratio (4)        11.00          11.32
</TABLE>

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


                                       21
<PAGE>
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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


          We  have  audited  the  accompanying  consolidated  balance  sheets of
FORSYTH  BANCSHARES,  INC.  AND SUBSIDIARY as of December 31, 2004 and 2003, and
the  related  consolidated  statements  of  income,  comprehensive  income,
stockholders'  equity  and cash flows for the years then ended.  These financial
statements  are  the  responsibility  of  the  Company's  management.  Our
responsibility  is  to express an opinion on these financial statements based on
our  audits.


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


          In  our  opinion,  the  consolidated  financial statements referred to
above  present  fairly,  in  all  material  respects,  the financial position of
Forsyth  Bancshares,  Inc.  and subsidiary as of December 31, 2004 and 2003, and
the  results  of their operations and their cash flows for the years then ended,
in  conformity  with  U.S.  generally  accepted  accounting  principles.

                                        /s/ MAULDIN & JENKINS, LLC


Atlanta, Georgia
February 4, 2005


                                       22
<PAGE>
<TABLE>
<CAPTION>
                                    FORSYTH BANCSHARES, INC.
                                         AND SUBSIDIARY

                                  CONSOLIDATED BALANCE SHEETS
                                   DECEMBER 31, 2004 AND 2003


                          ASSETS                                         2004          2003
                                                                     ------------  ------------
<S>                                                                  <C>           <C>
Cash and due from banks                                              $  1,472,848  $  3,616,575
Interest-bearing deposits in banks                                        270,398       224,265
Federal funds sold                                                      6,090,000     4,467,000
Securities available for sale                                          17,993,341    24,707,332
Restricted equity securities, at cost                                     240,900       277,400

Loans                                                                 103,642,049    82,953,909
Less allowance for loan losses                                          1,269,646     1,032,855
                                                                     ------------  ------------
          Loans, net                                                  102,372,403    81,921,054

Premises and equipment                                                  7,431,152     5,323,670
Other assets                                                            1,325,043       812,007
                                                                     ------------  ------------

          TOTAL ASSETS                                               $137,196,085  $121,349,303
                                                                     ============  ============

              LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits:
    Noninterest-bearing                                              $ 15,783,176  $ 13,736,834
    Interest-bearing                                                  106,617,877    93,987,602
                                                                     ------------  ------------
          Total deposits                                              122,401,053   107,724,436
Securities sold under repurchase agreements                               509,639       416,396
Other liabilities                                                         285,949       336,920
                                                                     ------------  ------------
          TOTAL LIABILITIES                                           123,196,641   108,477,752
                                                                     ------------  ------------

Commitments and contingencies

Stockholders' equity:
    Common stock, no par value; 10,000,000 shares authorized;
       1,858,000 and 1,825,000 issued and outstanding, respectively    10,194,326     9,897,936
    Retained earnings                                                   3,775,139     2,807,148
    Accumulated other comprehensive income                                 29,979       166,467
                                                                     ------------  ------------
          TOTAL STOCKHOLDERS' EQUITY                                   13,999,444    12,871,551
                                                                     ------------  ------------

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $137,196,085  $121,349,303
                                                                     ============  ============
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       23
<PAGE>
<TABLE>
<CAPTION>
                               FORSYTH BANCSHARES, INC.
                                    AND SUBSIDIARY

                           CONSOLIDATED STATEMENTS OF INCOME
                        YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                                   2004        2003
                                                                ----------  ----------
<S>                                                             <C>         <C>
INTEREST INCOME:
  Loans, including fees                                         $5,849,440  $5,168,262
  Taxable securities                                               617,620     718,716
  Nontaxable securities                                             57,505      57,677
  Deposits in banks                                                  9,672       9,150
  Federal funds sold                                                58,108      45,469
                                                                ----------  ----------
    TOTAL INTEREST INCOME                                        6,592,345   5,999,274
                                                                ----------  ----------

INTEREST EXPENSE:
  Deposits                                                       1,752,053   1,735,194
  Other borrowings                                                   4,444       2,685
                                                                ----------  ----------
    TOTAL INTEREST EXPENSE                                       1,756,497   1,737,879
                                                                ----------  ----------

    NET INTEREST INCOME                                          4,835,848   4,261,395
PROVISION FOR LOAN LOSSES                                          266,335     201,100
                                                                ----------  ----------
    NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES          4,569,513   4,060,295
                                                                ----------  ----------

OTHER INCOME:
  Service charges on deposit accounts                              284,430     267,686
  Mortgage origination fees                                        455,380     625,774
  Other operating income                                            79,592      57,118
  Net realized gains on sales of securities available for sale      26,048      10,916
                                                                ----------  ----------
    TOTAL OTHER INCOME                                             845,450     961,494
                                                                ----------  ----------

OTHER EXPENSES:
  Salaries and employee benefits                                 2,183,506   2,109,302
  Equipment and occupancy expenses                                 511,444     509,774
  Other operating expenses                                       1,228,115   1,102,900
                                                                ----------  ----------
    TOTAL OTHER EXPENSES                                         3,923,065   3,721,976
                                                                ----------  ----------

    INCOME BEFORE INCOME TAXES                                   1,491,898   1,299,813

INCOME TAX EXPENSE                                                 523,907     457,678
                                                                ----------  ----------

      NET INCOME                                                $  967,991  $  842,135
                                                                ==========  ==========
BASIC EARNINGS PER SHARE                                        $     0.52  $     0.47
                                                                ==========  ==========
DILUTED EARNINGS PER SHARE                                      $     0.52  $     0.47
                                                                ==========  ==========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       24
<PAGE>
<TABLE>
<CAPTION>
                                 FORSYTH BANCSHARES, INC.
                                      AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                          YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                                       2004        2003
                                                                    ----------  ----------
<S>                                                                 <C>         <C>

NET INCOME                                                          $ 967,991   $ 842,135
                                                                    ----------  ----------

OTHER COMPREHENSIVE LOSS:

  Unrealized losses on securities available for sale:

    Unrealized holding losses arising during period,
     net of tax benefits of $(73,756) and $(116,106), respectively   (120,338)   (189,431)

    Reclassification adjustment for gains realized
     in net income, net of  tax of $9,898 and $4,148,
     respectively                                                     (16,150)     (6,768)
                                                                    ----------  ----------

OTHER COMPREHENSIVE LOSS                                             (136,488)   (196,199)
                                                                    ----------  ----------

COMPREHENSIVE INCOME                                                $ 831,503   $ 645,936
                                                                    ==========  ==========
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       25
<PAGE>
<TABLE>
<CAPTION>
                                       FORSYTH BANCSHARES, INC.
                                            AND SUBSIDIARY

                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                YEARS ENDED DECEMBER 31, 2004 AND 2003


                                   COMMON STOCK                        ACCUMULATED
                               ----------------------                     OTHER           TOTAL
                                           AT AMOUNT     RETAINED     COMPREHENSIVE    STOCKHOLDERS'
                                SHARES      PAID-IN      EARNINGS        INCOME           EQUITY
                               ---------  -----------  ------------  ---------------  ---------------
<S>                            <C>        <C>          <C>           <C>              <C>
BALANCE, DECEMBER 31, 2002     1,775,000  $ 9,447,841    41,965,013  $      362,666   $   11,775,520
    Net income                         -            -       842,135               -          842,135
    Exercise of stock options     50,000      425,000             -               -          425,000
    Tax benefit from exercise
       of stock options                -       25,095             -               -           25,095
    Other comprehensive loss           -            -             -        (196,199)        (196,199)
                               ---------  -----------  ------------  ---------------  ---------------
BALANCE, DECEMBER 31, 2003     1,825,000  $ 9,897,936  $  2,807,148  $      166,467   $   12,871,551
    Net income                         -            -       967,991               -          967,991
    Exercise of stock options     33,000      280,330             -               -          280,330
    Tax benefit from exercise
       of stock options                -       16,060             -               -           16,060
    Other comprehensive loss           -            -             -        (136,488)        (136,488)
                               ---------  -----------  ------------  ---------------  ---------------
BALANCE, DECEMBER 31, 2004     1,858,000  $10,194,326  $  3,775,139  $       29,979   $   13,999,444
                               =========  ===========  ============  ===============  ===============
</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       26
<PAGE>
<TABLE>
<CAPTION>
                                  FORSYTH BANCSHARES, INC.
                                       AND SUBSIDIARY

                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                           YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                                   2004           2003
                                                               -------------  -------------
<S>                                                            <C>            <C>
OPERATING ACTIVITIES
  Net income                                                   $    967,991   $    842,135
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation                                                    320,579        319,044
    Provision for loan losses                                       266,335        201,100
    Deferred income taxes                                           (20,226)        (5,807)
    Gain on sales of securities available for sale                  (26,048)       (10,916)
    Write down of other real estate owned                            36,892              -
    Gain on sale of equipment                                        (4,583)             -
    (Increase) decrease in interest receivable                      (57,930)         6,858
    Increase (decrease)  in interest payable                         44,590        (58,798)
    Net other operating activities                                  (92,950)       (36,771)
                                                               -------------  -------------

     Net cash provided by operating activities                    1,434,650      1,256,845
                                                               -------------  -------------

INVESTING ACTIVITIES
  Net increase in interest-bearing deposits in banks                (46,133)       (10,206)
  Purchases of securities available for sale                     (7,467,491)   (19,828,453)
  Proceeds from maturities of securities available for sale       5,331,767      8,507,562
  Proceeds from sales of securities available for sale            8,655,622      5,020,393
  Proceeds from maturities of securities held to maturity                 -         31,643
  Redemption (purchases) of restricted equity securities             36,500        (71,500)
  Net increase in federal funds sold                             (1,623,000)    (1,006,000)
  Net increase in loans                                         (21,070,854)   (12,460,943)
  Purchase of premises and equipment                             (2,455,258)      (320,610)
  Proceeds from sale of premises and equipment                       10,280         12,000
                                                               -------------  -------------

     Net cash used in investing activities                      (18,628,567)   (20,126,114)
                                                               -------------  -------------

FINANCING ACTIVITIES
  Net increase in deposits                                       14,676,617     19,758,036
  Net increase in securities sold under repurchase agreements        93,243        399,961
  Proceeds from exercise of stock options                           280,330        425,000
                                                               -------------  -------------
    Net cash provided by financing activities                    15,050,190     20,582,997
                                                               -------------  -------------
Net increase (decrease) in cash and due from banks               (2,143,727)     1,713,728
                                                               -------------  -------------

Cash and due from banks at beginning of year                      3,616,575      1,902,847
                                                               -------------  -------------

Cash and due from banks at end of year                         $  1,472,848   $  3,616,575
                                                               =============  =============
</TABLE>


                                       27
<PAGE>
<TABLE>
<CAPTION>
                            FORSYTH BANCSHARES, INC.
                                 AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                 2004        2003
                                              ----------  ----------
<S>                                           <C>         <C>
SUPPLEMENTAL DISCLOSURES
    Cash paid for:
        Interest                              $1,711,907  $1,796,677

        Income taxes                          $  650,392  $  413,682

</TABLE>


SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       28
<PAGE>
                            FORSYTH BANCSHARES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          NATURE OF BUSINESS

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

          BASIS  OF  PRESENTATION  AND  ACCOUNTING  ESTIMATES

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

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

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

          CASH, DUE FROM BANKS AND CASH FLOWS

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

            The  Bank  is  required  to  maintain reserve balances in cash or on
            deposit  with  the  Federal  Reserve  Bank, based on a percentage of
            deposits.  The  total  of those reserve balances was approximately $
            580,000  and  $570,000  at December 31, 2004 and 2003, respectively.


                                       29
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          SECURITIES

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

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

            In  estimating  other-than-temporary  impairment  losses, management
            considers  (1)  the  length of time and the extent to which the fair
            value  has  been  less  than  cost,  (2) the financial condition and
            near-term prospects of the issuer, and (3) the intent and ability of
            the  Company  to retain its investment in the issuer for a period of
            time sufficient to allow for any anticipated recovery in fair value.

          LOANS

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

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

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


                                       30
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          LOANS (CONTINUED)

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

          ALLOWANCE  FOR  LOAN  LOSSES

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

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

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


                                       31
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          PREMISES AND EQUIPMENT

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

                  Buildings                  40 years
                  Furniture and equipment    2 - 7 years


          OTHER REAL ESTATE OWNED

            Other real estate owned represents properties acquired through or in
            lieu  of  loan foreclosure and is initially recorded at the lower of
            cost  or  fair value less estimated costs to sell. Any write-down to
            fair  value  at  the  time of transfer to other real estate owned is
            charged  to the allowance for loan losses. Costs of improvements are
            capitalized,  whereas  costs  relating  to holding other real estate
            owned  and  subsequent  adjustments  to  the value are expensed. The
            Company  had  other real estate owned of $319,000 and $0 at December
            31,  2004  and  2003,  respectively.

          INCOME TAXES

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

          STOCK-BASED  COMPENSATION

            At  December  31,  2004,  the  Company  has two stock-based employee
            compensation  plans,  which  are described more fully in Note 8. The
            Company  accounts  for  those  plans  under  the  recognition  and
            measurement  principles  of APB Opinion No. 25, Accounting for Stock
            Issued  to  Employees,  and  related Interpretations. No stock-based
            employee  compensation  cost  is  reflected  in  net  income, as all
            options granted under those plans had an exercise price equal to the
            market  value  of  the  underlying  stock  on the date of grant. The
            following  table  illustrates  the effect on net income and earnings
            per  share  if  the  Company  had applied the fair value recognition
            provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
            to  stock-based  employee  compensation.


                                       32
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          STOCK-BASED COMPENSATION (CONTINUED)

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                       ---------------------------
                                                           2004          2003
                                                       ------------  -------------
<S>                                                    <C>           <C>
Net income, as reported                                $    967,991  $     842,135
Deduct: Total stock-based employee compensation
    expense determined under fair value based
    method for all awards, net of related tax effects         6,104         13,125
                                                       ------------  -------------
Pro forma net income                                   $    961,887  $     829,010
                                                       ============  =============
Earnings per share:
  Basic - as reported                                  $        052  $        0.47
                                                       ============  =============
  Basic - pro forma                                    $       0.52  $        0.46
                                                       ============  =============
  Diluted - as reported                                $       0.52  $        0.47
                                                       ============  =============
  Diluted - pro forma                                  $       0.51  $        0.46
                                                       ============  =============
</TABLE>

          EARNINGS PER SHARE

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

          COMPREHENSIVE INCOME

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

          RECENT ACCOUNTING STANDARDS

            In  December  2004,  the  FASB  published Statement No. 123 (revised
            2004),  "Share-Based Payment" ("FAS 123(R)" or the "Statement"). FAS
            123(R)  requires  that the compensation cost relating to share-based
            payment transactions, including grants of employee stock options, be
            recognized in financial statements. That cost will be measured based
            on the fair value of the equity or liability instruments issued. FAS
            123(R)  covers a wide range of share-based compensation arrangements
            including  stock  options, restricted share plans, performance-based
            awards,  share  appreciation  rights,  and  employee  share purchase
            plans.  FAS  123(R)  is  a  replacement  of  FASB Statement No. 123,
            Accounting  for Stock-Based Compensation, and supersedes APB Opinion
            No.  25,  Accounting  for Stock Issued to Employees, and its related
            interpretive  guidance  (APB  25).


                                       33
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          RECENT ACCOUNTING STANDARDS (CONTINUED)

            The  effect  of the Statement will be to require entities to measure
            the cost of employee services received in exchange for stock options
            based  on  the  grant-date fair value of the award, and to recognize
            the  cost  over  the  period  the  employee  is  required to provide
            services  for  the  award.  FAS  123(R)  permits entities to use any
            option-pricing  model  that  meets  the  fair value objective in the
            Statement.

            The Company will be required to apply FAS 123(R) as of the beginning
            of  its  first  interim  period that begins after December 15, 2005,
            which  will  be  the  year  ending  December  31,  2006.

            FAS  123(R)  allows  two  methods for determining the effects of the
            transition:  the  modified  prospective  transition  method  and the
            modified  retrospective  method  of  transition.  Under the modified
            prospective  transition  method,  an entity would use the fair value
            based  accounting  method for all employee awards granted, modified,
            or  settled  after  the  effective  date.  As of the effective date,
            compensation  cost  related  to  the  nonvested  portion  of  awards
            outstanding  as  of  that date would be based on the grant-date fair
            value of those awards as calculated under the original provisions of
            Statement  No.  123;  that  is,  an  entity  would not remeasure the
            grant-date  fair  value  estimate  of the unvested portion of awards
            granted prior to the effective date. An entity will have the further
            option  to  either  apply  the Statement to only the quarters in the
            period of adoption and subsequent periods, or apply the Statement to
            all  quarters  in  the  fiscal  year of adoption. Under the modified
            retrospective  method  of  transition,  an  entity  would revise its
            previously  issued  financial  statements  to  recognize  employee
            compensation cost for prior periods presented in accordance with the
            original  provisions  of  Statement  No.  123.

            Although  it  has  not  yet  completed  its  study of the transition
            methods, the Company believes it will elect the modified prospective
            transition method. Under this method, the Company estimates that the
            adoption  of  FAS  123(R)  will  require  the  Company  to  record
            approximately  $37,000  of  stock  compensation  expense in the year
            ended  December  31,  2006  related  to  employee options issued and
            outstanding  at  December  31, 2004. The impact of this Statement on
            the  Company  in  fiscal  2006  and  beyond will depend upon various
            factors,  among them being our future compensation strategy. The pro
            forma  compensation  costs presented in the table above and in prior
            filings  for  the Company have been calculated using a Black-Scholes
            option  pricing  model  and  may  not be indicative of amounts which
            should  be  expected in future years. No decisions have been made as
            to  which  option-pricing  model is most appropriate for the Company
            for  future  awards.


                                       34
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.   SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

          RECENT  ACCOUNTING  STANDARDS  (CONTINUED)

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

NOTE 2.   SECURITIES

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

<TABLE>
<CAPTION>
                                                  GROSS        GROSS
                                   AMORTIZED   UNREALIZED    UNREALIZED      FAIR
                                     COST         GAINS        LOSSES        VALUE
                                  -----------  -----------  ------------  -----------
<S>                               <C>          <C>          <C>           <C>
SECURITIES AVAILABLE FOR SALE
  DECEMBER 31, 2004:
  U.S. GOVERNMENT AND AGENCY
    SECURITIES                    $ 6,726,592  $         -  $   (22,267)  $ 6,704,325
  STATE AND MUNICIPAL SECURITIES    1,102,308       43,992            -     1,146,300
  CORPORATE SECURITIES              1,053,738       34,262            -     1,088,000
  MORTGAGE-BACKED SECURITIES        9,062,349       24,755      (32,388)    9,054,716
                                  -----------  -----------  ------------  -----------
                                  $17,944,987  $   103,009  $   (54,655)  $17,993,341
                                  ===========  ===========  ============  ===========

  December 31, 2003:
  U.S. Government and agency
    securities                    $10,497,785  $    59,377  $         -   $10,557,162
  State and municipal securities    1,354,274       69,095            -     1,423,369
  Corporate securities              3,807,125      133,441            -     3,940,566
  Mortgage-backed securities        8,779,653       45,857      (39,275)    8,786,235
                                  -----------  -----------  ------------  -----------
                                  $24,438,837  $   307,770  $   (39,275)  $24,707,332
                                  ===========  ===========  ============  ===========
</TABLE>


                                       35
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.   SECURITIES (CONTINUED)

          In 2003, the FASB Emerging Issues Task Force released Issue 03-01, The
          Meaning  of  Other-Than-Temporary  Impairment  and  Its Application to
          Certain  Investments.  The  issue  requires  disclosure  of  certain
          information about other than temporary impairments in the market value
          of  securities.  The  market  value  of  securities is based on quoted
          market  values  and  is  significantly  affected  by the interest rate
          environment.  At  December  31,  2004,  all  unrealized  losses in the
          securities  portfolio  were for debt securities. From the December 31,
          2004  tables  above, eleven out of seventeen securities purchased from
          U.S.  Government  agencies  and  Government  sponsored  corporations,
          including mortgage-backed securities, contained unrealized losses. The
          amortized cost and fair value of these securities at December 31, 2004
          was  $12,593,043  and  $12,484,387, respectively. All but one security
          with an unrealized loss at December 31, 2004 have been in a continuous
          unrealized loss position for less than twelve months. These unrealized
          losses  are  considered  temporary  because  of  acceptable investment
          grades  on  each  security  and the repayment sources of principal and
          interest  are  government  backed.

          The  following summarizes securities in an unrealized loss position as
          of  December  31,  2004:

<TABLE>
<CAPTION>
                          Less than 12 Months      12 Months or More              Total
                      -------------------------  ----------------------  -------------------------
                         Fair       Unrealized     Fair     Unrealized      Fair       Unrealized
                         Value        Losses      Value       Losses        Value        Losses
                      -----------  ------------  --------  ------------  -----------  ------------
<S>                   <C>          <C>           <C>       <C>           <C>          <C>
U.S. Government and
   agency securities  $ 6,704,325  $   (22,267)  $      -  $         -   $ 6,704,325  $   (22,267)
Mortgage-backed
   securities           5,217,400      (30,727)   562,662       (1,661)    5,780,062      (32,388)
                      -----------  ------------  --------  ------------  -----------  ------------
                      $11,921,725  $   (52,994)  $562,662  $    (1,661)  $12,484,387  $   (54,655)
                      ===========  ============  ========  ============  ===========  ============
</TABLE>

          At  December  31,  2003,  all  unrealized  losses  in  the  securities
          portfolio  were  for debt securities. From the December 31, 2003 table
          above,  four  out  of  twenty  nine  securities  purchased  from  U.S.
          Government  agencies  and Government sponsored corporations, including
          mortgage-backed securities, contained unrealized losses. The amortized
          cost  and  fair  value  of  these  securities at December 31, 2003 was
          $5,185,552  and  $5,146,277,  respectively.  All  securities  with  an
          unrealized  loss  at  December  31,  2003  have  been  in a continuous
          unrealized  loss  position  for  less  than  twelve  months.

          Securities  with  a  carrying value of $11,325,584 and $5,663,001 were
          pledged  at December 31, 2004 and 2003, respectively, to secure public
          deposits  and  for  other  purposes  required  or  permitted  by  law.


                                       36
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2.   SECURITIES (CONTINUED)

          The  amortized cost and fair value of securities available for sale as
          of  December  31, 2004 by contractual maturity are shown below. Actual
          maturities  may differ from contractual maturities because issuers may
          have  the  right to call or prepay obligations with or without call or
          prepayment  penalties.

<TABLE>
<CAPTION>
                                              SECURITIES AVAILABLE FOR SALE
                                            ---------------------------------
                                               AMORTIZED           FAIR
                                                 COST              VALUE
                                            --------------  -----------------
<S>                                         <C>             <C>
          Due within one year               $      427,308  $         431,579
          Due from one to five years             7,980,330          8,001,165
          Due from five to ten years               275,000            290,171
          Due after ten years                      200,000            215,710
          Mortgage-backed securities             9,062,349          9,054,716
                                            --------------  -----------------
                                            $   17,944,987  $      17,993,341
                                            ==============  =================
</TABLE>

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

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                          -----------------------------
                                              2004            2003
                                          -------------  --------------
<S>                                       <C>            <C>
          Gross gains                     $     45,125   $      31,980
          Gross losses                         (19,077)        (21,064)
                                          -------------  --------------
          Net realized gains              $     26,048   $      10,916
                                          =============  ==============
</TABLE>

NOTE 3.   LOANS

          The  composition  of  loans  is  summarized  as  follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                   ---------------------------
                                                       2004           2003
                                                   -------------  ------------
<S>                                                <C>            <C>
          Commercial, financial, and agricultural  $ 12,131,309   $ 9,807,000
          Real estate - construction                 27,722,034    24,751,000
          Real estate - mortgage                     56,790,553    41,291,000
          Consumer installment and other              6,998,153     7,104,909
                                                   -------------  ------------
                                                    103,642,049    82,953,909
          Allowance for loan losses                  (1,269,646)   (1,032,855)
                                                   -------------  ------------
          Loans, net                               $102,372,403   $81,921,054
                                                   =============  ============
</TABLE>

          Changes in the allowance for loan losses are as follows:

<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                            2004            2003
                                                        -------------  --------------
<S>                                                     <C>            <C>
          Balance, beginning of year                    $  1,032,855   $     885,266
            Provision for loan losses                        266,335         201,100
            Loans charged off                                (37,665)        (65,220)
            Recoveries of loans previously charged off         8,121          11,709
                                                        -------------  --------------
          Balance, end of year                          $  1,269,646   $   1,032,855
                                                        =============  ==============
</TABLE>


                                       37
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3.   LOANS (CONTINUED)

          The  total recorded investment in impaired loans, consisting solely of
          loans  on  nonaccrual  status, was $0 and $11,956 at December 31, 2004
          and  2003, respectively. There were no impaired loans that had related
          allowances  determined  in accordance with SFAS No. 114, Accounting by
          Creditors for Impairment of a Loan, at December 31, 2004 and 2003. The
          average  recorded  investment  in impaired loans for 2004 and 2003 was
          $22,978 and $51,926, respectively. Interest income recognized for cash
          payments  received  on  impaired  loans was not material for the years
          ended  December 31, 2004 and 2003. There were no loans past due ninety
          days  or  more  and  still  accruing interest at December 31, 2004 and
          2003.

          In  the  ordinary course of business, the Company has granted loans to
          certain  related parties, including directors, executive officers, and
          their affiliates. The interest rates on these loans were substantially
          the  same  as  rates  prevailing  at  the  time of the transaction and
          repayment terms are customary for the type of loan. Changes in related
          party  loans  for  the  year  ended  December 31, 2004 are as follows:

          Balance, beginning of year                      $ 6,459,979
            Advances                                        9,073,042
            Repayments                                     (5,413,111)
                                                          ------------
          Balance, end of year                            $10,119,910
                                                          ============

NOTE 4.   PREMISES AND EQUIPMENT

          Premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                -------------------------
                                                                    2004         2003
                                                                ------------  -----------
<S>                                                             <C>           <C>
          Land                                                  $ 2,709,774   $1,791,652
                                                                ------------  -----------
          Buildings                                               4,111,442    2,958,378
          Equipment                                               1,845,814    1,499,130
          Construction and equipment installation in progress,
             estimated cost to complete, $14,000                      6,857       53,534
                                                                ------------  -----------
                                                                  8,673,887    6,302,694
          Accumulated depreciation                               (1,242,735)    (979,024)
                                                                ------------  -----------
                                                                $ 7,431,152   $5,323,670
                                                                ============  ===========
</TABLE>

          Through  November 2002, the Company operated out of leased main office
          and  operational  center  facilities.  In  2003,  the Company paid the
          lessor  $37,986  for  the  release  of the main office lease contract.
          Total  rental  expense, including the release fee, amounted to $62,060
          for  the  year  ending  December  31,  2003. The Company had no rental
          expense  for  2004.


                                       38
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5.   DEPOSITS

          The  aggregate amount of time deposits in denominations of $100,000 or
          more  at  December  31, 2004 and 2003 was $27,471,498 and $19,057,577,
          respectively.  The  scheduled  maturities of time deposits at December
          31,  2004  are  as  follows:

            2005                                   $38,797,628
            2006                                     2,272,126
            2007                                       431,768
            2008                                    3,232,794
            2009                                        10,406
                                                   -----------
                                                   $44,744,722
                                                   ===========


          Overdraft  demand  deposits  reclassified to loans totaled $38,101 and
          $11,611  at  December  31,  2004  and  2003,  respectively.

          The  Company had deposits from directors, executive officers and their
          affiliates  totaling  $7,179,385  at  December  31,  2004.

NOTE 6.   SECURITIES  SOLD  UNDER  REPURCHASE  AGREEMENTS

          Securities  sold  under  repurchase  agreements,  which  are  secured
          borrowings,  generally  mature  within  one  to  four  days  from  the
          transaction  date.  Securities  sold  under  repurchase agreements are
          reflected  at  the  amount  of  cash  received  in connection with the
          transactions.  The  Company  may  be  required  to  provide additional
          collateral  based  on the fair value of the underlying securities. The
          Company  monitors  the  fair  value  of  the  underlying  securities.
          Securities  sold  under repurchase agreements at December 31, 2004 and
          2003  were  $509,639  and  $416,396,  respectively.


NOTE 7.   EMPLOYEE  BENEFIT  PLAN

          The  Company has a 401-K profit sharing plan available to all eligible
          employees,  subject  to  certain minimum age and service requirements.
          Contributions  charged  to  expense  were  $33,318 and $36,377 for the
          years  ended  December  31,  2004  and  2003,  respectively.


NOTE 8.   STOCK-BASED  COMPENSATION

          The  Company  has  an incentive plan that provides for the issuance of
          stock  options  to  key  employees.  The  Company has reserved 160,000
          shares  of  common  stock for this purpose. The options are granted at
          the  fair value of the Company's common stock on the date of grant and
          expire  in  ten  years from the date of grant. In 2004, 32,500 options
          were  granted  to key employees that vest over a period of five years.
          No  options  were  granted  to  employees  in  2003.


                                       39
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8.   STOCK-BASED COMPENSATION (CONTINUED)

          The  Company granted 3,000 stock options in 2003 to a certain director
          of  the  Company.  The  options  were granted at the fair value of the
          Company's  common  stock  on the date of grant and expire in ten years
          from  the date of grant. These options vested on the date of grant. No
          options  were  granted  to  directors  in  2004.

          Other  pertinent  information  related  to  the options is as follows:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                              ------------------------------------------
                                                      2004                 2003
                                              --------------------  --------------------
                                                        WEIGHTED-             Weighted-
                                                         AVERAGE               Average
                                                         EXERCISE              Exercise
                                               NUMBER     PRICE      Number     Price
                                              --------  ----------  --------  ----------
<S>                                           <C>       <C>         <C>       <C>
          Outstanding at beginning of year    127,000   $     8.47  174,000   $     8.48
            Granted                            32,500        12.26    3,000         8.50
            Exercised                         (33,000)        8.49  (50,000)        8.50
            Terminated                         (4,800)        8.33        -            -
                                              --------              --------
          Outstanding at end of year          121,700         9.48  127,000         8.47
                                              ========              ========

          Options exercisable at end of year   78,100         8.48  107,400         8.49
                                              ========              ========

          Weighted-average fair value of
            options granted during the year      4.23                  2.63
</TABLE>

          Information  pertaining to options outstanding at December 31, 2004 is
          as  follows:

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

          8.33-$14.00          121,700    8.5 years  $          9.48       78,100  $     8.48
</TABLE>


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

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                           --------------  ------------
                                                2004           2003
                                           --------------  ------------
<S>                                        <C>             <C>
             Dividend yield                            0%            0%
             Expected life                       10 years       9 years
             Expected volatility                    0.01%         0.01%
             Risk-free interest rate                4.31%         4.27%
</TABLE>


                                       40
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9.   INCOME TAXES

          Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                              YEARS ENDED DECEMBER 31,
                                            -----------------------------
                                                2004            2003
                                            -------------  --------------
<S>                                         <C>            <C>
          Current                           $    544,133   $     463,485
          Deferred                               (20,226)         (5,807)
                                            -------------  --------------
              Income tax expense            $    523,907   $     457,678
                                            =============  ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                                  -----------------------------
                                                      2004            2003
                                                  -------------  --------------
<S>                                               <C>            <C>
          Income taxes at statutory federal rate  $    507,245   $     441,937
             Nontaxable interest                       (18,199)        (18,190)
             State income taxes                         34,251          33,016
             Other items, net                              610             915
                                                  -------------  --------------
          Income tax expense                      $    523,907   $     457,678
                                                  =============  ==============
</TABLE>

          The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                            ------------------
                                              2004      2003
                                            --------  --------
<S>                                         <C>       <C>
          Deferred tax assets:
             Loan loss reserves             $440,984  $355,718
             Other                             9,069     8,642
                                            --------  --------
                                             450,053   364,360
                                            --------  --------
          Deferred tax liabilities:
             Securities available for sale    18,374   102,025
             Depreciation                    155,945    90,478
                                            --------  --------
                                             174,319   192,503
                                            --------  --------

          Net deferred tax assets           $275,734  $171,857
                                            ========  ========
</TABLE>


                                       41
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10.  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                                                ---------------------------
                                                    2004          2003
                                                ------------  -------------
<S>                                             <C>           <C>
Basic Earnings  Per Share:
  Weighted average common shares outstanding       1,846,475      1,806,390
                                                ============  =============

  Net income                                    $    967,991  $     842,135
                                                ============  =============

  Basic earnings  per share                     $       0.52  $        0.47
                                                ============  =============

Diluted Earnings Per Share:
  Weighted average common shares outstanding       1,846,475      1,806,390
  Net effect of the assumed exercise of stock
    options based on the treasury stock method
    using average market prices for the year          21,722            490
                                                ------------  -------------
  Total weighted average common shares and
    common stock equivalents outstanding           1,868,197      1,806,880
                                                ============  =============

  Net income                                    $    967,991  $     842,135
                                                ============  =============

  Diluted earnings per share                    $       0.52  $        0.47
                                                ============  =============
</TABLE>

NOTE 11.  COMMITMENTS AND CONTINGENCIES

          LOAN COMMITMENTS

            The  Company  is  a  party to financial instruments with off-balance
            sheet  risk  in  the normal course of business to meet the financing
            needs  of  its  customers.  These  financial  instruments  include
            commitments  to  extend  credit  and standby letters of credit. They
            involve,  to  varying  degrees, elements of credit risk and interest
            rate  risk in excess of the amount recognized in the balance sheets.
            The majority of all commitments to extend credit and standby letters
            of  credit  are  variable  rate  instruments.


                                       42
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11.  COMMITMENTS  AND  CONTINGENCIES  (CONTINUED)

          LOAN COMMITMENTS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                           ------------------------
                                                              2004         2003
                                                           -----------  -----------
<S>                                                        <C>          <C>
            Commitments to extend credit                   $16,647,839  $14,321,075
            Financial standby letters of credit                575,865      168,275
                                                           -----------  -----------
                                                           $17,223,704  $14,489,350
                                                           ===========  ===========
</TABLE>

            Commitments to extend credit are agreements to lend to a customer as
            long  as  there  is no violation of any condition established in the
            contract. Commitments generally have fixed expiration dates or other
            termination  clauses and may require payment of a fee. Since many of
            the commitments are expected to expire without being drawn upon, the
            total  commitment  amounts  do not necessarily represent future cash
            requirements. The amount of collateral obtained, if deemed necessary
            by  the  Company  upon extension of credit, is based on management's
            credit  evaluation  of  the  party.  Collateral held varies, but may
            include  accounts  receivable,  inventory,  property  and equipment,
            residential  real estate and income-producing commercial properties.

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

            At  December  31,  2004 and 2003, the carrying amount of liabilities
            related  to  the  Company's  obligation  to  perform under financial
            standby  letters  of  credit  was insignificant. The Company has not
            been required to perform on any financial standby letters of credit,
            and  the  Company  has  not incurred any losses on financial standby
            letters  of  credit  for the years ended December 31, 2004 and 2003.

          CONTINGENCIES

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


                                       43
<PAGE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12.  CONCENTRATIONS OF CREDIT

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

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

          The  Company,  as a matter of policy, does not generally extend credit
          to  any single borrower or group of related borrowers in excess of 25%
          of  statutory  capital,  or  approximately  $2,375,000.


NOTE 13.  REGULATORY MATTERS

          The Bank is subject to certain restrictions on the amount of dividends
          that  may  be  declared without prior regulatory approval. At December
          31,  2004,  approximately $506,000 of retained earnings were available
          for  dividend  declaration  without  regulatory  approval  in  2004.

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


                                       44
<PAGE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13.  REGULATORY MATTERS (CONTINUED)

          Quantitative  measures  established  by  regulation  to ensure capital
          adequacy  require the Company and the Bank to maintain minimum amounts
          and  ratios  of  Total  and Tier I capital to risk-weighted assets, as
          defined,  and  of  Tier  I  capital  to  average  assets,  as defined.
          Management believes, as of December 31, 2004 and 2003, the Company and
          the  Bank  met  all  capital  adequacy  requirements to which they are
          subject.

          As of December 31, 2004, the most recent notification from the Federal
          Deposit Insurance Corporation categorized the Bank as well capitalized
          under  the  regulatory  framework  for prompt corrective action. To be
          categorized  as well capitalized, the Bank must maintain minimum Total
          risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
          in  the  following table. There are no conditions or events since that
          notification  that  management  believes  have  changed  the  Bank's
          category.  Prompt  corrective  provisions  are  not applicable to bank
          holding  companies.  The Company and Bank's actual capital amounts and
          ratios  are  presented  in  the  following  table:

<TABLE>
<CAPTION>
                                                                                   TO BE WELL
                                                             FOR CAPITAL       CAPITALIZED UNDER
                                                               ADEQUACY        PROMPT CORRECTIVE
                                             ACTUAL            PURPSOSE        ACTION PROVISIONS
                                         ----------------  ----------------  ----------------------
                                         AMOUNT    RATIO   AMOUNT    RATIO     AMOUNT      RATIO
                                         -------  -------  -------  -------  ----------  ----------
                                                        (DOLLARS IN THOUSANDS)
                                         ----------------------------------------------------------
<S>                                      <C>      <C>      <C>      <C>      <C>         <C>
DECEMBER 31, 2004:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS:
     CONSOLIDATED                        $15,238   13.21%  $ 9,229       8%  $      N/A  N/A
     BANK                                $12,700   11.17%  $ 9,099       8%  $   11,374         10%
TIER I CAPITAL TO RISK WEIGHTED ASSETS:
     CONSOLIDATED                        $13,969   12.11%  $ 4,615       4%  $      N/A  N/A
     BANK                                $11,431   10.05%  $ 4,550       4%  $    6,824          6%
TIER I CAPITAL TO AVERAGE ASSETS:
     CONSOLIDATED                        $13,969   10.36%  $ 5,392       4%  $      N/A  N/A
     BANK                                $11,431    8.58%  $ 5,327       4%  $    6,659          5%

December 31, 2003:

Total Capital to Risk Weighted Assets:
     Consolidated                        $13,738  $14.48%  $ 7,593       8%  $      N/A  N/A
     Bank                                $10,212  $10.87%  $ 7,513       8%  $    9,391         10%
Tier I Capital to Risk Weighted Assets:
     Consolidated                        $12,705  $13.39%  $ 3,757       4%  $      N/A  N/A
     Bank                                $ 9,179    9.77%  $ 3,757       4%  $    5,635          6%
Tier I Capital to Average Assets:
     Consolidated                        $12,705   10.64%  $ 4,739       4%  $      N/A  N/A
     Bank                                $ 9,179    7.75%  $ 4,739       4%  $    5,923          5%
</TABLE>


                                       45
<PAGE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

          The  fair  value  of a financial instrument is the current amount that
          would  be  exchanged  between  willing parties, other than in a forced
          liquidation.  Fair  value  is best determined based upon quoted market
          prices.  However, in many instances, there are no quoted market prices
          for the Company's various financial instruments. In cases where quoted
          market  prices  are  not  available, fair value is based on discounted
          cash  flows  or  other  valuation  techniques.  These  techniques  are
          significantly affected by the assumptions used, including the discount
          rate  and  estimates of future cash flows. Accordingly, the fair value
          estimates  may  not  be  realized  in  an  immediate settlement of the
          instrument.  SFAS  No. 107, Disclosures about Fair Values of Financial
          Instruments,  excludes  certain  financial  instruments  and  all
          nonfinancial  instruments  from  its  disclosure  requirements.
          Accordingly,  the  aggregate  fair  value  amounts  presented  may not
          necessarily  represent  the  underlying  fair  value  of  the Company.

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

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

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

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

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

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

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

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


                                       46
<PAGE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14.  FAIR VALUE OF FINANCIAL INSTRUMENT  (CONTINUED)

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

<TABLE>
<CAPTION>
                                       DECEMBER 31, 2004          December 31, 2003
                                   --------------------------  --------------------------
                                     CARRYING        FAIR        Carrying        Fair
                                      AMOUNT        VALUE         Amount        Value
                                   ------------  ------------  ------------  ------------
<S>                                <C>           <C>           <C>           <C>
Financial assets:
  Cash, due from banks, interest-
    bearing deposits in banks,
    and federal funds sold         $  7,833,246  $  7,833,246  $  8,307,840  $  8,307,840
  Securities available for sale      17,993,341    17,993,341    24,707,332    24,707,332
  Restricted equity securities          240,900       240,900       277,400       277,400
  Loans                             102,372,403   103,295,000    81,921,054    83,798,000
  Accrued interest receivable           630,367       630,367       572,437       572,437

Financial liabilities:
  Deposits                          122,401,053   122,474,000   107,724,436   107,369,390
  Securities sold under
    repurchase agreements               509,639       509,639       416,396       416,396
  Accrued interest payable              197,564       197,564       152,974       152,974
</TABLE>


NOTE 15.  SUPPLEMENTAL FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                         YEARS ENDED DECEMBER 31,
                                       ---------------------------
                                           2004          2003
                                       ------------  -------------
<S>                                    <C>           <C>
          Director fees                $    103,325  $      99,025
          Professional fees                 171,938        155,392
          Data processing                   335,113        274,074
          Office supplies                    97,256         85,907
</TABLE>


                                       47
<PAGE>
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16.  PARENT COMPANY FINANCIAL INFORMATION

          The  following  information  presents  the  condensed  balance sheets,
          statements of income, and cash flows of Forsyth Bancshares, Inc. as of
          and  for  the  years  ended  December  31,  2004  and  2003:

<TABLE>
<CAPTION>
                            CONDENSED BALANCE SHEETS


                                                     2004          2003
                                                 ------------  ------------
<S>                                              <C>           <C>
ASSETS
  Cash                                           $   867,981   $ 2,506,610
  Investment in subsidiary                        11,460,971     9,346,021
  Premises and equipment                           1,626,565       945,910
  Other assets                                        43,927        73,010
                                                 ------------  ------------

      TOTAL ASSETS                               $13,999,444   $12,871,551
                                                 ============  ============
STOCKHOLDERS' EQUITY                             $13,999,444   $12,871,551
                                                 ============  ============

                         CONDENSED STATEMENTS OF INCOME

                                                     2004          2003
                                                 ------------  ------------

INCOME:
   Interest income                               $     8,671   $    29,310
                                                 ------------  ------------

EXPENSES:
   Depreciation                                            -        22,788
   Other expenses                                     82,517       133,633
                                                 ------------  ------------
                                                      82,517       156,421
                                                 ------------  ------------

     LOSS BEFORE INCOME TAX BENEFITS
       AND EQUITY IN UNDISTRIBUTED INCOME
       OF SUBSIDIARY                                 (73,846)     (127,111)

   INCOME TAX BENEFITS                               (27,866)      (47,967)
                                                 ------------  ------------

     LOSS BEFORE EQUITY IN UNDISTRIBUTED
       INCOME OF SUBSIDIARY                          (45,980)      (79,144)

   EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY    1,013,971       921,279
                                                 ------------  ------------

     NET INCOME                                  $   967,991   $   842,135
                                                 ============  ============
</TABLE>


                                       48
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16.  PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                         CONDENSED STATEMENTS OF CASH FLOWS


                                                               2004         2003
                                                           ------------  -----------
<S>                                                        <C>           <C>
OPERATING ACTIVITIES
  Net income                                               $   967,991   $  842,135
  Adjustments to reconcile net income to net cash
    used in operating activities:
    Depreciation                                                     -       22,788
    Equity in undistributed income of subsidiary            (1,013,971)    (921,279)
    Net other operating activities                              45,143      (22,683)
                                                           ------------  -----------

      NET CASH USED IN OPERATING ACTIVITIES                       (837)     (79,039)
                                                           ------------  -----------

INVESTING ACTIVITIES
  Purchase of premises and equipment                          (918,122)     (10,000)
  Investment in bank subsidiary                             (1,000,000)           -
  Proceeds from sale of premises and equipment                       -       12,000
                                                           ------------  -----------

      NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   (1,918,122)       2,000
                                                           ------------  -----------

FINANCING ACTIVITIES
  Proceeds from exercise of stock options                      280,330      425,000
                                                           ------------  -----------

      NET CASH PROVIDED BY FINANCING ACTIVITIES                280,330      425,000
                                                           ------------  -----------

Net increase(decrease) in cash                              (1,638,629)     347,961

Cash at beginning of year                                    2,506,610    2,158,649
                                                           ------------  -----------

Cash at end of year                                        $   867,981   $2,506,610
                                                           ============  ===========
</TABLE>


                                       49
<PAGE>