<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]      Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
         Exchange Act of 1934 for the period ended September 30, 1998

[ ]      Transition report under Section 13 or 15(d) of the Exchange Act for the
         transition period from _____ to _____

                        Commission file number: 33-80855

                            GATEWAY BANCSHARES, INC.
        (Exact name of small business issuer as specified in its charter)

        Georgia                                           58-2202210
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                              5102 Alabama Highway
                             Ringgold, Georgia 30736
                    (Address of principal executive offices)

                                 (706) 965-5500
                (Issuer's telephone number, including area code)

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

                    Class
         Common Stock, $5.00 par value                                 679,048

Transitional Small Business Disclosure Format: Yes / / No /X/

<PAGE>   2

                            GATEWAY BANCSHARES, INC.

                         September 30, 1998 Form 10-QSB

                                TABLE OF CONTENTS

                                                                        Page No.
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

         Consolidated Balance Sheet  . . . . . . . . . . . . . . . . . . . . . 3

         Consolidated Statement of Income  . . . . . . . . . . . . . . . . . . 4

         Consolidated Statement of Comprehensive Income  . . . . . . . . . . . 5

         Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . .6

         Notes to Consolidated Financial Statements  . . . . . . . . . . . . . 7

Item 2.  Management's Discussion and Analysis or Plan of Operation. . . . . . 10

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 18

Item 2.  Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . 18

Item 3.  Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . .18

Item 4.  Submission of Matters to a Vote of Security Holders . . . . . . . . .18

Item 5.  Other Information . . . . . . . . . . . . . . . . . . . . . . . . . .19

Item 6.  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .19

                                    * * * * *

<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            GATEWAY BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                            SEPTEMBER 30, 1998     December 31,
                                                                UNAUDITED              1997
                                                               ------------        ------------
<S>                                                         <C>                    <C>         
ASSETS
Cash                                                           $    462,978        $    229,994
Due from banks                                                    1,410,512           1,152,424
Federal funds sold                                                  280,000             750,000

Securities available for sale                                    16,569,665          14,264,819
Securities held to maturity                                       9,063,702             944,986

Loans                                                            32,272,352          17,195,468
Allowance for loan losses                                          (320,361)           (170,000)
                                                               ------------        ------------
Net loans                                                        31,951,991          17,025,468

Premises and equipment, net                                       1,683,482           1,725,463
Accrued interest                                                    602,245             279,050
Other assets                                                        191,967             239,181
                                                               ------------        ------------
            TOTAL ASSETS                                       $ 62,216,542        $ 36,611,385
                                                               ============        ============

LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES:
   Deposits:
      Noninterest-bearing                                      $  4,624,225        $  3,306,847
      Interest-bearing                                           49,658,089          26,804,361
                                                               ------------        ------------
            TOTAL DEPOSITS                                       54,282,314          30,111,208

   Note payable- FHLB                                             1,000,000                 -0-
   Accrued interest                                                 263,499              91,297
   Other liabilities                                                 90,934              48,467
                                                               ------------        ------------
            TOTAL LIABILITIES                                    55,636,747          30,250,972
                                                               ------------        ------------

SHAREHOLDER'S EQUITY:
   Common stock ($5 par value; 10,000,000  shares
      authorized, 679,048 shares issued and outstanding)          3,395,240           3,395,240
   Capital surplus                                                3,357,637           3,357,637
   Accumulated deficit                                             (244,464)           (407,329)
   Accumulated other comprehensive income:
      Unrealized gains on investment securities
      available for sale, net of tax                                 71,382              14,865
                                                               ------------        ------------

            TOTAL SHAREHOLDER'S EQUITY                            6,579,795           6,360,413
                                                               ------------        ------------
            TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY         $ 62,216,542        $ 36,611,385
                                                               ============        ============
</TABLE>

See notes to financial statements.


                                       3
<PAGE>   4

                            GATEWAY BANCSHARES, INC.
                        CONSOLIDATED STATEMENT OF INCOME
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended                    Nine Months Ended
                                                            September 30                          September 30
                                                      1998                1997               1998               1997
                                                   -----------        -----------        -----------        -----------
<S>                                                <C>                <C>                <C>                <C>        
REVENUE FROM EARNING ASSETS:
  Interest on investment securities:
  Loans                                            $   847,310        $   255,897        $ 2,097,901        $   324,272
  Taxable securities                                   353,017            112,940            793,860            254,401
  Interest on federal funds sold                        18,541             18,085             74,812             51,976
                                                   -----------        -----------        -----------        -----------
           TOTAL REVENUE FROM EARNING ASSETS         1,218,868            386,922          2,966,573            630,649

INTEREST EXPENSE:
  Interest on deposits                                 660,221            146,158          1,511,313            188,121
  Interest on notes payable                             14,483                108             41,124                108
  Interest on federal funds purchased                      537                -0-                859                -0-
                                                   -----------        -----------        -----------        -----------
           TOTAL INTEREST EXPENSE                      675,241            146,266          1,553,296            188,229
c                                                   -----------        -----------        -----------        -----------
NET INTEREST INCOME:                                   543,627            240,656          1,413,277            442,420
  Provision for loan losses                             72,000             58,500            190,000            102,000
                                                   -----------        -----------        -----------        -----------
NET INTEREST INCOME
  AFTER PROVISION FOR LOAN LOSSES:                     471,627            182,156          1,223,277            340,420

NON INTEREST INCOME:
  Service charges                                       41,157             14,316             96,410             17,820
  Commissions on insurance                               1,453                -0-              3,373                -0-
  Investment gains                                       2,967                -0-              3,571                -0-
  Other income                                           7,913              3,899             28,746              7,963
                                                   -----------        -----------        -----------        -----------
            TOTAL NONINTEREST INCOME                    53,490             18,215            132,100             25,783

NONINTEREST EXPENSES:
  Salaries and employee benefits                       186,481            151,522            552,801            400,874
  Occupancy expense                                     30,732             25,387             79,760             51,819
  Furniture and equipment expense                       29,044             19,171             80,801             38,097
  Other operating expenses                             196,847            100,776            463,900            263,182
                                                   -----------        -----------        -----------        -----------
           TOTAL NONINTEREST EXPENSES                  443,104            296,856          1,177,262            753,972

Income (loss) before income taxes                       82,013            (96,485)           178,115           (387,769)
Income tax (provision) benefit                         (15,250)            33,500            (15,250)           134,000
                                                   -----------        -----------        -----------        -----------
NET INCOME (LOSS)                                  $    66,763        $   (62,985)       $   162,865        $  (253,769)
                                                   -----------        -----------        -----------        -----------
EARNINGS (LOSS) PER COMMON SHARE - PRIMARY
  AND FULLY DILUTED
  Net income (loss) per common share               $       .10        $      (.09)       $       .24        $      (.37)
  Weighted average common shares outstanding           679,048            679,048            679,048            679,048
</TABLE>

See notes to consolidated financial statements.


                                       4
<PAGE>   5

                            GATEWAY BANCSHARES, INC.
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (unaudited)

<TABLE>
<CAPTION>
                                                              Three Months Ended                 Nine Months Ended
                                                                  September 30                      September 30
                                                            1998              1997            1998             1997
                                                          ---------        ---------        ---------        ---------
<S>                                                       <C>              <C>              <C>              <C>       
Net Income                                                $  66,764        $ (62,985)       $ 162,865        $(253,769)
Other comprehensive, net of tax:
    Unrealized gains on securities:
       Unrealized holding gains (losses)
          arising during the period                          91,334           23,981           89,203           33,702
    Less: reclassification adjustments
          for gains (losses) included in net income           4,175              -0-            3,571            3,701
                                                          ---------        ---------        ---------        ---------
                                                             87,159           23,981           85,632           30,001
    Income tax (expense) benefit related
       items of other comprehensive income                  (29,635)         (13,211)         (29,115)         (13,920)
                                                          ---------        ---------        ---------        ---------
Other comprehensive income (loss)                            57,524           10,770           56,517           16,081
                                                          ---------        ---------        ---------        ---------
Comprehensive income (loss)                               $ 124,288        $ (52,115)       $ 219,382        $(237,688)
                                                          =========        =========        =========        =========
</TABLE>

See notes to financial statements.


                                       5
<PAGE>   6

                            GATEWAY BANCSHARES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                         September 30
                                                                  1998                 1997
                                                              ------------        ------------
<S>                                                           <C>                 <C>          
OPERATING ACTIVITIES:
   Net income (loss)                                          $    162,865        $   (253,769)
   Adjustments to reconcile net loss to net cash
      provided by operating activities:
   Provision for loan losses                                       190,000             102,000
   Provision for depreciation and amortization                      90,307              59,088
   Amortization of investment security
      premiums and accretion of discounts                          (12,158)            (22,625)
   Gain on sale of investment securities                            (3,571)                -0-
   Deferred tax provision                                               --            (134,000)
   Increase in accrued interest receivable                        (323,195)           (151,534)
   Increase in accrued interest payable                            172,202              60,777
   Other                                                            53,569             (90,226)
                                                              ------------        ------------
         NET CASH USED IN OPERATING ACTIVITIES                     330,019            (430,289)
                                                              ------------        ------------
INVESTING ACTIVITIES:
   Net increase in loans                                       (15,116,523)        (10,361,654)
   Proceeds from maturities of securities                        5,163,260           3,431,058
   Proceeds from sales of available for sale securities          5,901,148                 -0-
   Purchase of available for sale securities                   (11,900,628)         (5,802,727)
   Purchase of held to maturity securities                      (9,485,981)           (743,574)
   Capital expenditures                                            (41,329)         (1,174,680)
                                                              ------------        ------------
         NET CASH USED IN INVESTING ACTIVITIES                 (25,480,053)        (14,651,577)
                                                              ------------        ------------
FINANCING ACTIVITIES:
   Net decrease in demand deposits, NOW accounts,
    and savings accounts                                         8,510,592           8,147,253
   Net increase in certificates of deposit                      15,660,514           7,292,463
   Proceeds from FHLB loan                                       1,000,000                 -0-
                                                              ------------        ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                       25,171,106          15,439,716
                                                              ------------        ------------
Net increase in cash and cash equivalents                           21,072             357,850
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                 2,132,418             880,615
                                                              ------------        ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $  2,153,490        $  1,238,465
                                                              ============        ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for:
     Interest                                                 $  1,317,469        $    127,452
     Income taxes                                                    $ -0-               $ -0-
</TABLE>

See notes to financial statements.


                                       6
<PAGE>   7

                            GATEWAY BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)
                               September 30, 1998

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Gateway
Bancshares, Inc., and its wholly-owned subsidiary, Gateway Bank & Trust. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and nine-month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual financial report filed under cover Form 10-KSB for the year ended
December 31, 1997.

NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Gateway Bancshares, Inc. (the "Company") was formed to become a bank holding
company to acquire all the stock of a new bank in Ringgold, Georgia, called
Gateway Bank & Trust (the "Bank").

The Company is a one-bank holding company which provides a full range of banking
services to individual and business customers in the Catoosa County, Georgia and
surrounding areas through its wholly-owned subsidiary, the Bank. The Bank
received preliminary charter approval on December 11, 1995 and a permit to begin
business on April 21, 1997. The Bank was granted a charter by the Georgia
Department of Banking and Finance, and began full operation on April 21, 1997.
The Company is funding operations from deposits and from capital raised through
the issue of its common stock in 1996. Further discussion of the Company's
financial condition and results of operations is included in the Company's
consolidated financial statements presented in the Company's annual report on
Form 10-KSB for the year ended December 31, 1997.


                                       7
<PAGE>   8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

Premises and Equipment

Premises and equipment are stated at cost less depreciation of $145,410. The
provision for depreciation charged to expense for the three and nine months
ended September 30, 1998 was $32,522 and $83,310, respectively.

Pre-Opening, Organization and Stock Offering Costs

Organization costs are primarily consulting, legal and regulatory fees related
to the incorporation and initial organization of the Company and the Bank.
Pre-opening costs are initial expenses incurred to prepare the Bank to commence
business as a financial institution. Organization costs have been capitalized
and are being amortized on a straight-line basis over five years. Management
plans to adopt SOP 98-5, as discussed in Note 5, in a future period with regard
to accounting for organizational and start-up expenses. Stock offering costs
were charged to additional paid-in capital when the stock offering was completed
during the second quarter of 1996.

Income Taxes

The Company and the Bank are subject to federal and state income taxes. No taxes
have been paid because of operating losses incurred during the pre-opening
stage. No taxes have been accrued during the first six months of 1998 as the
valuation allowance has been released against current taxable income. The
Company has a remaining valuation allowance of $29,749 at September 30, 1998.

Net Income (Loss) Per Common Share

Net income (loss) per common share is based on the number of shares outstanding
for the periods presented.

NOTE 3 - INVESTMENT SECURITIES

The Company has applied the accounting and reporting requirements of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115"). This pronouncement requires that all
investments in debt securities be classified as either "held-to-maturity"
securities, which are reported at amortized cost; trading securities, which are
reported at fair value, with unrealized gains and losses included in earnings;
or "available-for-sale" securities, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported in a separate
component of shareholder's equity (net of deferred tax effect).

At September 30, 1998, the Company had net unrealized gains of $108,154 in
available-for-sale securities which are reflected in the presented assets and
resulted in an increase in shareholder's equity of $71,382, net of deferred tax
asset. There were no trading securities. The net decrease in shareholder's
equity as a result of the SFAS 115 adjustment from December 31, 1997 to
September 30, 1998 was $56,517.


                                       8
<PAGE>   9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)( concluded)

NOTE 4 - NOTES PAYABLE

In January, 1998, the Company obtained a $1 million loan from the Federal Home
Loan Bank. The note requires monthly interest payments at an interest rate of
5.72%. Principal is due in full on January 13, 2003. The note is secured by
specifically identified single family first mortgage loans.

NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", issued
by FASB, which establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Statement requires that an enterprise classify items
of other comprehensive income by their nature in the financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. Management does not believe that the adoption
of SFAS 130 will have a material impact on the Company's consolidated financial
statements.

Effective for years ending after December 15, 1998, SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" was issued by FASB
which standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain other
disclosures previously required. Management does not believe that the adoption
of SFAS 132 will have a material impact on the Company's consolidated financial
statements.

Effective for years beginning after December 15, 1998, Statement of Position
(SOP) 98-5 requires costs of start-up activities and organization costs to be
expensed as incurred. Initial application of the SOP is to be reported as the
cumulative effect of a change in accounting principle. Management does not
believe that the adoption of SFAS will have a material impact on the Company's
financial statements.

Effective for fiscal quarter ending after June 15, 1999, SFAS 133 "Accounting
for Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. Management does not believe that the adoption of SFAS 133 will have
a material impact on the Company's consolidated financial statements.


                                       9
<PAGE>   10

                         PART I.- FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

This discussion is intended to assist in an understanding of the Company's
financial condition and results of operations. This analysis should be read in
conjunction with the financial statements and related notes appearing in Item 1
of the September 30, 1998 Form 10-QSB and Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing in the Company's Form
10-KSB for the year ended December 31, 1997.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-QSB and the
exhibits hereto which are not statements of historical fact constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act (the "Act"). In addition, certain statements in future filings by the
Company with the Securities and Exchange Commission, in press releases, and in
oral and written statements made by or with the approval of the Company which
are not statements of historical fact constitute forward-looking statements
within the meaning of the Act. Examples of forward-looking statements include
but are not limited to: (1) projections of revenues, income or loss, earnings or
loss per share, the payment or non-payment of dividends, capital structure and
other financial items; (2) statements of plans and objectives of the Company or
its management or Board of Directors, including those relating to products or
services; (3) statements of future economic performance' and (4) statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"expects," "intends," "targeted," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements.

Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (1) the strength of the U.S. economy
in general and the strength of the local economies in which operations are
conducted; (2) the effects of and changes in trade monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System; (3) inflation, interest rate, market and monetary
fluctuations; (4) the timely development of and acceptance of new products and
services and perceived overall value of these products and services by users:
(5) changes in consumer spending, borrowing, and saving habits; (6) the impact
of Year 2000 and technological changes; (7) consumer spending, borrowing and
saving habits; (8) acquisitions; (9) the ability to increase market share and
control expenses; (10) the effect of changes in laws and regulations (including
laws and regulations concerning taxes, banking, securities and insurance) with
which the Company and its subsidiary must comply; (11) the effect of changes in
accounting policies and practices, as may be adopted by the regulatory agencies,
as well as the Financial Accounting Standards Board; (12) changes in the
Company's organization, compensation, and benefit plans; (13) the costs and
effects of litigation and of unexpected or adverse outcomes in such litigation;
and (14) the success of the Company at managing the risks involved in the
foregoing.

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


                                       10
<PAGE>   11

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

EARNINGS SUMMARY

The Company's net income for the three and nine months ended September 30, 1998
was $66,763 and $162,865, respectively, which compares to net losses of $62,985
and $253,769 for the same periods in 1997. The increase in net income resulted
from the increased interest spread from growth in the Company's loan and deposit
base since opening April 21, 1997. Prior to opening, the Company's only source
of revenues was interest on proceeds from its initial stock offering which was
insufficient to cover its start-up costs and other overhead.

RESULTS OF OPERATIONS

INTEREST INCOME

Interest income on loans and investment securities is the principal source of
the Company's earnings stream. Fluctuations in interest rates as well as volume
and mix changes in earning assets materially affect interest income. Interest
income was $1,218,868 and $2,966,573 for the first three and nine months ended
September 30, 1998, respectively, compared to interest income of $386,922 and
$630,649 for the same periods in 1997. The increase in interest income resulted
from the increase in its loan and investment portfolios.

INTEREST EXPENSE

Interest expense on deposits for the three and nine months ended September 30,
1998 was $675,241 and $1,553,296, respectively, compared to interest expense of
$146,266 and $188,229 for the same periods in 1997. The increase in interest
expense relates to the increase in customer deposits since opening April 21,
1997 as well as the $1,000,000 note from the Federal Home Loan Bank obtained in
January, 1998.

PROVISION FOR LOAN LOSSES

The provision for loan losses represents the charge against current earnings
necessary to maintain the reserve for loan losses at a level which management
considers appropriate. This level is determined based upon management's
assessment of current economic conditions, the composition of the loan portfolio
and the levels of nonaccruing and past due loans. The provision for loan losses
was $72,000 and $190,000 for the three and nine months ended September 30, 1998,
respectively. The reserve for loan losses as a percent of outstanding loans, net
of unearned income, was .99 percent at September 30, 1998 and at December 31,
1997.

NON-INTEREST INCOME

Non-interest income for the three and nine months ended September 30, 1998,
respectively, was $53,490 and $132,100 compared to $18,215 and $25,783 for the
three and nine month periods in 1997. Non-interest income consisted primarily of
service charges on customer deposits ($96,410 through September 30, 1998), ATM
and credit card fees, and rental of safe deposit boxes.


                                       11
<PAGE>   12

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

NON-INTEREST EXPENSE

Non-interest expense totaled $443,104 and $1,177,262 for the three and nine
months ended September 30, 1998, respectively, and $296,856 and $753,972 for the
same periods in 1997. The increases reflect the hiring of additional staff,
occupancy, furniture and fixtures, and other expenses necessary for the
operation of the Company. Other operating expenses consist primarily of data
processing, advertising, professional fees, printing and postage and other
miscellaneous expenses.

INCOME TAXES

The Company's net operating losses of approximately $451,000 and valuation
allowance incurred to date are expected to be utilized in the current and
subsequent years to offset future taxable income.

FINANCIAL CONDITION

EARNING ASSETS

The Company's earning assets include loans, investment securities and federal
funds sold. The mix of earning assets reflects management's attempt to maximize
interest income while maintaining acceptable levels of risk.

NON-EARNING ASSETS

Non-earning assets include premises and equipment of $1,683,482 at September 30,
1998, a decrease of $41,981 from December 31, 1997. The decrease results
primarily from depreciation provided for those assets that have been placed in
service.

The Company began leasing the site for the Bank beginning in September, 1996, at
the rate of $1,707 per month. The lease term is for a maximum of fifty years,
including extensions after the initial twenty-year period, and subject to
certain conditions after the initial forty-year period.

Accrued interest was $602,245 at September 30, 1998, an increase of $323,195
from December 31, 1997. The increase is due to related increases in earning
assets since year end 1997.

Other assets consist of the organization costs of the Company and the Bank and
the deferred tax asset. Organization costs are primarily consulting, legal and
regulatory fees related to the incorporation and initial organization of the
Company and the Bank. The deferred tax asset consists primarily of tax benefits
related to the net operating losses and will be realized as the Company
generates taxable income.

INVESTMENT SECURITIES AND FEDERAL FUNDS SOLD

The composition of the Company's investment securities portfolio reflects the
Company's investment strategy of maximizing portfolio yields subject to risk and
liquidity considerations. The primary objectives of the Company's investment
strategy are to maintain an appropriate level of


                                       12
<PAGE>   13

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

liquidity and provide a tool to assist in controlling the Company's interest
rate position while at the same time producing adequate levels of interest
income. For securities classified as available for sale, management intends to
hold such securities for the foreseeable future except for funds for increases
in loan demand. Management of the maturity of the portfolio is necessary to
provide liquidity and to control interest rate risk.

Investment securities and federal funds sold increased $9,953,562 or 62.4% from
December 31, 1997 to September 30, 1998. The increase is due to the higher
growth in deposits compared to loans since year end which has provided
additional funds for short and medium range investments. The investment
securities portfolio is adjusted to make various term investments, to provide a
source of liquidity and to serve as collateral to secure certain government
deposits. Investment securities at September 30, 1998 were $25,633,367 compared
with $15,209,805 at December 31, 1997, reflecting an increase of $10,342,562.
Federal funds sold decreased from $750,000 at December 31, 1997 to $280,000 at
September 30, 1998.

LOANS

Loans comprised the single largest category of the Company's earning assets on
September 30, 1998. At September 30, 1998, the Company had outstanding loans
amounting to $31,951,991 net of its reserve for loan losses, or 51.3% of total
assets, compared to net loans of $17,025,468, or 46.5% of total assets at
December 31, 1997. The Company will continue to search for loan opportunities in
its market area while assuming acceptable levels of risk.

ASSET QUALITY

Asset quality is measured by three key ratios: The ratio of loan loss allowance
to total nonperforming assets (defined as nonaccrual loans, loans past due 90
days or greater, restructured loans, nonaccruing securities, and other real
estate), nonperforming assets to total assets, and nonperforming assets to total
loans. At September 30, 1998, the Company had nonperforming assets of $16,425,
or .05% of all loans and .03% of total assets. At December 31, 1997, the Company
had no nonperforming loans.

DEPOSITS

At September 30, 1998, the Company had outstanding deposits of $54,282,314,
compared to a balance of $30,111,208 at December 31, 1997. Deposits are the
Company's primary source of funds with which to support its earning assets.
Non-interest bearing deposits increased from $3,306,847 at December 31, 1997 to
$4,624,255 at September 30, 1998. Time deposits of $100,000 or more increased by
$7,917,159.

OTHER LIABILITIES

Liabilities consists primarily of accrued interest payable and accounts payable.
Accrued interest payable increased $172,202 from December 31, 1997 to September
30, 1998. The increase relates to the increase in the Company's deposit base as
well as an increase in the average accrual period for certificates of deposits.


                                       13
<PAGE>   14

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

In June 1998, the Bank experienced fraudulent activity against its account.
Apparently, a party unrelated to the bank acquired the Bank's identification
number, created invalid account numbers, and then was able to process
approximately $280,000 worth of fraudulent charges. Based upon the information
obtained at this time, management believes that the Bank's card processor,
rather than the Bank, should bear the loss for these fraudulent charges.
However, the processor does not agree with the Bank's position and the parties
have agreed to an arbitration hearing to resolve their dispute. Management
estimates that it may take four to six months to resolve this matter. Management
is currently accruing expenses which it believes are adequate to cover itself
for any losses upon settlement.

SHAREHOLDERS' EQUITY

Shareholders' equity increased $219,382 from December 31, 1997 to September 30,
1998, due to net earnings of $162,865 and the increase in unrealized gains on
securities available for sale totaling $56,517 net of deferred tax liability.

YEAR 2000

The Company utilizes and depends upon data processing systems and software to
conduct its business. The approach of the Year 2000 presents a problem in that
many computer programs have been written using two digits rather than four to
define the applicable year. Computer programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the Year 2000. For
example, computer systems may compute payment, interest, delinquency or other
amounts important to the operations of the Company based on the wrong date. This
could result in internal system failure or miscalculation, and also creates risk
for the Company from third parties with whom the Company deals on financial
transactions.

The FDIC has issued guidelines for insured financial institutions with respect
to Year 2000 compliance. The Company has developed a Year 2000 action plan based
in part on the guidelines and timetables issued by the FDIC. The Company's
action plan focuses on four primary areas: (1) information systems, (2) embedded
systems located at the Bank's offices and within its off-site ATM machines, (3)
third-party and customer relationships, and (4) contingency planning. The
Company has designated a Year 2000 compliance team, headed by its Chief
Financial Officer and Chief Operating Officer, who are making Year 2000
readiness assessments and remediation where necessary.

Information Systems. The Company has identified all mission critical information
technology ("IT") systems and has developed a schedule for testing and
remediation of such systems. Testing of key computer hardware has been
completed, and the Company expects to have mission critical hardware
modification or replacement completed during the fourth quarter of 1998. The
Company has completed its inventory of mission critical software and is in the
process of contacting software vendors for certification of Year 2000
compliance. The Company plans to complete any programming changes to critical
systems and to commence testing of the new programming in the fourth quarter of
1998. Testing of internal mission critical systems is scheduled to take place
during the first quarter of 1999 and implementation is scheduled to be complete
by June 30, 1999.


                                       14
<PAGE>   15

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

Embedded Systems. The Company is performing a comprehensive inventory of its
embedded systems, such as microcontrollers used to operate security systems and
elevators, and has completed its inventory of mission critical non-IT systems.
The Company is in the process of contacting manufacturers and vendors of those
components utilized in operations to determine whether such components are Year
2000 compliant. The Company intends to remediate or replace, as applicable, any
non-compliant components and expects to complete this process for mission
critical systems by June 30, 1999. The quality of the responses from
manufacturers and vendors, the estimated impact of the individual system or
component on the Bank's operations, and the ability of the Company to perform
meaningful and verifiable tests will influence its decision regarding whether to
have independent tests conducted on its embedded systems.

Third Party and Customer Relationships. The Company is in the process of
initiating communications with all suppliers and vendors to determine the
potential impact of such third parties' failure to remediate their own Year 2000
issues. These third parties include other financial institutions, office supply
vendors and telephone, electric and other utility companies. The Company is
encouraging its counterparts and customers to conduct their own Year 2000
assessments and take appropriate steps to become Year 2000 compliant.

The Company outsources its principal data processing activities to another
financial institution, and the Company is actively communicating with and
monitoring the progress of such institution to assess the impact of Year 2000
issues on such institution and its ability to provide such data processing
services. The Company will consider new business relationships with alternate
providers of products and services if necessary. Additionally, the Company has
initiated communications with its larger and commercial borrowers to assess the
potential impact of Year 2000 on them and their ability to remain current on
loan repayments.

Contingency Plans. As part of the Company's normal business practice, it
maintains contingency plans to follow in the event of emergency situations, some
of which could arise from Year 2000-related problems. The Company is in the
process of formulating a detailed Year 2000 contingency plan, which will assess
several possible scenarios to which the Company may be required to react. The
Company's formal Year 2000 contingency plan is expected to be completed by the
end of first quarter 1999.

Financial Implications. The Company believes that, since a majority of its
equipment is relatively new, the Year 2000 issue will not pose significant
internal operational problems or generate material additional expenditures.
Maintenance, testing, and modification costs will be expensed as incurred, while
the costs of new software or hardware will be capitalized and amortized over
their useful lives. The Company does not expect the amounts required to be
expensed to resolve Year 2000 issues to have a material effect on its financial
position or results of operations,. The Company currently estimates that the
costs of assessing, testing, and remediation of Year 2000 issues will total
approximately $25,000 in 1998 and $25,000 in 1999. The anticipated costs
associated with the Company's Year 2000 compliance program do not include time
and costs that may be incurred as a result of any potential failure of third
parties to become Year 2000 compliant or costs to implement the Company's
contingency plans.


                                       15
<PAGE>   16

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

Potential Risks. The Year 2000 issue presents a number of risks to the business
and financial condition of the Company and the Bank. External factors, which
include but are not limited to electric, telephone and water service, are beyond
the control of the Company and the failure of such systems could have a negative
impact on the Company, its customers and third parties on whom the Company
relies for its day-to-day operations. The business of many of the Company's
customers may be negatively affected by the Year 2000 issue, and any financial
difficulties incurred by the Company's customers in connection with the century
change could negatively affect such customers' ability to repay loans to the
Company. The failure of the Bank's computer system or applications or those
operated by customers or third parties could have a material adverse effect on
the Company's results of operations and financial condition.

The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Company's Year 2000 compliance
efforts and the impact of Year 2000 issues on the Company's business and
operations. Various factors could cause actual plans and results to differ
materially from those contemplated by such assessments, estimates and
forward-looking statements, many of which are beyond the control of the Company.
Some of these factors include, but are not limited to representations by the
Company's vendors and counterparties, technological advances, economic
considerations, and consumer perceptions. The Company's Year 2000 compliance
program is an ongoing process involving continual evaluation and may be subject
to change in response to new developments.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Management

Liquidity is defined as the ability of a company to convert assets into cash or
cash equivalents without significant loss. Liquidity management involves
maintaining the Bank's ability to meet the day-to-day cash flow requirements of
its customers, whether they are depositors wishing to withdraw funds or
borrowers requiring funds to meet their credit needs. Without proper liquidity
management, the Bank would not be able to perform the primary function of a
financial intermediary and therefore would not be able to meet the production
and growth needs of the communities it serves.

The primary function of assets and liabilities management is not only to assure
adequate liquidity in order for the Bank to meet the needs of its customer base,
but also to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Bank can also meet the investment
requirements of its shareholders. Daily monitoring of the sources and uses of
funds is necessary to maintain an acceptable cash position that meets both
requirements. In the banking environment, both assets and liabilities are
considered sources of liquidity funding and both are, therefore, monitored on a
daily basis.


                                       16
<PAGE>   17

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)

The asset portion of the balance sheet provides liquidity primarily through loan
principal repayments or sales of investment and trading account securities.
Outstanding loans that mature in one year or less, excluding outstanding credit
card debts equaled approximately $15.9 million at September 30, 1998. Investment
securities maturing in one year or less equaled $2.5 million. Other sources of
liquidity include short-term investments such as federal funds sold and maturing
interest-bearing deposits with other banks.

The liability portion of the balance sheet provides liquidity through various
customers' interest-bearing and non interest-bearing deposit accounts. At the
end of second quarter 1998, funds were also available through the purchase of
federal funds from correspondent commercial banks. Purchases can be made from
available lines of up to an aggregate of $2.6 million. Liquidity management
involves the daily monitoring of the sources and uses of funds to maintain an
acceptable cash position.

In an effort to maintain and improve the liquidity position of the Bank,
management applied for membership with the Federal Home Loan Bank of Atlanta as
explained in further detail below. As a member of the FHLB, the Bank would
improve its ability to manage liquidity and reduce interest rate risk by having
a funding source to match longer term loans. As of September 30, 1998, the
balance of the note payable was $1,000,000.

Capital Resources

A strong capital position is vital to the profitability of the Company because
it promotes depositor and investor confidence and provides a solid foundation
for future growth of the organization. The Company has provided for its capital
requirements with proceeds from its initial stock offering in 1996 and through
the retention of earnings.

Note Payable - Federal Home Loan Bank

In January, 1998, the Company obtained a $1 million loan from the FHLB of
Atlanta. At September, 1998, the balance on the note was $1,000,000. Interest on
the outstanding amounts under the note is payable on a monthly basis at 5.72%.
Principal is due in full on January 13, 2003. The note is secured by
specifically identified single family first mortgage loans.

Federal Capital Standards

Regulatory capital guidelines take into consideration risk factors, as defined
by regulators, associated with various categories of assets, both on and off the
balance sheet. Under the guidelines, capital strength is measured in two tiers
which are used in conjunction with risk-adjusted assets to determine the
risk-based capital ratios. Tier I capital, which consists of common equity less
goodwill, amounted to $6.6 million at September 30, 1998. Tier II capital
components include supplemental capital components such as qualifying allowance
for loan losses and qualifying subordinated debt. Tier I capital plus the Tier
II capital components is referred to as Total Risk-Based capital and was $6.9
million at September 30, 1998. The percentage ratios as


                                       17
<PAGE>   18

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (concluded)

calculated under FDIC guidelines were 10.61% and 11.09% for Tier I and Total
Risk-based capital, respectively, to risk-weighted assets at September 30,
1998. Both levels exceeded the minimum ratios of 4% and 8%, respectively.
Management has reviewed and will continue to monitor the Company's asset mix and
product pricing, and the loan loss allowance, which are the areas it believes
are most affected by these requirements.

Other important indicators of capital adequacy in the banking industry are the
leverage ratio and the tangible leverage ratio. The leverage ratio is defined as
the ratio that the Bank's shareholders equity minus goodwill bears to total
assets minus goodwill. The tangible leverage ratio is defined as the Bank's
shareholders equity minus all intangibles, divided by total assets minus all
intangibles. The Bank's leverage ratios as of September 30, 1998 exceeded the
regulatory minimum requirements which are generally 3% plus an additional
cushion of at least 100-200 basis points depending on risk profiles and other
factors.

DBF Capital Requirement

In addition to the capital standards imposed by federal banking regulators, the
DBF imposed its 8% primary capital ratio as a condition to the approval of the
Bank's charter. This requirement, which exceeds the FDIC capital requirements,
is calculated as the ratio of total equity to total assets, each as adjusted for
unrealized gains and losses on securities and allowance for loan losses. This
heightened requirement will continue through the first three years of the Bank's
operation, at which time the Bank will be subject to a 6% minimum capital ratio.
At September 30, 1998, the capital ratio as calculated under the DBF standard
was 10.45%. As of September 30, 1998 the Bank was in compliance with the 8%
requirement.

                           Part II - Other Information

                            Item 1- Legal Proceedings

Neither the Company nor the Bank is a party to any pending legal proceedings
which management believes would have a material adverse effect upon the
operations or financial condition of the Bank.

             Item 2- Changes in Securities and Use of Proceeds-None

                  Item 3- Defaults Upon Senior Securities- None

       Item 4- Submission of Matters to a Vote of Security- Holders - None


                                       18
<PAGE>   19

                        Item 5 - Other Information - None

                    Item 6 - Exhibits and Report on Form 8-K

(a) Exhibits:

Exhibit Number             Description of Exhibit                    Page number
--------------             ----------------------                    -----------

3.1                        Articles of Incorporation*                   N/A

3.2                        Bylaws*                                      N/A

4.1                        Instruments Defining Rights of
                           Security Holders. See Articles of
                           Incorporation at Exhibit 3.1 hereto
                           and Bylaws at Exhibit 3.2 hereto.            N/A

10.1                       Ground Lease Agreement by and
                           between Gateway Bancshares, Inc
                           and Ringgold Mining and Manufacturing
                           Company, dated as of May 1, 1996**           N/A

10.2                       Escrow Agreement by and between First
                           Tennessee Bank, National Association and
                           Gateway Bancshares, Inc. (In Organization),
                           dated December 15, 1995.*                    N/A

10.3                       Advances, Specific Collateral Pledge and
                           Security Agreement, dated November 19, 1997;
                           Application for Advance Agreement
                           Federal Home Loan Bank, dated January 9,
                           1998; and Assignment of Mortgages and
                           Deeds of Trust, dated January 3, 1998***

11                         Computation of Earnings Per Share            21

27                         Financial Data Schedule
                           (for the SEC use only )

*        Incorporated herein by reference to exhibit of same number in the
         Company's Registration Statement on Form SB-2, registration No.
         33-80855, filed December 20, 1995.


                                       19
<PAGE>   20

**       Incorporated herein by reference to exhibit of same number in the
         Company's Quarterly Report on Form 10-QSB for the quarter ended
         September 30, 1996.

***      Incorporated herein by reference to exhibit of same number in the
         Company's Quarterly Report on Form, 10-QSB for the quarter ended June
         30, 1998.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K during the quarter ended
September 30, 1998.

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: November 12, 1998

GATEWAY BANCSHARES, INC.

                                            /s/ Robert G. Peck
                                            ------------------------------------
                                            Robert G. Peck,
                                            President and CEO
                                            Principal Executive Officer)

                                            /s/ Harle B. Green
                                            ------------------------------------
                                            Harle B. Green,
                                            Chairman and Chief Financial Officer
                                            Principal Financial Officer)


                                       20