<PAGE>   1
                       U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal year ended                             Commission File Number
      December 31, 1997                                           0-18827

                     FIRST COMMUNITY BANKING SERVICES, INC.
             (Exact name of registrant as specified on its charter)



<TABLE>
<S>                                              <C>
             Georgia                                        58-18357525
(State or other Jurisdiction of                 (I.R.S. Employer Identification No.)
300 South Peachtree Parkway                     Registrant's telephone number, including
Peachtree City, Georgia      30269              area code  (770-631-2265)
(Address of principal executive offices)


Securities registered pursuant to Section 12 (b) of the Act:                                None

Securities registered pursuant to Section 12 (g) of the Act:           Common Stock, $1.00 par value per share
</TABLE>


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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. (__)

         The Company's revenues for its most recent fiscal year were
$11,219,756.

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 20, 1998, was $25,072,987.50 based on the sales price
of the Common Stock of $24.75. Although the Company's Common Stock has been
listed on the NASDAQ SmallCap Market since September 29, 1995, there is limited
trading activity for the Common Stock.

The number of shares outstanding of the Registrant's common stock at March 20,
1998, was 1,369,012 shares.

Documents Incorporated by Reference:

                  Portions of the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders, scheduled April 24, 1998, are incorporated by reference
in answer to Part III of this report.

                                 Page 1 of 43

                           Exhibit Index on Page 40


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                                     PART I

ITEM 1.               BUSINESS

         This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; and (iv) the
declaration and payment of dividends. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various factors
discussed herein and those factors discussed in detail in the Company's filings
with the Securities and Exchange Commission.

GENERAL

         First Community Banking Services, Inc. (the "Company"), Peachtree City,
Georgia was incorporated as a Georgia business corporation on November 1, 1988.
The Company was incorporated as Fayette County Bancshares, Inc. and, on November
8, 1996, the Company changed its name to "First Community Banking Services,
Inc." The Company commenced operations in November 1989 as a bank holding
company under the federal Bank Holding Company Act of 1956. Fayette County Bank
(the "Bank") is presently the sole operating subsidiary of the Company.

         The Bank is a full-service commercial bank. The Bank offers personal
and business checking accounts, interest-bearing checking accounts, savings
accounts, and various types of certificates of deposit. The Bank also offers a
full complement of lending activities, including consumer/installment loans,
construction loans, commercial loans (with a particular emphasis on small
business loans), and home equity lines of credit. In addition, the Bank provides
such services as official bank checks and money orders, Visa credit cards,
travelers' checks, bank by mail, direct deposit of payroll and social security
checks, U.S. Savings Bonds, wire transfer of funds, and a night depository. The
Bank also offers individual retirement accounts. The Company and the Bank
conduct business from their main office located at 300 Peachtree Parkway South,
Peachtree City, Georgia. The Bank has branch facilities at 150 West Lanier
Avenue, Fayetteville, Georgia, which opened July 4, 1991, and Kedron Village
branch at 100 Kedron Drive, Peachtree City, Georgia, which opened March 24,
1994.

         MARKET AREA AND COMPETITION. The primary market area of the Bank is
Fayette County, Georgia, and the surrounding area, which is approximately 30
miles southeast of downtown Atlanta, Georgia. The Bank's primary market area has
experienced growth in employment, average per capita income, retail sales,
deposits, housing, and commercial development, and boasts one of the highest
average per capita incomes of any county in Georgia. The banking business in
Fayette County is highly competitive with respect to both loans and deposits and
is dominated by a number of major banks having many offices in the area. The
Bank competes for deposits and loans principally with these banks, as well as
with savings and loan associations, credit unions, mortgage companies, insurance
companies, and other financial institutions which have recently been invading
the traditional banking markets.

         CORRESPONDENT BANKING. Correspondent banking involves the provision of
services by one bank to another bank that cannot provide that service for itself
from an economic or practical standpoint. The


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Bank purchases correspondent services offered by larger banks and service
companies, including data processing services, check collections, purchases of
Federal Funds, security safekeeping, investment services, wire transfer
services, coin and currency supplies, overline and liquidity loan
participations, and sales of loans to or participations with correspondent
banks.

         The Bank will sell loan participations to upstream correspondent banks
with respect to loans that exceed the Bank's lending limit. The Bank has
established correspondent relationships with The Bankers Bank, AmSouth Bank and
Federal Home Loan Bank. As compensation for services provided by a
correspondent, the Bank maintains certain balances with its correspondents in
interest bearing and non-interest bearing accounts.

         EMPLOYEES. The Bank has 40 full-time employees and 7 part-time
employees. The Company does not have any employees who are not also employees of
the Bank.

SUPERVISION AND REGULATION

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

FEDERAL BANK HOLDING COMPANY REGULATION

         The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject
to periodic examination by the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the Federal Reserve
may require. The Company's and the Bank's activities are limited to banking,
managing or controlling banks, furnishing services to or performing services for
its subsidiaries, or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.

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



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         In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. Because the Company's class of Common Stock has been registered
under the Securities Exchange Act of 1934, under Federal Reserve regulations
control is rebuttably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of the Company's voting securities. The
regulations provide a procedure for challenge of the rebuttable control
presumption.

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

         SOURCE OF STRENGTH; CROSS-GUARANTEE. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances in which the
Company might not otherwise do so. Under the BHCA, the Federal Reserve may
require a bank holding company to terminate any activity or relinquish control
of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the
Federal Reserve's determination that such activity or control constitutes a
serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition. The Bank may be required to indemnify, or cross- guarantee, the FDIC
against losses it incurs with respect to any other Bank controlled by the
Company, which in effect makes the Company's equity investments in healthy bank
subsidiaries available to the FDIC to assist any failing or failed bank
subsidiary of the Company.

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

         Under the Financial Institutions Code, it is unlawful without the prior
approval of the Georgia Department (i) for any bank holding company to acquire
direct or indirect ownership or control of more than 5% of the voting shares of
the bank; (ii) for any bank holding company or subsidiary thereof, other than a
bank, to acquire all or substantially all of the assets of a bank; or (iii) for
any bank holding company to merge or consolidate with any other bank holding
company. It is also unlawful for any bank



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holding company to acquire direct or indirect ownership or control of more than
5% of the voting shares of any bank unless such bank has been in existence and
continuously operating or incorporated as a bank for a period of five years or
more prior to the date of application to the Georgia Department for approval of
such acquisition. In addition, in any such acquisition by an existing bank
holding company, the initial banking subsidiary of such bank holding company
must have been incorporated for not less than two years before the holding
company can acquire another bank.

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

THE BANK

         GENERAL. The Bank is a Georgia banking corporation and state non-member
bank. The Georgia Department and the FDIC are the primary regulators for the
Bank. These regulatory authorities regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable
on deposits, interest rates or fees chargeable on loans, establishment of
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices. The Bank must maintain certain capital ratios and is subject to
limitations on aggregate investments in real estate, bank premises, and
furniture and fixtures. In addition, the Bank, as a subsidiary of the Company,
will be subject to restrictions under federal law in dealing with the Company
and other affiliates, if any. These restrictions apply to extensions of credit
to an affiliate, investments in the securities of an affiliate and the purchase
of assets from an affiliate.

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

         State nonmember banks and their holding companies which have been
chartered or registered or have undergone a change in control within the past
two years or which have been deemed by the DBF or the Federal Reserve Board,
respectively, to be troubled institutions must give the DBF or the Federal
Reserve Board, respectively, thirty days prior notice of the appointment of any
senior executive officer or director. Within the thirty day period, the DBF or
the Federal Reserve Board, as the case may be, may approve or disapprove any
such appointment.



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         TRANSACTIONS WITH AFFILIATES AND INSIDERS. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on the
amount of loans or extensions of credit to, or investments in, or certain other
transactions with, affiliates and on the amount of advances to third parties
collateralized by the securities or obligations of affiliates. In addition, most
of these loans and certain other transactions must be secured in prescribed
amounts. The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act that, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those prevailing at the time for comparable
transactions with non-affiliated companies. The Bank is subject to certain
restrictions on extensions of credit to executive officers, directors, certain
principal stockholders, and their related interests. Such extensions of credit
(i) must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features.

         COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires
that each insured depository institution shall be evaluated by its primary
federal regulator with respect to its record in meeting the credit needs of its
local community, including low and moderate income neighborhoods, consistent
with the safe and sound operation of those institutions. These factors are also
considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. The Bank received an "excellent" rating in its most recent
evaluation.

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

DEPOSIT INSURANCE

         The deposits of the Bank are currently insured to a maximum of $100,000
per depositor, subject to certain aggregation rules. The FDIC establishes rates
for the payment of premiums by federally insured banks and thrifts for deposit
insurance. Separate insurance funds (BIF and SAIF) are maintained for commercial
banks and thrifts, with insurance premiums from the industry used to offset
losses from insurance payouts when banks and thrifts fail. Since 1993, insured
depository institutions like the Bank have paid for deposit insurance under a
risk-based premium system. Under this system, depositor



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institutions pay to BIF or SAIF from $0.00 to $0.31 per $100 of insured deposits
depending on its capital levels and risk profile, as determined by its primary
federal regulator on a semi-annual basis. Once the BIF reached its legally
mandated reserve ratio in mid-1995, the FDIC lowered premiums for
well-capitalized banks to $.04 per $100. Subsequently, the FDIC revised the
range of premiums from $.00 to $.31 per $100. In 1997, the Bank's assessment
rate on BIF and SAIF deposits per $100 was $.00 and $.23, respectively, and the
Bank was therefore subject to the minimum $1,000 BIF semi-annual assessment. The
combined assessment per $100 is $.10 on insured deposits. The Deposit Insurance
Funds Act of 1996 eliminated the minimum assessment required by statute. It also
separated, effective January 1, 1997, the Financial Corporation (FICO)
assessment to service the interest on its bond obligations. The amount assessed
on individual institutions, including the Bank, by FICO will be in addition to
the amount paid for deposit insurance according to the risk-related assessment
rate schedule. Increases in deposit insurance premiums or changes in risk
classification will increase the Bank's cost of funds, and there can be no
assurance that such cost can be passed on to the Bank's customers.

DIVIDENDS

         The principal source of the Company's cash revenues comes from
dividends 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, regulations, and policies. In addition, the
Board of Governors has stated that bank holding companies should refrain from or
limit dividend increases or reduce or eliminate dividends under circumstances in
which the bank holding company fails to meet minimum capital requirements or in
which its earnings are impaired.

         Cash dividends on the Bank's common stock may be declared and paid only
out of its retained earnings, and dividends may not be declared at any time at
which the Bank's paid-in capital and appropriated retained earnings do not, in
combination, equal at least 20% of its capital stock account. In addition, the
Department's current rules and regulations require prior Department approval
before cash dividends may be declared and paid if: (i) the Bank's ratio of
equity capital to adjusted total assets is less than 6%; (ii) the aggregate
amount of dividends declared or anticipated to be declared in that calendar year
exceeds 50% of the Bank's net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the Bank's assets classified
as adverse as to repayment or recovery by the Department at the most recent
examination of the Bank exceeds 80% of the Bank's equity capital as reflected at
such examination. Under FDICIA, the Bank may not pay a dividend if, after paying
the dividend, the Bank would be undercapitalized. See "Capital Regulations"
below. See Item 5 below for a discussion of dividends paid by the Bank in the
past two years.

CAPITAL REGULATIONS

         The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios


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and should maintain ratios well in excess of the minimums. The current
guidelines require all bank holding companies and federally-regulated banks to
maintain a minimum risk-based total capital ratio equal to 8%, of which at least
4% must be Tier 1 capital. Tier 1 capital includes common stockholders' equity,
qualifying perpetual preferred stock, and minority interests in equity accounts
of consolidated subsidiaries, but excludes goodwill and most other intangibles
and excludes the allowance for loan and lease losses. Tier 2 capital includes
the excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets.

         Under the guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are signed
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating.

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

         FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6%, and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1997, the
Company and the Bank were qualified as "well-capitalized." See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital."

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



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         These capital guidelines can affect the Company in several ways. Rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change the Company's capital position in a
relatively short period of time, making an additional capital infusion
necessary.

         Effective January 1, 1997, the OCC amended the risk-based capital
standards to incorporate a measure for market risk to cover all positions
located in an institution's trading account, and foreign exchange and commodity
positions wherever located. The effect of the rule is that it requires any bank
or holding company with significant exposure to market risk to measure the risk
and hold capital commensurate with that risk. Since the Bank does not currently
engage, nor has any plans to engage, in trading, foreign exchange or commodity
position activities, the rule does not have an effect on the required Bank
capital levels.

         Both the Company and the Bank exceeded their respective regulatory
capital requirements at December 31, 1997. See "Management Discussion and
Analysis of Financial Condition and Results of Operations - Capital."

RECENT LEGISLATIVE DEVELOPMENTS

Interstate Banking and Branching Restrictions

         On September 29, 1994, the federal government enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the Interstate Banking
Act). This Act became effective on September 29, 1995, and permits eligible bank
holding companies in any state, with regulatory approval, to acquire banking
organizations in any other state. Effective June 1, 1997, the Interstate Banking
Act allowed banks with different home states to merge, unless a particular state
opts out of the statute. Consistent with the Interstate Banking Act, Georgia
adopted legislation in 1996 which permitted interstate bank mergers beginning
June 1, 1997.

         In addition, beginning June 1, 1997, the Interstate Banking Act
permitted national and state banks to establish de novo branches in another
state if there is a law in that state which applies equally to all banks and
expressly permits all out-of-state banks to establish de novo branches. However,
in 1996, Georgia adopted legislation which opts out of this provision. The
Georgia legislation provides that, with the prior approval of the Department of
Banking and Finance, after July 1, 1996, a bank may establish three new or
additional branch banks anywhere in the state with prior regulatory approval.
From time to time, various bills are introduced in the United States Congress
and at the state legislative level with respect to the regulation of financial
institutions. Certain of these proposals, if adopted, could significantly change
the regulation of banks and the financial services industry. The Company cannot
predict whether any of these proposals will be adopted or, if adopted, how these
proposals would affect the Company.

INDUSTRY DEVELOPMENTS

         Proposed legislation could have an effect on both the costs of doing
business and the competitive factors facing the financial services industry. Due
to continued changes in the regulatory environment, additional legisltation
related to the banking industry islikely to continue. While the potential
effects of legislation currently under consideration cannot be measured, the
Company is unaware of any pending


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legislation or regulatory reform which would materially affect its financial
position or operating results in the foreseeable future.

         Like many financial institutions, the Company and the Bank rely upon
computers for the daily conduct of their business and for information systems
processing. There is concern among industry experts that on January 1, 2000
computers will be unable to "read" the new year and there may be widespread
computer malfunctions. The Company and the Bank generally rely on software and
hardware developed by independent third parties to provide the information
systems used by the Company and the Bank. The Company is seeking assurances
about the Year 2000 compliance with respect to the third party hardware or
software system it uses, and the Company believes that its internal systems and
software and the network connections it maintains will be adequately programmed
to address the Year 2000 issue. Based on information currently available,
management does not believe that the Company or the Bank will incur significant
costs in connection with the Year 2000 issue. Nevertheless, there can be no
assurances that all hardware and software that either the Company or the Bank
uses will be Year 2000 compliant, and the Company cannot predict with any
certainty the costs the Company or the Bank will incur to respond to any Year
2000 issues. Further, the business of many of the Bank's customers may be
negatively affected by the Year 2000 issue, and any financial difficulties
incurred by the bank's customers in solving Year 2000 issues could negatively
affect such customer's ability to repay any loans which the Bank may have
extended. Therefore, even if the Company and the Bank do not incur significant
direct costs in connection with responding to the Year 2000 issue. there can be
no assurance that the failure or delay of the Bank's customers or other third
parties in addressing the Year 2000 issue or the costs involved in such provess
will not have a material adverse effect on the Bank's business, financial
condition and results of operations.

MONETARY POLICIES

         The earnings of the Company and the Bank are significantly affected by
the policies of the Federal Reserve Board which regulates the money supply in
order to mitigate recessionary and inflationary pressures. Among the techniques
used to implement these objectives are open market operations in United States
government securities, changes in the rates paid by banks on bank borrowings,
and changes in reserve requirements against bank deposits. These techniques are
used in varying combinations to influence overall growth and distribution of
bank loans, investments, and deposits. Their use may also affect interest rates
charged on loans or paid for deposits for financial institutions.

ITEM 2.           DESCRIPTION OF PROPERTY

         The Company owns the Bank's main banking facility located at 300 South
Peachtree Parkway, Peachtree City, Georgia. This facility consists of a 9,700
square foot three floor complete banking center, housing the Bank's corporate
offices and a full service bank. The Bank owns the Fayetteville branch facility
located at 150 West Lanier Avenue, Fayetteville, Georgia. This building is
approximately 2,400 square feet occupying two floors. The main floor is a
complete banking floor with three teller stations and two offices. The basement
houses the vault, safe deposit boxes, a break room, and storage.


                                       10

<PAGE>   11



         A third banking facility is located at 100 Kedron Drive, Peachtree
City, Georgia. The facility is 5,000 square feet and consists of two floors. The
loan department occupies the basement and a complete banking facility is on the
upper level.

ITEM 3.           LEGAL PROCEEDINGS

         Neither the Company nor the Bank is a party to any pending legal
proceedings other than routine litigation incidental to the Bank's business, and
management does not believe such litigation would have a material adverse effect
upon the operations of financial condition of the Company or the Bank.

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

         No matter was submitted during the fourth quarter ended December 31,
1997, to a vote of security holders of the Company.









                                     PART II

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

         The Company had 1,369,012 shares of Common Stock issued and outstanding
to approximately 953 shareholders on March 20, 1998.

         Although the Common Stock has been listed on the NASDAQ SmallCap Market
since September 29, 1995, there is very little trading activity for the Common
Stock. On January 15, 1998, the Board of Directors declared a two-for-one split
distributable on February 20, 1998. All references to number of shares, per
share amounts, and market prices have been retroactively restated to reflect the
increased number of shares outstanding. The following table sets forth the
reported high and low sales prices of the Common Stock for the quarter indicated
as reported on the Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
                                                             High                Low
                                                             ----                ---
         <S>                        <C>                     <C>              <C>
         Fourth Quarter             1996                    $14.75           $9.38
         First  Quarter             1997                    $12.75           $10.13
         Second Quarter             1997                    $13.13           $11.25
</TABLE>



                                       11
<PAGE>   12




<TABLE>
         <S>                        <C>                     <C>              <C>
         Third Quarter              1997                    $13.50           $11.75
         Fourth Quarter             1997                    $16.35           $12.63
</TABLE>

         Prior to September 29, 1995, there was no established trading market
for the Common Stock. On March 20, 1998, the last reported sales price of the
Common Stock on the Nasdaq SmallCap Market was $24.75 per share.

         In April 1997, and March 1996, the Company paid to its shareholders a
$.15 per share cash dividend. Presently, the only source of funds available for
the payment of dividends by the Company would be dividends paid to the Company
by 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, regulations, and policies. In addition, the Board of Governors
has stated that bank holding companies should refrain from or limit dividend
increases or reduce or eliminate dividends under circumstances in which the bank
holding company fails to meet minimum capital requirements or in which its
earnings are impaired.

         The Bank is subject to restrictions on the payment of dividends under
Georgia law and Georgia Banking Department regulations. See "Supervision and
Regulation -- Dividends" above. No assurance can be given that any dividends
will be declared by the Company in the future, or if declared, what the amount
of the dividends would be or whether such dividends, once declared, would
continue. Future dividend policy will depend on the Bank's earnings, capital
requirements, financial condition, and other factors considered relevant by the
Board of Directors of the Company.


                                       12

<PAGE>   13



ITEM 6.            MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


SELECTED FINANCIAL DATA

         The information presented below should be read in conjunction with the
consolidated financial statements, which are included herein, and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations. Amounts shown below are in thousands except for earnings and
dividends per share information and shares outstanding.


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                         1997         1996          1995             1994           1993
                                                         ----      ---------     -----------      -----------    -----------
<S>                                                    <C>         <C>           <C>              <C>            <C>
Income Statement Data:
Total Interest Income                                  $10,597     $    9,369    $      7,187     $     5,269    $     4,440
Total Interest Expense                                   4,254          3,687           2,789           1,559          1,312
Net Interest Income                                      6,343          5,682           4,398           3,710          3,128
Provision for Loan Loss                                    620            856             335              92            412
Non Interest Income                                        550            645             536             381            536
Non Interest Expense                                     3,809          3,517           3,015           2,831          2,348
Provision for Income Taxes                                 896            700             562             373            325
Extraordinary Item                                         -0-            -0-             -0-             -0-            -0-
Change in accounting                                       -0-            -0-             -0-             -0-             27

Net Income                                               1,568          1,254           1,022             795            606
Basic Earnings Per Common Share (1)                       1.15            .92             .75             .59            .43
Diluted Earnings per Common Share (1)                     1.08            .87             .73             .56            .43
Dividends paid Per Share                                   .15            .15             .13             .10            .05
Basis Weighted Avg. Common Equivalent
 Shares Outstanding (1)                              1,363,557      1,359,953       1,357,453       1,353,953      1,350,953
Diluted Weighted Avg. Common
 Equivalent Shares Outstanding (1)                   1,444,909      1,440,939       1,391,729       1,357,529      1,352,997
Dividend Payout Ratio                                    12.36%         14.65%          14.90%          15.25%         10.01%
</TABLE>



1)  Stock Split in 1998, and stock dividends in 1997 and 1996 have been
    retroactively reflected in the per share data and weighted average common
    and equivalent shares outstanding as if they occurred January 1, 1993.


                                       13

<PAGE>   14



<TABLE>
<CAPTION>

                                                                  At December 31,
                                            1997          1996         1995           1994         1993
                                         ----------    ----------   ----------     ----------   ----------
<S>                                      <C>           <C>          <C>            <C>          <C>
Balance Sheet Data:

Total Assets                             $  131,468    $  108,554   $   90,933     $   64,965   $   67,814
Investment Securities                        27,289        15,078       13,001         14,462       13,934
Loans, Net of Allowance
for Loan Loss                                83,544        80,702       66,853         41,695       42,182
Demand & Savings                             62,951        42,019       40,948         33,852       42,773
Time Deposits                                56,083        56,125       40,489         22,735       17,232
Stockholders' Equity                         10,731         9,165        8,136          6,857        6,624
Book Value Per Share (1)                       7.84          7.13         6.54           5.65         5.46
Equity to Asset Ratio                          8.16%         8.44%        8.95%         10.55%        9.77%
</TABLE>

PENDING MERGER

         On February 12, 1998, the Company and Regions Financial Corporation
(Regions) executed a definitive agreement (Agreement) to merge the two
companies, whereby Regions would acquire all of the issued and outstanding
shares of common stock of the Company in exchange for Regions common stock. The
Agreement provides for an exchange of 1.25 shares of Regions common stock for
each outstanding share of the Company's common stock. The merger will be
accounted for as a pooling of interest under generally accepted accounting
principles. The merger is subject to regulatory and shareholder approval and is
expected to be consummated in the third quarter of 1998. See Form 8-K filed on
March 2, 1998 announcing the merger agreement.


RESULTS OF OPERATIONS


         The Company's net income increased $313,169, or 24.97%, to $1,567,580
in the year ended December 31, 1997, from $1,254,411 in the year ended December
31, 1996. An increase in total loans outstanding along with higher noninterest
bearing deposits is the primary reason for the increase in net income. Basic
earnings per share increased from $.92 at December 31,1996 to $1.15 at December
31, 1997, an increase of $.23 or 25.00%. Diluted earnings per share increased
24.14% or $.21 for the one year period ending December 31, 1997, as compared to
the same period ending December 31, 1996. The return on average assets increased
to 1.29%, up 1.23% for the one year period ending December 31, 1997 as compared
to the same period ending December 31, 1996. Return on average equity was 16.02%
and 15.07% for the year ended December 31, 1997 and 1996 respectively.

         Net interest income increased $660,809, or 11.63%, for the period
ending December 31, 1997. As indicated by the decrease in the net interest
margin from 6.10% in 1996 to 5.66% in 1997, the pricing on interest earning
assets decreased while the cost of funds increased. The narrowing of the net
interest margin is due to economic conditions and competition in the local
market.

         The provision for loan losses decreased $236,312 for the one year
period ending December 31, 1997 as compared to the same period ended December
31, 1996. In the first quarter of 1997, the Bank sold a credit card portfolio
totaling $1,347,286 due to the increase in personal bankruptcies nationally.
Management felt that the amount in potential charge offs in this portfolio would
decrease the actual yield below what could be earned in other earning assets.
The Company ended 1997 with a loan loss reserve ratio of 2.00% and net loans
charged off of $129,855. This, as compared to a reserve ratio of 1.48% and net
charged off loans of $560,175 during the one year period ending December 31,
1996. The loan portfolio increased $3,332,290 or 4.07% during the one year
period ending December 31, 1997.

         Noninterest income decreased slightly to $549,781, down $95,174 or
14.76% from $644,972 for the period ending December 31, 1997, compared to the
period ending December 31, 1996. Service charges on deposit accounts increased
$23,783 due to the increase in the number of accounts


                                       14
<PAGE>   15

maintained at the Bank. Also, as noted above, the Bank sold its credit card
portfolio in 1997, realizing a loss of $72,970 due to a write off of unamortized
purchase premium. The Bank sold investment securities during 1997, which
resulted in a loss of $8,316, in order to minimize its interest rate and
maturity exposure in certain mortage backed securities. The proceeds from the
sale of these investments was used to purchase shorter term investments with
more certainty in interest rates and marketability. The Bank also disposed of
assets, primarily obsolete computer equipment for a loss of $20,265 during the
one year period ending December 31, 1997.

         Noninterest expense increased $292,144, or 8.31%, from $3,516,871 in
1996, to $3,809,015 for the one year period ending December 31,1997. Salaries
and employee benefits increased $261,641 or 16.14% to $1,882,462 for the year
ended December 31, 1997. This increase is due to an increase in the Bank's bonus
plan and the banks matching in the 401-K savings incentive plan to employees and
officers of the Bank. Expenses related to fixed assets increased $63,293 or
16.15% to $455,262 during 1997 due to repairs to the buildings as well as a full
year of depreciation expenses related to computer equipment purchased in the
third quarter of 1996. An analysis of the intangible assets related to the
purchase of deposits from Anchor Savings Bank in 1991 resulted in an excelerated
amortization of the core deposit intangible of an additional $123,811 expense
during 1997. The decrease in the life of the core deposit intangible will result
in an additional expense of $19,050 per year until it is fully amortized in
June, 2001. Other expenses decreased $166,835 to $812,070 at December 31, 1997.
This decrease is primarily due to nonrecurring assessment by the FDIC for
savings deposits during the third quarter of 1996.

NET INTEREST INCOME

         GENERAL. The largest component of the Company's net income is its net
interest income, which is the difference between the income earned on assets and
interest paid on deposits and borrowings used to support such assets. Net
interest income is the difference between the income earned on assets and
interest paid on deposits and borrowings used to support such assets. Net
interest income is determined by the rates earned on the Company's
interest-earning assets, the rates paid on its interest-bearing liabilities, the
relative amounts of interest-earning assets and interest- bearing liabilities,
and the degree of mismatch and the maturity and repricing characteristics of its
interest-earning assets and interest bearing liabilities. Net interest income
divided by average interest-earning assets represents the Company's net interest
margin.

         AVERAGE BALANCES, INCOME EXPENSES AND RATES. The following tables
depict for the periods indicated, certain information related to the Company's
average balance sheet and its average yields on assets and average costs of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from daily averages.


                                       15

<PAGE>   16




<TABLE>
<CAPTION>
                                                                         1997                            1996
                                                                         ----                            ----
                                                                 Average            Yield/       Average          Yield/
                                                                 Balance            Rate         Balance           Rate
                                                                 -------            ------    --------------      -------
<S>                                                           <C>                   <C>       <C>                 <C>
Assets
   Cash & due from banks                                      $    4,002,204        0.00%     $    3,167,769       0.00%
   Federal funds sold                                              6,359,886        5.59%          3,929,727       5.60%
   Interest-bearing deposits with other banks                         34,075        5.49%            179,738       4.86%
   Taxable securities                                             18,715,786        6.13%         13,694,088       6.12%
   Tax exempt securities (1)                                       2,600,915        4.75%          1,687,934       4.68%
   Other investments                                                 314,466        7.25%            264,981       7.34%
   Loans(2)                                                       83,965,872       10.65%         73,446,044      11.17%
   Other assets                                                    5,450,327        0.00%          5,232,802       0.00%
                                                              --------------                  --------------
      Total                                                   $  121,443,531                  $  101,603,083
                                                              ==============                  ==============
Liabilities
   Demand deposits                                                23,103,245        0.00%         16,135,113       0.00%
   Interest-bearing demand deposits                               23,522,722        2.95%         21,929,897       3.09%
   Savings deposits                                                6,127,326        2.31%          5,963,929       2.42%
   Time deposits                                                  57,206,047        5.94%         46,138,495       6.18%
   Federal funds purchased and                                                                                     4.52%
      securities sold under agreements to
      repurchase                                                     341,589        5.93%            268,005       0.00%
   Other liabilities                                               1,355,867        0.00%          2,846,296       0.00%
   Shareholders' equity                                            9,786,735        0.00%          8,321,348       0.00%
                                                              --------------                  --------------
      Total                                                   $  121,443,531                  $  101,603,083
                                                              ==============                  ==============

<CAPTION>

                                                                      1997                        1996
                                                                 --------------               ------------
<S>                                                              <C>                          <C>
Average yield on interest-earning assets                                   9.46%                    10.05%
Average rate paid on interest-bearing liabilities                          4.88%                     4.96%
Net interest spread                                                        4.58%                     5.09%
Net interest margin (net interest earnings divided
   by total interest-earning assets)                                       5.66%                     6.10%

Interest income:
Interest and fees on loans (3)                                  $     8,945,541              $  8,202,657
Investment securities:
   U.S. Treasury securities                                              79,656                   133,473
   U.S. Government agencies & corp.                                   1,068,205                   705,175
   States & political subdivisions                                      123,603                    79,048
   Other investments                                                     22,799                    19,460
   Interest on federal funds sold                                       355,421                   220,072
   Interest on deposits with other banks                                  1,870                     8,740
                                                                ---------------              ------------
      Total interest income                                     $    10,597,095              $  9,368,625
                                                                ---------------              ------------
</TABLE>


                                       16

<PAGE>   17


<TABLE>
<CAPTION>
                                                                         1997                    1996
                                                                         ----                    ----
<S>                                                                  <C>                     <C>
Interest expense:
   Interest on deposits:
      Demand                                                            694,902                  678,718
      Savings                                                           141,488                  144,098
      Time deposits of $100,000 or more                                 849,732                  912,059
      Other time deposits                                             2,547,726                1,939,439
                                                                     ----------               ----------

   Total interest on deposits                                         4,233,848                3,674,314

Interest on federal funds purchased and securities
   sold under agreements to repurchase                                   20,243                   12,116
                                                                     ----------               ----------

   Total interest expense                                             4,254,091                3,686,430
                                                                     ----------               ----------
   Net interest income                                               $6,343,004               $5,682,195
                                                                     ==========               ==========
</TABLE>


(1)  Yields on tax exempt securities have not been computed on a tax equivalent
     basis.

(2)  Nonaccrual loans are included in average loans for the years ended December
     31, 1997, and 1996.

(3)  Fee income on loans totaled $548,080 for the year ended December 31, 1997,
     and $614,866 for the year ended December 31, 1996.

         RATE/VOLUME ANALYSIS OF NET INTEREST INCOME. The effect on interest
income, interest expense and net interest income, in the periods indicated, of
changes in average balance and rate from the corresponding prior period is shown
below. Volume change is calculated as the change in volume times the old rate
while rate change is the change in rate times the old volume. The change in
interest due to both rate and volume has been allocated to the volume and rate
components in proportion to the relationship of the dollar amounts of the
absolute change in each.












                                       17

<PAGE>   18



                          Year Ended December 31, 1997
                                  compared with
                          Year Ended December 31, 1996
                           Increase (Decrease) Due To:

<TABLE>
<CAPTION>
                                                    Volume                      Rate                       Total
                                                    ------                      ----                       -----
<S>                                              <C>                        <C>                       <C>
Interest earned on:
   Interest-earning deposits in
      other banks....................            $   (7,875)                $    1,005                $    (6,870)
   Taxable securities................               311,422                      1,130                    312,552
   Tax exempt securities.............                43,356                      1,199                     44,555
   Federal funds sold................               135,743                       (394)                   135,349
   Net loans.........................             1,137,132                   (394,248)                   742,884
                                                 ----------                 ----------                -----------
Total interest income................            $1,619,778                 $ (391,308)               $ 1,228,470
                                                 ==========                 ==========                ===========
Interest paid on:
   Demand deposits...................                47,782                    (31,598)                    16,184
   Savings deposits..................                 3,953                     (6,563)                    (2,510)
   Time deposits.....................               660,494                   (114,534)                   545,960
   Federal Funds Purchased
   and securities sold under
   agreements to repurchase..........                 3,804                      4,323                      8,127
                                                 ----------                 ----------                -----------
   Total interest expense............               716,033                 $ (148,372)               $   567,661
   Change in net interest                        ----------                 ----------                -----------
      income.........................            $  903,745                 $ (242,936                $   660,809
                                                 ==========                 ==========                ===========
</TABLE>



                                       18

<PAGE>   19



                          Year Ended December 31, 1996
                                  compared with
                          Year Ended December 31, 1995
                          Increase (decrease) due to:


<TABLE>
<CAPTION>
                                                       Volume           Rate           Total
                                                       ------           ----           -----
<S>                                                <C>              <C>            <C>
Interest earned on:
   Interest-earning deposits in
      other Banks .............................     $    (2,703)     $      (492)  $    (3,195)
   Taxable securities .........................          65,323          (30,713)       34,610
   Tax exempt securities ......................          (8,127)           1,468        (6,659)
   Federal funds sold .........................         (30,347)         (15,347)       45,694
   Net loans ..................................       2,159,344           43,558     2,202,902
                                                    -----------      -----------   -----------
Total interest income .........................     $ 2,183,490      $    (1,526)  $ 2,181,964
                                                    ===========      ===========   ===========
Interest paid on:
   Demand deposits ............................          53,515          (26,754)       26,761
   Savings deposits ...........................          19,594           (1,047)       18,547
   Time deposits ..............................         768,291           83,869       852,160
   Federal funds purchased
   and securities sold under
   agreements to repurchase ...................           1,283           (1,692)         (409)
                                                    -----------      -----------   -----------
   Total interest expense .....................     $   842,683      $    54,376   $   897,059
                                                    -----------      -----------   -----------
   Change in net interest .....................     $ 1,340,807      $   (55,902)  $ 1,284,905
     income                                         ===========      ===========   ===========
</TABLE>



         INTEREST SENSITIVITY. The Company monitors and manages the pricing and
maturity of its assets and liabilities in order to diminish the potential
adverse impact that changes in interest rates could have on its net interest
income. The principal monitoring technique employed by the Company is the
measurement of the Company's interest sensitivity "gap," which is the positive
or negative dollar difference between assets and liabilities that are subject to
interest rate repricing within a given period of time. Interest rate sensitivity
can be managed by repricing assets or liabilities, selling available for sale
securities, replacing an asset or liability at maturity, or adjusting the
interest rate during the life of an asset or liability. Managing the amount of
assets and liabilities repricing in this same time interval


                                       19

<PAGE>   20



helps to hedge the risk and minimize the impact on net interest income of
rising or falling interest rates.

         The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease interest
sensitivity risk.

         ASSET/LIABILITY MANAGEMENT. It is the objective of the Bank to manage
assets and liabilities to provide a satisfactory, consistent level of
profitability within the framework of established cash, loan, investment,
borrowing, and capital policies. Certain officers of the Bank and the Bank's
Investment and Asset/Liability Committees are charged with the responsibility
for developing and monitoring policies and procedures that are designed to seek
an acceptable composition of the asset/liability mix. It is the overall
philosophy of management to support asset growth primarily through growth of
core deposits, which include deposits of all categories made by individuals,
partnerships, and corporations. Management of the Bank seeks to invest the
largest portion of the Bank's assets in consumer/installment, commercial, real
estate, and construction loans.

         The Bank's asset/liability mix is monitored with a report reflecting
the interest-sensitive assets and interest-sensitive liabilities being prepared
and presented to the Bank's Investment Committee on a monthly basis. The
objective of this policy is to match interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on the
Bank's earnings.

         Gap analysis measures how the Bank is positioned for interest rate
changes. Below is an analysis of rate sensitive assets and liabilities as of
December 31, 1997.

                                       20

<PAGE>   21



                            Interest Rate Sensitivity
                                December 31, 1997
                             (Dollars in thousands)



<TABLE>
<CAPTION>
                                                0-3               3-12                              5 Yr.
                                               Months            Months          1-5 Yr             More             Total
                                             ---------        -----------      ----------        ----------       -----------
<S>                                      <C>                  <C>              <C>               <C>              <C>
Interest Earning Deposits                    $      47        $       -0-      $      -0-        $      -0-       $        47

Investment Securities                            1,471              7,573           6,380            11,865            27,289

Federal Funds Sold                               9,550                -0-             -0-               -0-             9,550

Loans                                           40,979             15,787          26,522             1,960            85,248
                                             ---------        -----------      ----------        ----------       -----------

Total Rate Sensitive
   Assets                                       52,047             23,360          32,902            13,825           122,134
                                             ---------        -----------      ----------        ----------       -----------

NOW and MMDA Dep.                               29,136                -0-             -0-               -0-            29,136
Savings Deposits                                 5,920                -0-             -0-               -0-             5,920
Time Deposits                                   14,693             24,381          17,006                 3            56,083

Securities Sold Under
   Agreements to
   Repurchase                                      -0-                -0-             -0-               -0-               -0-
                                             ---------        -----------      ----------        ----------       -----------
Total Rate Sensitive
   Liabilities                               $  49,749        $    24,381      $   17,006        $        3       $    91,139
                                             ---------        -----------      ----------        ----------       -----------

Excess (Deficiency) of
   Rate Sensitive Assets
   Less Rate Sensitive
   Liabilities                               $   2,298        $    (1,021)     $   15,896        $   13,822       $    30,995
                                             =========        ===========      ==========        ==========       ===========

Cumulative GAP                               $   2,298        $     1,277      $   17,173        $   30,955

Percent of Cumulative
   Gap to Total Earning
   Assets                                         1.88%              1.05%          14.06%            25.35%
</TABLE>


                                       21

<PAGE>   22



         As indicated in the above table, the positive gap between rate
sensitive assets and rate sensitive liabilities during all periods would allow
the Company to reprice its assets faster than its liabilities in a rising
interest rate environment, which would have a positive effect on earnings.
However, in an decreasing interest rate environment, the Company would
experience a decrease in earnings. A negative gap between rate sensitive assets
and rate sensitive liabilities would represent that liabilities reprice faster
than assets. In a increasing interest rate market, the opposite would result.
However, the Company's gap analysis is not a precise indicator of its interest
sensitivity position. The analysis presents only a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.

         The above table has been prepared based on principal payment due dates,
contractual maturity dates, or repricing intervals on variable rate instruments.
With regard to mortgage pools in the investment portfolio, the anticipated
principal paydown as provided by the investor is used.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

         GENERAL. The Company has developed policies and procedures for
evaluating the overall quality of its credit portfolio and the timely
identification of potential problem credits. On a monthly basis, management of
the Bank recommends and the Board of Directors of the Bank approves the
appropriate level for the allowance for loan losses based on the results of the
internal monitoring and reporting system, analysis of economic conditions in its
market, and a review of historical data for both the Company and other financial
institutions. Management's judgment as to the adequacy of the allowance is based
upon a number of assumptions about future events which it believes to be
reasonable, but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the loan loss allowance will not be required.
The adequacy of the allowance for loan losses and the effectiveness of the
Company's monitoring and analysis system are also reviewed periodically by the
banking regulators and the Company's independent auditors and independent loan
review firm.

         Additions to the allowance for loan losses, which are expended as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance at an appropriate level based on
management's analysis of the potential risk in the loan portfolio. Loan losses
and recoveries are charged or credited directly to the allowance. The amount of
the provision is a function of the levels of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period, and current and
anticipated economic conditions.


                                       22

<PAGE>   23



         The table below summarizes certain information with respect to the
Company's allowance for loan losses and the composition of charge-offs and
recoveries for each of the last three years.


<TABLE>
<CAPTION>
                                                        1997                  1996                1995
                                                        ----                  ----                ----
<S>                                                  <C>                <C>                  <C>
Balance, beginning of year                           $1,214,173         $   918,036             715,230
Provision charged to operations                         620,000             856,312             335,000

Loans charged off:
   Commercial                                          (315,953)           (391,099)            (53,826)
   Real Estate Mortgage                                    (-0-)            (10,143)               (-0-)
   Consumer                                             (52,559)            (71,099)            (52,559)
   Credit Cards                                         (46,078)           (110,991)            (88,709)
                                                     ----------         -----------          -----------
                                                     $ (414,590)        $  (583,332)           (170,909)
Loan recoveries:
   Commercial                                           256,963              17,569              26,892
   Real Estate                                              -0-                 199                 -0-
   Consumer                                              21,914               3,907                 -0-
   Credit Card                                            5,858               1,482              11,823
                                                     ----------         -----------          ----------
                                                        284,735              23,157              38,715
                                                     ----------         -----------          ----------

Net Loans Charged Off                                  (129,855)           (560,175)           (129,855)

Balance, end of year                                 $1,704,318         $ 1,214,173          $  918,036
                                                     ==========         ===========          ==========

Ratio of net charge-offs during the
period to total loans outstanding
during the period                                          0.16%               0.68%                .19%
</TABLE>

The provision for loan losses was $620,000 in the year ended December 31, 1997,
compared to $856,312 in the year ended December 31, 1996. The decrease in the
provision is due to the Bank reducing its charge offs by selling the credit card
loan portfolio in early 1997 and low net charge offs in other categories of
loans.

         ALLOCATION OF ALLOWANCE. The table below sets forth the amount of the
allowance for loan losses allocated by the Company by loan categories.



                                       23

<PAGE>   24



                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES


<TABLE>
<CAPTION>
                                                                       December 31,
                                              -------------------------------------------------------------
                                                          1997                                 1996
                                              -------------------------------    --------------------------
                                                                     % of                         % of
                                                                  Category to                  Category to
                                                                     Total                        Total
                                                 Amount              Loans         Amount         Loans
                                              -------------          ------      ----------       -----
<S>                                          <C>                  <C>            <C>           <C>
Allowance for loan loss
balance applicable to:
   Commercial                                $      850,740           47.17%     $  466,027       52.43%
   Real Estate-construction                         438,896           24.92%        242,254       23.75%
   Real Estate-mortgage                             301,165           21.24%        397,019       15.71%
   Consumer                                         113,517            6.67%         63,711        6.44%
   Credit Cards                                         -0-            0.00%         45,162        1.67%
                                             --------------          ------      ----------       -----
                                             $    1,704,318          100.00%     $1,214,173       100.00%
                                             ==============          ======      ==========       ======
</TABLE>

         Nonaccrual, past due and restructured loans at the end of each reported
period are as follows:

<TABLE>
<CAPTION>

                                                90 Days & Over                           Non-
                                                   Past Due         Restructured        Accrual
                                                --------------      ------------      ----------
<S>                                             <C>                 <C>               <C>
December 31, 1997                               $     95,305         $      -0-       $  509,038
December 31, 1996                               $    564,530         $  303,913       $   14,854
</TABLE>

         Of the $95,305 in loans past due 90 days and over, at December 31,
1997, $59,068 is represented by one construction loan, and three consumer loans
totalling $36,237. Restructured loans at December 31, 1996, represents one
commercial loan. If the nonaccrual loans had been accruing interest for the full
year, the Bank would have recognized an additional $38,000 and $19,000 income in
1997 and 1996, respectively. The Bank recognized approximately $59,000 and
$4,000 in interest income from these loans in 1997 and 1996, respectively.

         The Bank places a non credit card related loan on nonaccrual status
when the loan is 90 days or more past due and management feels the collection of
this debt is doubtful. When a loan is placed in nonaccrual status, all interest
which has been accrued on the loan but remains unpaid is reversed and deducted
from earnings as a reduction of reported interest income. No additional interest
is accrued on the loan balance until the collection of both principal and
interest becomes reasonably certain. When a problem loan is finally resolved,

                                       24

<PAGE>   25


there may ultimately be an actual writedown or charge-off of the principal
balance of the loan which would necessitate additional charges to earnings.
Credit card loans were carried for a term of 180 days past due before being
charged off. Nonperforming loans as a percentage of period end loans were .60%
at December 31, 1997, compared to .38% at December 31, 1996.

         As of December 31, 1997, there were 14 loans totaling $1,147,000
classified for regulatory purposes as substandard that have not been disclosed
in the above table, which (i) represent or result from trends or uncertainties
which management reasonably expects may materially impact future operating
results, liquidity, or capital resources of the borrower, or (ii) represent
material credits with respect to which management has serious doubts as to the
ability of the borrowers to comply with the loan repayment terms. Reserves, if
any are required, are specifically allocated to each of these loans based on
management's assessment of risk and the value of collateral, if any, pledged to
secure such loans.

         The Bank grants loans and extensions of credit to individuals and a
variety of firms and corporations located in its trade area, which includes
portions of Coweta and Fulton Counties and all of Fayette County, Georgia.
Although the Bank has a diversified loan portfolio, a substantial portion of the
loan portfolio is collateralized by improved and unimproved real estate, the
value of which is generally dependent upon the conditions in the real estate
market.

NONINTEREST INCOME AND EXPENSE

         NONINTEREST INCOME. Noninterest income decreased $95,174, or 14.76%, to
$549,798 in 1997 from $644,972 in 1996. The largest component of noninterest
income is service charges on deposit accounts, which totaled $527,404 in 1997, a
4.72% increase over the 1996 level of $503,621. A portion of the decrease in
noninterest income can be attributed to the sale of the credit card portfolio in
1997; the Bank recognized a loss of $72,970 due to a write off of the
unamortized purchase premium.

          The following table sets forth, for the periods indicated, the
principal components of noninterest income:

                               Noninterest Income



<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                          1997                  1996
                                                       ---------             ----------
<S>                                                    <C>                   <C>
Service charges on deposit accounts                    $527,404               $503,621
Securities gains (losses)                                (8,316)                   142
Gain on sale of SBA loans                                60,994                 71,825
Gain (Loss) on Sale of Fixed Assets                     (20,265)                   -0-
Loss on Sale of Credit Card                             (72,970)                   -0-
Other                                                    62,951                 69,384
                                                       --------               --------
   Total noninterest income                            $549,798               $644,972
                                                       ========               ========
</TABLE>


                                       25

<PAGE>   26




                               Noninterest Expense

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                          1997               1996
                                                       ----------         ----------
<S>                                                    <C>                <C>
Salaries and employee benefits                         $1,882,562         $1,620,921
Net Occupancy expense                                     455,262            391,969
Amortization of intangibles                               174,519             97,857
Professional fees                                         484,602            427,219
Other                                                     812,070            978,905
                                                       ----------         ----------
   Total noninterest expense                           $3,809,015         $3,516,871
                                                       ==========         ==========

Efficiency ratio                                            55.26%             55.58%
</TABLE>

         Salaries and employees benefits increased $261,641, or 16.14%, to
$1,882,562 in 1997 from $1,620,921 in 1996 due to annual merit increases as well
as the increase in employer matching in contributions into the 401-K savings
incentive plan sponsored by the Bank to its employees. Net occupancy increased
$63,293, or 16.15%, to $455,262 in 1997, from $391,969 in 1996. This was due
primarily to an increase in depreciation related to the upgrade of computer
equipment in late 1996, thus resulting in twelve months depreciation in 1997
compared to three months in 1996. The Bank also had maintenance expenses related
to the branch facilities higher in 1997 than in previous years. Other expenses
decreased $166,835 or 17.04% to $812,070 in 1997 from $978,905 in 1996. This
decrease is due to a one time assessment by the FDIC during 1996 based on the
thrift deposits the Bank had. This assessment totaled $167,056 and was reflected
in the third quarter earnings report of 1996.


EARNING ASSETS

         LOANS. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $83,965,872 in
1997 compared to $73,446,044 in 1996, an increase of $10,519,828 or 14.32%. At
December 31, 1997, total loans, net of deferred loan fees, were $85,248,271
compared to $81,915,981 at the end of 1996.

         The following table shows the comparison of the loan portfolio by
category at the dates indicated.




                                       26

<PAGE>   27


<TABLE>
<CAPTION>
                          COMPOSITION OF LOAN PORTFOLIO


               Types of Loans                       1997             1996
                                               -------------    -------------
<S>                                            <C>              <C>
Commercial                                     $  15,855,022    $  17,340,052
Real estate - commercial                          24,454,646       25,713,790
Real estate - individual                          18,152,167       12,898,096
Real estate - construction                        21,296,534       19,505,888
Installment & single payment ind.                  5,675,875        5,255,715
Credit Cards                                             -0-        1,375,249
Other                                                 16,991           28,799
                                               -------------    -------------

   Total loans                                    85,451,235       82,117,589

   Net deferred loan fees/cost                      (202,964)        (201,608)
                                               -------------    -------------

   Total net loans                             $  85,248,271    $  81,915,981
                                               =============    =============
</TABLE>

         The principal component of the Company's loan portfolio is real estate
loans. At year end 1997, loans secured by real estate totalled $63,903,347, or
74.78% of the portfolio. Commercial real estate made up $24,454,646 of the
portfolio and represents the principal component of the Bank's loan portfolio.
This category of loans decreased $1,259,144, or 4.90%, from 1996 due to
relationships moving to capital markets which offer a competitive interest rate,
terms and conditions for the commercial borrowers. Individual real estate loans
showed the largest increase for the one year period. Individual real estate
loans include first liens and junior liens of family residences increased
$5,254,071 or 40.74% during the period ending December 31, 1997, up from
$12,898,071 at December 31, 1996. Nonresidential mortgage loans, which include
commercial loans, single family construction, and other loans secured by
multi-family properties and farmland, increased $305,616, to $37,151,556 at
December 31, 1997, from $36,845,940 at year end 1996. The increase in
nonresidential mortgage loans also reflects the growth of the Company's lending
for commercial real estate purposes and an increase in commercial loans in which
a security interest in real estate was obtained as primary collateral.

         Consumer loans decreased $966,897, or 14.52%, to $5,692,866 in 1997,
from $6,659,763 in 1996. This is due to the sale of the credit card portfolio in
January of 1997, totalling $1,375,249. This portfolio did not perform as
expected over the past years and management did not foresee any increase in its
performance. Settlement for this transaction occurred on January 31, 1997, based
on that day's balances. The sale of the portfolio


                                       27

<PAGE>   28


resulted in an approximate $73,000 write off of the unamortized premium from the
purchase of this portfolio in 1991.



         The following is a presentation of an analysis of maturities of loans
as of December 31, 1997 (in thousands) :


<TABLE>
<CAPTION>
                                                 Maturing         Maturing        Maturing
                                                 in 1 Year         in 1 to         After
Type of Loan                                      or less          5 years        5 years           Total
------------                                    ----------       ---------        ---------       ----------
<S>                                             <C>              <C>              <C>             <C>
Commercial                                      $    8,345       $    6,117       $   1,393       $   15,855
Real estate (commercial)                             5,469            9,029           9,957           24,455
Real estate (industrial)                             3,562            8,701           5,889           18,152
Real estate (construction)                          19,481            1,648             167           21,296
Installment                                          1,033            4,201             442            5,676
Credit Card                                            -0-              -0-             -0-              -0-
Other                                                   17              -0-             -0-               17
                                                ----------       ----------      ----------       ----------
Total                                           $   37,907       $   29,696      $   17,848       $   85,451
                                                ==========       ==========      ==========       ==========
</TABLE>

Scheduled repayments are reported in the maturity category in which the payment
is due based upon contract terms. Demand loans, loans having non-stated schedule
of repayments, and overdrafts are reported as due in one year or less. The above
maturity schedule is not necessarily indicative of future principal reductions
since each loan is evaluated at maturity and, in many instances, is renewed in
part or in total.

         The following is a presentation of an analysis of sensitivities of
loans to changes in interest rates as of December 31, 1997 (in thousands) :


                        <TABLE>
                        <S>                                                         <C>
                        Loans due after 1 year with
                        predetermined interest rates....................            $ 26,924

                        Loans due after 1 year with                                 $ 20,620
                        floating interest rates........................
                        </TABLE>

INVESTMENT PORTFOLIO. Investment securities comprised approximately 20.76% and
13.89% of the Bank's assets on December 31, 1997 and 1996, respectively. The
Bank invests primarily in obligations of the United States or obligations
guaranteed as to principal and interest by the United States and other taxable
and tax exempt securities. During 1996 and 1997, the Bank purchased primarily
securities issued by U.S. Government Agencies and Treasuries


                                       28

<PAGE>   29


with maturities of three years or less. This will be the investing philosophy of
management during 1998 as well. The Bank has included in its investment
portfolio instruments described as a derivative, and, in particular, structured
note derivatives. Structured notes are debt securities whose cash flow
characteristics depend on one or more indexes. Structured notes carry high
credit ratings and are issued as floating-rate instruments. In a rising interest
rate environment the market value of these securities can decrease due to the
fact that the embedded options, puts, calls, etc., become evident and in
contrast to predictions. There can be no assurance that as interest rates change
in the future the amount of unrealized loss will not increase, but if these
securities are held until they mature and are repaid in accordance with their
terms, these principal losses will not be realized. The Bank also engages in
Federal Funds transactions with its principal correspondent banks and primarily
acts as a net seller of such funds. The sale of Federal Funds amounts to a
short-term loan from the Bank to another bank.

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115 (SFAS 115) on the accounting and
reporting for investments in all debt and equity securities that have readily
determinable fair values. SFAS 115 requires that investments are to be
classified as held-to-maturity, available-for-sale or trading securities.
Held-to-maturity securities are to be reported at amortized cost, while
available-for-sale securities and trading securities are to be reported at fair
value. The Bank elected to adopt SFAS 115 as of December 31, 1993. At December
31, 1997, the Bank had $25,053,659 in investment securities available-for-sale
and $1,660,034 in securities held-to-maturity. The net unrealized loss on
available for-sale-securities, net of deferred income taxes of $12,452, was
$24,172 on December 31, 1997.

The carrying value and estimated market value of investment securities held to
maturity are as follows at December 31:


<TABLE>
<CAPTION>
                                                                       1997
                                        ----------------------------------------------------------------
                                         Carrying             Unrealized      Unrealized       Market
                                           Value                 Gains          Losses          Value
                                        -----------           ----------      ----------     -----------
  <S>                                   <C>                   <C>             <C>            <C>
  States and political
   subdivisions                         $ 1,660,034           $   30,583      $      806     $ 1,689,811

<CAPTION>
                                                                       1996
                                        ----------------------------------------------------------------
                                         Carrying             Unrealized       Unrealized      Market
                                           Value                 Gains           Losses         Value
                                        -----------           ----------       ----------    -----------
 <S>                                    <C>                   <C>              <C>           <C>
 States and political
  subdivisions                          $ 1,659,519           $   12,652       $    6,208    $ 1,665,963

</TABLE>

The amortized cost and estimated market value of investment securities available
for sale are as follows at December 31:





                                       29

<PAGE>   30



<TABLE>
<CAPTION>

                                                                   1997
                                 -------------------------------------------------------------------
                                    Amortized          Unrealized        Unrealized         Market
                                      Cost                Gains            Losses            Value
                                 -------------         ----------        ----------     ------------
<S>                              <C>                  <C>              <C>              <C>
U.S. Treasury Securities         $  1,004,669         $     4,237      $        -0-     $   1,008,906
U.S. Government
   Agencies and
   Corporations                    17,775,443               9,698             20,174       17,764,967
Mortgage-backed
   securities                       4,096,992              12,231             71,663        4,037,560
States & Political
   Subdivisions                     2,213,180              30,176              1,129        2,242,226
                                 ------------         -----------      -------------    -------------

Total                            $ 25,090,284         $    56,342      $      92,967    $  25,053,659
                                 ============         ===========      =============    =============

<CAPTION>

                                                                   1996
                                 -------------------------------------------------------------------
                                    Amortized          Unrealized        Unrealized         Market
                                      Cost                Gains            Losses            Value
                                 -------------         ----------        ----------     ------------
<S>                              <C>                  <C>              <C>              <C>

U.S. Treasury Securities         $       496,410     $      152      $         -0-      $    496,562
U.S. Government
   Agencies and
   Corporations                        7,882,039          3,660             23,787         7,861,912
Mortgage-backed
   securities                          4,975,955          2,189            191,358         4,786,786
                                 ---------------     ----------      -------------      ------------

 Total                           $    13,354,404     $    6,001      $     215,145      $ 13,145,260
                                 ===============     ==========      =============      ============
</TABLE>


The Bank also had other investments of $575,500 at December 31, 1997 consisting
of stock in the Federal Home Loan Bank of Atlanta and Eagle Bank Stock. At
December 31, 1996, other investments of $273,200 consisted of stock in the
Federal Home Loan Bank of Atlanta.The carrying value and estimated market value
of investment securities held-to-maturity and the amortized cost and estimated
market value of investment securities available-for-sale at December 31, 1997,
by contractual maturity, are shown below. Expected maturities differ from
contractual maturities because borrowers may have the right to call or repay
obligations without call or prepayment penalties. Mortgage-backed securities
have been allocated based on stated maturity dates after considering assumed
prepayment patterns.


                                       30

<PAGE>   31



<TABLE>
<CAPTION>

                            Investment Securities              Investment Securities
                             Available-for-Sale                  Held-to-Maturity
                        ---------------------------     ----------------------------------
                          Amortized        Market        Amortized       Market       Net
                            Cost           Value           Cost          Value       Yield
                        -----------     -----------     ----------     ----------    -----
<S>                     <C>             <C>             <C>            <C>           <C>

Due in one year or
   less                 $ 9,046,701     $ 9,044,449     $      -0-     $      -0-     5.80%
Due after one year
   through five
   years                  5,484,253       5,495,051        884,540        895,550     5.72%
Due after five
   years through
   ten years              7,525,119       7,538,634        515,505        524,084     6.60%
Due after ten years       3,034,211       2,975,525        259,989        270,177     6.22%
                        -----------     -----------     ----------     ----------    -----
    Total               $25,090,284     $25,053,659     $1,660,034     $1,689,811     5.96%
                        ===========     ===========     ==========     ==========    =====
</TABLE>

The yields stated above have not been computed on a tax equivalent basis.

         Breakdown on maturity by category of the investment securities
held-to-maturity and available-for-sale as of December 31, 1997. Items below are
shown at amortized cost.


<TABLE>
<CAPTION>
                                           0-1 Year          1-5 Years        5-10 Years            Over 10
                                         -----------       ------------       ----------          -----------
<S>                                      <C>               <C>                <C>                 <C>
U.S. Treasury Sec.                       $   500,209        $   504,459       $      -0-          $       -0-
U.S. Government Agencies
   & Corp.                                 7,701,648          3,344,980        6,728,816                  -0-
Mortgage Backed                              669,694            530,030          430,819            2,466,449
States & Political
   subdivisions                              175,150          1,989,324          880,989              827,751
                                         -----------        -----------      -----------          -----------
   Total                                 $ 9,046,701        $ 6,368,793      $ 8,040,624          $ 3,294,200
                                         ===========        ===========      ===========          ===========
</TABLE>


         SHORT-TERM INVESTMENTS. Short-term investments, which consist primarily
of federal funds sold and interest bearing deposits with other banks, averaged
$6,393,961 in 1997, compared to $4,109,465 in 1996. At December 31, 1997,
short-term investments totaled $9,597,286. Federal funds sold are a primary
source of the Bank's liquidity and are generally invested in an earning capacity
on an overnight basis.

         DEPOSITS. The Bank offers a wide range of commercial and consumer
deposit accounts, including non-interest bearing checking accounts, money market
checking accounts (consumer and commercial), negotiable order of withdrawal
("NOW") accounts, individual retirement accounts, time certificates of deposit,
and regular savings accounts. The following table contains a breakdown of the
average amount and the average rate paid on each of the categories.


                                       31

<PAGE>   32




<TABLE>
<CAPTION>
                                                            1997         Rate             1996          Rate
                                                        -----------      ----          -----------      ----
<S>                                                     <C>              <C>           <C>             <C>
(1)   Non-interest Bearing
         Demand Deposits                                $23,103,245      0.00%         $16,135,113      0.00%
(2)   Interest Bearing Demand
         Deposits                                        23,522,722      2.95%          21,929,897      3.09%
(3)   Savings Deposits                                    6,127,326      2.31%           5,963,929      2.42%
(4)   Time Deposits                                      57,206,047      5.94%          46,138,495      6.18%
</TABLE>

At December 31, 1997, the Bank had $14,240,690 on deposit in certificates of
deposit of $100,000 or more. The table below indicates the remaining maturities
of certificates of deposit over $100,000. Management believes that these
deposits are with individuals or businesses within the Bank's local market area
and with whom or which the Company has had consistent deposit relationships. The
Company does not have brokered deposits.


<TABLE>
<C>                              <C>
3 months or less                 $   3,359,151
3 months to 6 months                 1,138,798
6 months to 12 months                1,408,513
12 months & over                     8,334,228
                                 -------------

Total                            $  14,240,690
                                 =============
</TABLE>

         The sources of deposits typically are residents and businesses and
their employees within the Bank's market area, obtained through personal
solicitation by the Bank's officers and directors, direct mail solicitation, and
advertisements published in the local media. The Bank pays competitive interest
rates on time and savings deposits and has implemented a service charge fee
schedule competitive with other financial institutions in the Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges, and the like.

         CAPITAL. Shareholders' equity at December 31, 1997, was $10,731,410, or
8.16% of total assets. The increase of $1,566,694 from 1996 was primarily
attributable to the retention of earnings for 1996 and the decrease in the
market value reserve for investment securities available for sale. These changes
were partially offset by the payment of cash dividends. The following table sets
forth the applicable required well capitalized capital ratios for the Bank and
the actual capital ratios for that entity as of December 31, 1997:


<TABLE>
<CAPTION>

          Leverage Capital                    Tier 1 Capital                   Risk-Based Capital
          ----------------                    --------------                   ------------------
             Regulatory                         Regulatory                         Regulatory
              Minimum            Actual           Minimum         Actual             Minimum            Actual
              -------            ------           -------         ------             -------            ------
<S>       <C>                    <C>          <C>                 <C>          <C>                      <C>
Bank           5.0%               8.4%             6.0%           10.5%              10.0%               11.7%
</TABLE>


                                       32

<PAGE>   33



LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES

         Liquidity management involves monitoring the Company's sources and uses
of funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of a company to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities. Without proper liquidity management, the Company will
not be able to perform the primary function of a financial intermediary and
would, therefore, not be able to meet the needs of the communities it serves.

         Increased liquidity in typical interest rate environments often
involves decreasing profits by investing in earning assets with shorter
maturities. Liquidity management is made more complex because different balance
sheet components are subject to varying degrees of management control. For
example, the timing of maturities of the investment portfolio is very
predictable and subject to a high degree of control at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to nearly the same degree of control.

         The Company's federal funds sold position, its primary source of
liquidity, averaged $6,359,886 during the year ended December 31, 1997 and was
$9,550,000 at December 31, 1997; averaged $3,929,727 during the year ended
December 31, 1996, and was $1,860,000 at December 31, 1996. Liquidity can also
be managed using the overnight and short-term borrowings market, generally
selling excess funds. The Company has short-term borrowing lines of $4,500,000
with several financial institutions, although these are seldom utilized. Other
sources of liquidity include the maturing and selling of investment securities
as well as cash generated from the repayment of loans.

         The Bank also offers repurchase agreements (Repo's). Repo's are
obligations of the Bank to collateralized funds on deposit with U.S. Treasuries
in the Bank's investment portfolio. The commercial customer is paid a percentage
of the interest rate the Bank earns on the investment. The funds on deposit with
the Bank are not FDIC insured because they are collateralized by these
investments.

         At December 31, 1997, the Bank had $16,661,425 in unfunded loan
commitments. There were $106,178 included in the above number that represents
credit card related commitments, such as overdraft protection, $11,002,973 in
unfunded commercial real estate construction and land development loans,
$3,809,259 in commercial loan commitments and $1,743,015 in home equity lines of
credit commitments. If these loans were to be funded the bank has procedures in
place to provide the needed cash. In addition to these lines of credit, the Bank
has a repurchase agreement with a correspondent bank which has a credit limit of
$12,000,000. Any advances under this agreement will be collateralized by
investment securities of the Bank. The Bank also has a line of credit
established with the Federal Home Loan Bank which totals $5,000,000. Any
advances under this agreement will
                                       33

<PAGE>   34

be collateralized by real estate mortgage loans. There were no advances under
these lines during 1997 or 1996.

         The Company, as a stand alone corporation, has more limited access to
liquidity sources than the Bank and depends on dividends from the Bank as its
primary source of liquidity. The ability of the Bank to pay dividends is subject
to general regulatory restrictions which may, but are not expected to, have a
material negative impact on the liquidity available to the Company. See
"Supervision and Regulation - Dividends." If circumstances warrant, the
Company's liquidity needs can also be met by borrowings from third parties,
subject to the availability of loan funds on appropriate terms and the Company's
ability to service the debt.

ACCOUNTING RULE CHANGES

         ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 125 (SFAS 125),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishers of
Liabilities." SFAS 125 is effective for such transactions entered into
subsequent to December 31, 1996, and for certain excess servicing rights
recorded at December 31, 1996. Under SFAS 125, a company recognizes the
financial and servicing assets it controls and the liabilities it has incurred
and derecognizes financial assets when control has been surrendered and
liabilities when extinguished. The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 127 (SFAS 127), "Deferral
of the Effective Date of FASB Statement of No. 125," which delays the effective
date of certain provisions of SFAS 125 until 1998. The adoption of SFAS 125 and
SFAS 127 is not expected to have a significant impact on the financial
conditions or results of operations of the Company.

         ACCOUNTING FOR STOCK BASED COMPENSATIon. Effective January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As
provided by SFAS 123, the Company has elected to continue applying the
provisions of APB 25 in determining its net income relative to stock-based
compensation. The Company has adopted the SFAS 123 requirement that a company
disclose the pro forma net income and pro forma earnings per share, as if the
alternative fair-value-based accounting method in SFAS 123 had been used in
determining net income. The adoption of SFAS 123 did not have a significant
impact on the financial condition or results of operations of the Company.

         ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG LIVED
ASSETS TO BE DISPOSED OF. Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The provisions of SFAS 121 require the Company to review long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  The


                                       34
<PAGE>   35

adoption of SFAS 121 did not have a significant impact on the financial
condition or results of operations of the Company.

         EARNING PER COMMON SHARE. Effective January 1, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share." This statement is effective for financial statements
issued for periods ending after December 15, 1997. This statement supercedes
Accounting Principles Board Opinion No. 15 (APB 15), "Earnings per Share," and
simplifies earnings per share computations by replacing primary earnings per
share with basic earnings per share, which shows no effects from dilutive
securities. Entities with complex capital structures have to show diluted
earnings per share, which is similar to the fully diluted earnings per share
computation under APS 15.

         Basic earnings per common share has been computed based on the weighted
average number of common equivalent shares outstanding during the period. Stock
options, are considered to be common stock equivalents for purposes of
calculating diluted earnings per common share.

         DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. Effective January 1,
1997, the Company adopted Statement of Financial Accounting Standards No. 129
(SFAS 129), "Disclosure of Information About Capital Structure." This statement
is effective for financial statements issued for periods ending after December
15, 1997. This statement consolidates existing disclosure requirements on
capital structure. The adoption of SFAS 129 did not have a significant impact on
the financial condition of operations of the Company.

PENDING ACCOUNTING PRONOUNCEMENTS
         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS
130 is effective January 1, 1998. Under SFAS 130, a company will begin showing
changes in assets and liabilities in a new comprehensive income statement or
alternative presentation, as opposed to showing some of the items as
transactions in shareholders' equity accounts. Upon adoption, all comparative
annual and interim financial statements will present a comprehensive income
statement disclosure for all years presented. The adoption of SFAS 130 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.

         The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosure About Segments of
an Enterprise and Related Information." SFAS 131 is effective January 1, 1998,
and requires disclosure of certain financial information by segments of a
company's business. The adoption of SFAS 131 is not expected to have a
significant impact on the financial condition or results of operations of the
Company.






                                       35

<PAGE>   36



IMPACT OF INFLATION

         Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company and the Bank are primarily monetary
in nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. As discussed previously, management seeks to manage the relationships
between interest sensitive assets and liabilities in order to protect against
wide interest rate fluctuations, including those resulting from inflation. See
"Net Interest Income" and "Interest Sensitivity."

         Certain recently enacted and proposed legislation could have an effect
on both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations. See "Regulatory Matters--Interstate Banking."



QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         All financial institutions have financial instruments which are subject
to market risk comprised of interest rate risk, foreign currency exchange rate
risk, commodity price risk and other relevant market risks, such as equity price
risks. The Company has assessed its market risk as predominately interest rate
risk.

         The following interest rate sensitivity analysis information as of
December 31, 1997, was developed using simulation analysis of the bank's
sensitivity to changes in net interest income under varying assumptions for
changes in market interest rates. Specifically, the model derives expected
interest income and interest expense resulting from an immediate and parallel
shift in the yield curve in the amount shown.

         These rate changes are matched with known repricing intervals and
assumptions for new growth net of expected prepayments. The assumptions are
based primarily on experience in the Bank's market under varying rate
environments. The imbedded options that the Bank's loan customers possess, to
refinance, are not considered significant for purposes of this analysis given
the large majority of adjustable rate loans in the portfolio.

         This analysis intentionally exaggerates interest sensitivity. For the
sake of simplicity and comparability, an immediate change in rates is assumed.
However, any significant change in actual market rates would be phased in over
probably an extended period of time. This phase in would reduce the net interest
income effects for any absolute change in rates.


                                       36

<PAGE>   37



         Further, current market conditions do not appear favorable for
substantial changes in base interest rates. The target Federal Funds rate has
been 5.50% since March of 1997 and even small changes in monetary policy appear
not to be imminent.

         The bank attempts to retain interest rate neutrality by generating
mostly adjustable rate loans and managing the securities and Fed Funds positions
to offset the repricing characteristics of the deposit liabilities. See further
discussion of interest rate sensitivity in the discussion of Asset/Liability
management.

<TABLE>
<CAPTION>

                                     Interest Rates Decrease           Interest Rates             Interest Rate Increase
                                      200 BP             100BP        Remain Constant Budget            100 BP      200 BP
                                      ------             -----        ----------------------            ------     -------
<S>  <C>                            <C>             <C>                     <C>                    <C>            <C>
     1998 Interest Income           $    9,563        $  10,366             $    11,169            $    11,912    $  12,655
     1998 Interest Expense               4,037            4,393                   4,749                  5,137        5,525
                                    ----------        ---------             -----------            -----------    ---------
      Net Interest Income                5,526            5,973                   6,420                  6,775        7,130

     Change in net income
     after tax vs. budget                (572)             (286)                                           227          454
</TABLE>





                                       37


<PAGE>   38



ITEM 7.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements, notes thereto and independent
accountant's report thereon included on the following pages are incorporated
herein by reference.

<TABLE>
         <S>      <C>
         F-1      Report of Independent Auditors

         F-2      Consolidated Balance Sheets, December 31, 1997 and 1996

         F-5      Consolidated Statements of Income for the years ended December 31, 1997,
                  1996 and 1995

         F-8      Consolidated Statements of Changes in Stockholders' Equity for the years ended
                  December 31, 1997, 1996 and 1995

         F-9      Consolidated Statements of Cash Flows for the years ended December 31, 1997,
                  1996 and 1995

         F-12     Notes to Consolidated Financial Statements

</TABLE>

                                       38
<PAGE>   39



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


                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY

                             PEACHTREE CITY, GEORGIA

                        CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 1997, 1996 AND 1995

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







<PAGE>   40






                                    CONTENTS

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


<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----

<S>                                                                       <C>
Independent Auditors' Report................................................1

Consolidated Balance Sheets.................................................2

Consolidated Statements of Income...........................................4

Consolidated Statements of Changes in Stockholders' Equity..................6

Consolidated Statements of Cash Flows.......................................7

Notes to Consolidated Financial Statements..................................9
</TABLE>





<PAGE>   41






                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
First Community Banking Services, Inc.
   and Subsidiary
Peachtree City, Georgia


   We have audited the accompanying consolidated balance sheets of First
Community Banking Services, Inc. and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years ended December
31, 1997. These consolidated financial statements are the responsibility of
First Community Banking Services, Inc.'s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

   We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial position of
First Community Banking Services, Inc. and subsidiary as of December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

   The accompanying consolidated financial statements as of and for the year
ended December 31, 1997, have been prepared assuming First Community Banking
Services, Inc. and subsidiary will continue in existence in their current
corporate structure and the bank subsidiary will retain its charter. As
discussed in Note B, on February 12, 1998, First Community Banking Services,
Inc. entered into a definitive agreement to be merged into a regional bank.
These consolidated financial statements do not include any adjustments that
might result from First Community Banking Services, Inc. being merged into or
acquired by another entity.


                                              BRICKER & MELTON, P.A.


March 12, 1998
Duluth, Georgia




<PAGE>   42





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

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


<TABLE>
<CAPTION>
                                                                            December 31,
                                                                  ----------------------------------
                                                                      1997                 1996
                                                                  -------------       --------------
                           ASSETS
<S>                                                               <C>                <C>
Cash and due from banks (Note C)                                  $   5,269,173       $   5,317,785
Federal funds sold                                                    9,550,000           1,860,000
Interest-bearing deposits in other financial institutions                47,286              25,088
Investment securities held to maturity (market value of
   $1,689,811 and $1,665,963, respectively) (Note D)                  1,660,034           1,659,519
Investment securities available for sale (Note D)                    25,053,659          13,145,260
Other investments (Note D)                                              575,500             273,200

Loans, net of deferred loan fees (Notes E and K)                     85,248,271          81,915,981
Less:  Allowance for loan losses (Note E)                             1,704,318           1,214,173
                                                                  -------------       -------------
   Loans, net                                                        83,543,953          80,701,808

Premises and equipment, net (Note F)                                  3,165,026           3,352,404
Other real estate                                                       502,185             399,199
Accrued interest receivable                                           1,280,200             885,625
Intangible assets, net of accumulated amortization of
   $426,609 and $539,226, respectively                                  223,391             470,774
Other assets (Note I)                                                   597,415             463,027
                                                                  -------------       -------------

            TOTAL ASSETS                                          $ 131,467,822       $ 108,553,689
                                                                  =============       =============

  LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES Deposits (Notes H and O):
      Noninterest-bearing demand                                  $  27,894,729       $  17,122,818
      Interest-bearing demand and money market                       29,136,108          19,229,218
      Savings                                                         5,920,380           5,666,954
      Time deposits of $100,000 or more                              14,240,690          15,290,467
      Other time deposits                                            41,841,970          40,834,909
                                                                  -------------       -------------
         Total Deposits                                             119,033,877          98,144,366

   Accrued interest payable                                           1,429,043             941,468
   Other liabilities (Note I)                                           273,492             303,139
                                                                  -------------       -------------
            TOTAL LIABILITIES                                       120,736,412          99,388,973
                                                                  -------------       -------------
</TABLE>

                                   (Continued)


The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 2



<PAGE>   43





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                    CONSOLIDATED BALANCE SHEETS, (Continued)

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

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                 ----------------------------------
                                                                      1997                 1996
                                                                 --------------       -------------
<S>                                                              <C>                  <C>
STOCKHOLDERS' EQUITY (Notes L and M)
   Preferred stock - $1.00 par value: 5,000,000 shares
      authorized, no shares issued and outstanding                $          --       $          --
   Common stock - $1.00 par value: 5,000,000 shares
      authorized, 1,369,012 and 1,286,124 shares
      issued and outstanding                                          1,369,012           1,286,124
   Treasury stock at cost, 620 shares                                    (8,386)                 --
   Surplus                                                            6,332,802           5,453,839
   Retained earnings                                                  3,062,154           2,562,787
   Market valuation reserve on investment securities
      available for sale (Note D)                                       (24,172)           (138,034)
                                                                  -------------       -------------
            TOTAL STOCKHOLDERS' EQUITY                               10,731,410           9,164,716
                                                                  -------------       -------------

Commitments and contingent liabilities (Note N)

            TOTAL LIABILITIES AND
               STOCKHOLDERS' EQUITY                               $ 131,467,822       $ 108,553,689
                                                                  =============       =============
</TABLE>





























The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 3



<PAGE>   44





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME

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


<TABLE>
<CAPTION>
                                                                              For the years ended December 31,
                                                                  -------------------------------------------------
                                                                      1997               1996               1995
                                                                  ------------       ------------      ------------
<S>                                                               <C>                <C>               <C>
INTEREST INCOME
   Loans, including fees                                          $  8,945,541       $  8,202,657      $  5,999,755
   Investment securities:
      U.S. Treasury securities                                          79,656            133,473            87,499
      U.S. Government agencies and corporations                      1,068,205            705,175           732,659
      States and political subdivisions                                123,603             79,048            85,707
      Other investments                                                 22,799             19,460             3,340
   Federal funds sold                                                  355,421            220,072           265,766
   Interest-bearing deposits in other financial
      institutions                                                       1,870              8,740            11,935
                                                                  ------------       ------------      ------------
         TOTAL INTEREST INCOME                                      10,597,095          9,368,625         7,186,661
                                                                  ------------       ------------      ------------

INTEREST EXPENSE
   Interest-bearing demand and money market                            694,902            678,718           651,957
   Savings                                                             141,488            144,098           125,551
   Time deposits of $100,000 or more                                   849,732            912,059           632,954
   Other time deposits                                               2,547,726          1,939,439         1,366,384
   Federal funds purchased and securities sold under
      agreements to repurchase                                          20,243             12,116            12,525
                                                                  ------------       ------------      ------------
         TOTAL INTEREST EXPENSE                                      4,254,091          3,686,430         2,789,371
                                                                  ------------       ------------      ------------

         NET INTEREST INCOME                                         6,343,004          5,682,195         4,397,290

PROVISION FOR LOAN LOSSES (Note E)                                     620,000            856,312           335,000
                                                                  ------------       ------------      ------------

         NET INTEREST INCOME AFTER
            PROVISION FOR LOAN LOSSES                                5,723,004          4,825,883         4,062,290
                                                                  ------------       ------------      ------------

OTHER INCOME
   Service charges on deposit accounts                                 527,404            503,621           418,162
   Investment securities gains (losses), net (Note D)                   (8,316)               142                32
   Gains on sales of SBA loans                                          60,994             71,825            57,690
   Loss on sale of credit card portfolio                               (72,970)                --                --
   Loss on sale of other real estate owned                              (5,905)                --                --
   Loss on sale of fixed assets                                        (20,265)                --                --
   Other income                                                         68,856             69,384            60,732
                                                                  ------------       ------------      ------------
         TOTAL OTHER INCOME                                            549,798            644,972           536,616
                                                                  ------------       ------------      ------------
</TABLE>

                                   (Continued)


The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 4



<PAGE>   45





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF INCOME, (Continued)

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

<TABLE>
<CAPTION>
                                                                             For the years ended December 31,
                                                                  -------------------------------------------------
                                                                      1997               1996              1995
                                                                  ------------      -------------     -------------
<S>                                                               <C>               <C>               <C>
OTHER EXPENSE
   Salaries and wages                                             $  1,650,192       $  1,395,694      $  1,210,974
   Employee benefits (Note J)                                          232,370            225,227           172,103
   Net occupancy expense                                               208,230            181,831           198,565
   Furniture, fixtures and equipment expense                           247,032            210,138           174,519
   Professional and outside services                                   484,602            427,219           361,460
   Amortization of intangible assets                                   174,519             97,857            97,857
   Other expense (Note P)                                              812,070            978,905           799,706
                                                                  ------------       ------------      ------------
         TOTAL OTHER EXPENSE                                         3,809,015          3,516,871         3,015,184
                                                                  ------------       ------------      ------------

         INCOME BEFORE INCOME TAX
            EXPENSE                                                  2,463,787          1,953,984         1,583,722

INCOME TAX EXPENSE (Note I)                                            896,207            699,573           561,475
                                                                  ------------       ------------      ------------

         NET INCOME                                               $  1,567,580       $  1,254,411      $  1,022,247
                                                                  ============       ============      ============

BASIC EARNINGS PER COMMON SHARE
   (Note A)                                                       $       1.15       $        .92      $        .75
                                                                  ============       ============      ============

DILUTED EARNINGS PER COMMON SHARE
   (Note A)                                                       $       1.08       $        .87      $        .73
                                                                  ============       ============      ============
</TABLE>

















The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 5



<PAGE>   46





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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


<TABLE>
<CAPTION>
                                                       For the years ended December 31, 1997, 1996 and 1995
                                     -------------------------------------------------------------------------------------------
                                                      Treasury                       Retained         Market
                                         Common       Stock at                       Earnings        Valuation
                                          Stock         Cost          Surplus        (Deficit)        Reserve         Total
                                     -------------   -----------    -----------     -----------     -----------     ------------
<S>                                  <C>            <C>             <C>             <C>             <C>             <C>
BALANCE AT DECEMBER 31, 1994         $    606,440   $         --    $  5,507,016    $  1,188,728    $   (445,554)   $  6,856,630

Net income                                     --             --              --       1,022,247              --       1,022,247

Cash dividends declared - $.24 per
   share                                       --             --              --        (152,360)             --        (152,360)

Proceeds from exercise of stock
   options                                  6,000             --          54,000              --              --          60,000

Market valuation adjustment                    --             --              --              --         349,086         349,086
                                     ------------   ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1995              612,440             --       5,561,016       2,058,615         (96,468)      8,135,603

Net income                                     --             --              --       1,254,411              --       1,254,411

Cash dividends declared - $.27 per
   share                                       --             --              --        (183,732)             --        (183,732)

Stock dividends declared - 5               30,622             --         535,885        (566,507)             --              --
   percent

Market valuation adjustment                    --             --              --              --         (41,566)        (41,566)
                                     ------------   ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1996              643,062             --       6,096,901       2,562,787        (138,034)      9,164,716

Net income                                     --             --              --       1,567,580              --       1,567,580

Cash dividends declared - $.30 per
   share                                       --             --              --        (193,818)             --        (193,818)

Purchase of treasury stock                     --         (8,386)             --              --              --          (8,386)

Stock dividends declared - 5               32,385             --         842,010        (874,395)             --              --
   percent

Proceeds from exercise of stock
   options                                  9,059             --          78,397              --              --          87,456

Market valuation adjustment                    --             --              --              --         113,862         113,862
                                     ------------   ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1997              684,506         (8,386)      7,017,308       3,062,154         (24,172)     10,731,410

Two-for-one stock split subsequent
   to December 31, 1997 (Note R)          684,506             --        (684,506)             --              --              --
                                     ------------   ------------    ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 1997,
   AFTER RETROACTIVE RESTATEMENT
   FOR STOCK SPLIT                   $  1,369,012   $     (8,386)   $  6,332,802    $  3,062,154    $    (24,172)   $ 10,731,410
                                     ============   ============    ============    ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 6



<PAGE>   47





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

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


<TABLE>
<CAPTION>
                                                                           For the years ended December 31,
                                                               --------------------------------------------------
                                                                   1997               1996                1995
                                                               ------------       -----------        ------------
<S>                                                            <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                  $  1,567,580       $  1,254,411       $  1,022,247
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Net accretion of investments                                (7,898)           (12,425)           (34,487)
         Amortization and write down of intangible
            assets                                                  174,519             97,857             97,857
         Depreciation of premises and equipment                     226,223            216,060            189,228
         Provision for loan losses                                  620,000            856,312            335,000
         Deferred income tax provision (benefit)                   (251,946)          (132,179)            59,456
         Deferred net loan fees                                       1,356            132,968             82,026
         Investment securities gains, net                            (8,316)              (142)               (32)
         Gains on sales of SBA loans                                (60,994)           (71,825)           (57,690)
         Loss on sale of loans                                           --                160                 --
         Loss on sale of credit card portfolio                       72,970                 --                 --
         Loss on sale of other real estate owned                      5,905                 --                 --
         Loss on sale of fixed assets                                20,265                 --                 --
         Increase in interest receivable                           (394,575)          (184,854)          (150,098)
         Increase (decrease) in interest payable                    487,575           (227,945)           803,360
         (Increase) decrease in other assets                         58,900            116,729            (90,557)
         Increase (decrease) in other liabilities                   (29,647)           113,589             72,258
                                                               ------------       ------------       ------------
            NET CASH PROVIDED BY
               OPERATING ACTIVITIES                               2,481,917          2,158,716          2,328,568
                                                               ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Net (increase) decrease in interest-bearing deposits
      in other financial institutions                               (22,198)           169,912            199,000
   Maturities of investment securities held to maturity                  --            200,000                 --
   Purchases of investment securities available for sale        (21,660,622)       (15,840,688)        (3,695,725)
   Purchases of other investments                                  (302,300)           (22,200)          (251,000)
   Sales of investment securities available for sale              6,922,630          9,612,343                 --
   Maturities of investment securities available for sale         3,017,812          3,923,293          5,971,482
   Proceeds from sales of SBA loans                                 800,775          2,262,441          1,015,625
   Proceeds from sales of loans                                          --          3,767,646                 --
   Loans originated or acquired, net of principal
      repayments                                                 (6,071,573)       (21,233,730)       (26,532,829)
</TABLE>

                                   (Continued)


The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 7



<PAGE>   48





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)

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

<TABLE>
<CAPTION>
                                                                        For the years ended December 31,
                                                             ---------------------------------------------------
                                                                 1997               1996                 1995
                                                             ------------       ------------       -------------
<S>                                                          <C>                <C>                <C>
CASH FLOWS FROM INVESTING ACTIVITIES,
   (Continued)
   Proceeds from sale of credit card portfolio (Note A)      $  1,366,000       $         --       $         --
   Purchases of premises and equipment                            (59,810)          (302,060)          (102,365)
   Sales of premises and equipment                                    700                 --                 --
   Sales of other real estate                                     393,294            107,266            424,295
                                                             ------------       ------------       ------------
            NET CASH USED BY INVESTING
               ACTIVITIES                                     (15,615,292)       (17,355,777)       (22,971,517)
                                                             ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net decrease in federal funds purchased and
      securities sold under agreements to repurchase                   --             (1,161)        (1,036,703)
   Net increase in demand, money market and savings
      accounts                                                 20,932,227          1,071,077          7,096,301
   Time deposits accepted, net of repayments                      (42,716)        15,636,413         17,753,553
   Proceeds from exercise of stock options and
      warrants                                                     87,456                 --             60,000
   Cash dividends paid                                           (193,818)          (183,732)          (152,360)
   Purchase of treasury stock                                      (8,386)                --                 --
                                                             ------------       ------------       ------------
            NET CASH PROVIDED BY
               FINANCING ACTIVITIES                            20,774,763         16,522,597         23,720,791
                                                             ------------       ------------       ------------

NET INCREASE IN CASH AND CASH
   EQUIVALENTS                                                  7,641,388          1,325,536          3,077,842
CASH AND CASH EQUIVALENTS AT
   BEGINNING OF YEAR                                            7,177,785          5,852,249          2,774,407
                                                             ------------       ------------       ------------
CASH AND CASH EQUIVALENTS AT END OF
   YEAR                                                      $ 14,819,173       $  7,177,785       $  5,852,249
                                                             ============       ============       ============

SUPPLEMENTAL DISCLOSURES OF CASH
   PAID:
      Interest                                               $  3,766,516       $  3,914,375       $  1,986,011
                                                             ============       ============       ============
      Income taxes                                           $  1,175,000       $    751,000       $    508,650
                                                             ============       ============       ============

SUPPLEMENTAL DISCLOSURES OF
   NONCASH FINANCING AND INVESTING
   ACTIVITIES:
      Acquisition of real estate in settlement of loans      $    502,185       $    437,534       $         --
                                                             ============       ============       ============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                     Page 8



<PAGE>   49





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   During 1996, the Company changed its name from Fayette County Bancshares,
Inc. to First Community Banking Services, Inc. First Community Banking Services,
Inc. and subsidiary provide full-service commercial banking services primarily
in Fayette County, Georgia.

   The accounting and reporting policies of First Community Banking Services,
Inc. and subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a summary of the
more significant of these policies.

   The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the market valuation reserve on investment securities available
for sale, the allowance for loan losses and the valuation of other real estate
acquired in connection with foreclosures or in satisfaction of loans. Management
believes that the allowance for loan losses is adequate, the decline in market
value of investment securities available for sale is temporary, and the
valuation of other real estate is appropriate. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and valuation of other real
estate. Such agencies may require additions to the allowance or valuation
adjustments to other real estate based on their judgments about information
available to them at the time of their examination.


BASIS OF PRESENTATION
   The consolidated financial statements include the accounts of First Community
Banking Services, Inc. (Parent Company) and its wholly-owned subsidiary, Fayette
County Bank (Bank), collectively known as the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.


INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS The Bank purchases
   certificates of deposit from various financial
institutions and has interest-bearing deposits with the Federal Home Loan Bank.

   Interest-bearing deposits are reported at cost. Interest income is recognized
based on the simple interest method for principal amounts outstanding.


                                     Page 9



<PAGE>   50





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

INVESTMENT SECURITIES
   Investment securities which management has the ability and intent to hold to
maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Investment securities available for sale are reported at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related tax effect. Other investments are
reported at cost and, accordingly, earnings are reported when interest is
accrued or when dividends are received.

   Premium and discount on all investment securities are amortized (deducted)
and accreted (added), respectively, to interest income on the effective-yield
method over the period to the maturity of the related securities. Premium and
discount on mortgage-backed securities are amortized (deducted) and accreted
(added), respectively, to interest income on the effective-yield method over the
period to maturity of the related securities taking into consideration assumed
prepayment patterns.

   Gains or losses on disposition are computed by the specific identification
method for all securities.


LOANS
   Loans are reported at the gross amount outstanding, reduced by net deferred
loan fees and a valuation allowance for loan losses. Interest income on all
loans is recognized over the terms of the loans based on the unpaid daily
principal amount outstanding. If the collectibility of interest appears
doubtful, the accrual thereof is discontinued. Loan origination fees, net of
direct loan origination costs, are deferred and recognized as income over the
life of the related loan on a level-yield basis. Gains on sales of Small
Business Administration loans are deferred and recognized as income when all
conditions of the sale have been met. Interest income on impaired loans is
recognized using primarily the interest income method.

   On January 30, 1997, the Company sold its credit card portfolio to a third
party. Total proceeds from this sale were approximately $1,366,000, which
resulted in a loss of $72,970 due to a write-off of unamortized purchase
premium.

   In 1996, the Company sold its Thacker and Loucks loan portfolio. Total
proceeds from this sale were $3,767,646 which resulted in a loss of $160. During
1997, the Company received an underwriting premium rebate of $67,000 due to the
low level of loss the Company experienced with this portfolio.

   Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Accounting for Mortgage Servicing
Rights," an amendment of Statement of Financial Accounting Standards No. 65,
"Accounting for Certain Mortgage Banking Activities." The provisions of SFAS 122
denote the accounting distinction between rights to service mortgage loans that
are acquired through loan origination and those acquired through purchase. The
adoption of SFAS 122 did not have a significant impact on the financial
condition or results of operations of the Company.




                                     Page 10



<PAGE>   51





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

ALLOWANCE FOR LOAN LOSSES
   The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem loans.
Periodic revisions are made to the allowance when circumstances which
necessitate such revisions become known. Recognized losses are charged to the
allowance for loan losses, while subsequent recoveries are added to the
allowance.

   Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the note's effective interest rate.
Impairment losses are included in the allowance for loan losses through a charge
to the provision. Cash receipts on impaired loans are applied to reduce the
principal amount of such loans until the principal has been recovered and are
recognized as interest income, thereafter.


PREMISES AND EQUIPMENT
   Premises and equipment are reported at cost less accumulated depreciation.
For financial reporting purposes, depreciation is computed using primarily the
straight-line method over the estimated useful lives of the assets. Expenditures
for maintenance and repairs are charged to operations as incurred, while major
renewals and betterments are capitalized. When property is disposed of, the
related cost and accumulated depreciation are removed from the accounts, and any
gain or loss is reflected in income. For Federal tax reporting purposes,
depreciation is computed using primarily accelerated methods.


OTHER REAL ESTATE
   Other real estate represents property acquired through foreclosure or in
settlement of loans and is reported at the lower of cost or fair value less
estimated selling expenses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan losses at the time of
foreclosure. Subsequent write-downs of other real estate are charged against the
current period's operations.


INTANGIBLE ASSETS
   Intangible assets at December 31, 1997, include amounts for goodwill and
deposit assumption premium. Intangible assets at December 31, 1996, include
amounts for goodwill, deposit assumption premium and premium for purchased
credit card loans. During 1997, the Company evaluated the useful life of the
deposit assumption premium and made a one-time adjustment of $123,811 to reduce
the intangible assets' useful life to nine years using the straight-line method.
Goodwill and the deposit assumption premium were being amortized over 14 years,
the estimated average life of the deposit base acquired at the date of
inception. The premium for credit card loans was being amortized on the
straight-line basis over seven years, the estimated life of the portfolio.

                                     Page 11



<PAGE>   52





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

   Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The provisions
of SFAS 121 require the Company to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The adoption of SFAS 121 did not have a
significant impact on the financial condition or results of operations of the
Company.


INCOME TAXES
   The tax effect of transactions is recorded at current tax rates in the
periods the transactions are reported for financial statement purposes. Deferred
income taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The Company files its income tax returns on a consolidated basis.


STOCK DIVIDENDS AND SPLITS
   On March 21, 1996, the Board of Directors of the Company declared a 5 percent
stock dividend distributable on May 15, 1996, to shareholders of record on April
24, 1996. The stock dividend resulted in 30,622 additional shares of common
stock being issued. On October 4, 1997, the Board of Directors of the Company
declared a 5 percent stock dividend distributable on November 4, 1997, to
shareholders of record on October 14, 1997. The stock dividend resulted in
32,385 additional shares of common stock being issued. On January 15, 1998, the
Board of Directors of the Company declared a two-for-one stock split
distributable on February 20, 1998 (See Note R). All references in the
consolidated financial statements to number of share per share amounts and
market prices of the Company's common stock have been retroactively restated to
reflect the increased number of shares outstanding as if the stock dividends and
splits occurred on January 1, 1995.


EARNINGS PER COMMON SHARE
   Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." This statement is
effective for financial statements issued for periods ending after December 15,
1997. This statement supersedes Accounting Principles Board Opinion No. 15 (APB
15), "Earnings Per Share," and simplifies earnings per share computations by
replacing primary earnings per share with basic earnings per share, which shows
no effects from dilutive securities. Entities with complex capital structures
have to show diluted earnings per share, which is similar to the fully diluted
earnings per share computation under APB 15.

   Basic earnings per common share has been computed based on the weighted
average number of common equivalent shares outstanding during the period. Stock
options, as described in Note M, are considered to be common stock equivalents
for purposes of calculating diluted earnings per common share. The common stock
splits have been treated retroactively as occurring on January 1, 1995, for
earnings per share computation purposes.



                                     Page 12



<PAGE>   53





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

   The reconciliation of basic earnings per share to diluted earnings per share
is as follows:


<TABLE>
<CAPTION>
                                                     Net            Common          Per Share
                                                   Earnings         Shares           Amount
                                                 ------------    ------------      -----------
<S>                                              <C>             <C>               <C>
For the year ended December 31, 1997:
   Basic earnings per common share                $1,567,580       1,363,557          $1.15
   Effect of dilutive stock options                       --          81,347           (.07)
                                                  ----------       ---------          -----
      Diluted earnings per common share           $1,567,580       1,444,904          $1.08

For the year ended December 31, 1996:
   Basic earnings per common share                $1,254,411       1,359,953          $ .92
   Effect of dilutive stock options                       --          80,986           (.05)
                                                  ----------       ---------          -----
      Diluted earnings per common share           $1,254,411       1,440,939          $ .87

For the year ended December 31, 1995:
   Basic earnings per common share                $1,022,247       1,357,453          $ .75
   Effect of dilutive stock options                       --          34,276           (.02)
                                                  ----------       ---------          -----
      Diluted earnings per common share           $1,022,247       1,391,729          $ .73
</TABLE>


STOCK-BASED COMPENSATION
   The Company accounts for stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

   Effective January 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." As provided by SFAS 123, the Company has elected to
continue applying the provisions of APB 25 in determining its net income
relative to stock-based compensation. The Company has adopted the SFAS 123
requirement that a company disclose the pro forma net income and pro forma
earnings per share, as if the alternative fair-value-based accounting method in
SFAS 123 had been used in determining net income. The adoption of SFAS 123 did
not have a significant impact on the financial condition or results of
operations of the Company.


















                                     Page 13



<PAGE>   54





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

--------------------------------------------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
   In the normal course of business, the Bank originates financial instruments
with off-balance-sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These commitments involve varying degrees of risk in excess of the
amounts recognized in the balance sheet. Commitments to extend credit represent
legally binding agreements to lend to a customer with fixed expiration dates or
other termination clauses. Since many commitments expire without being funded,
total commitment amounts do not necessarily represent future liquidity
requirements. The amount of collateral obtained is based on management's credit
evaluation of the customer. Collateral held varies but may include accounts
receivable; inventory; and property, plant and equipment. Standby letters of
credit are conditional commitments issued by the Bank guaranteeing the
performance of a customer to a third party.


FAIR VALUES OF FINANCIAL INSTRUMENTS
   The Company uses the following methods and assumptions in estimating fair
values of financial instruments (see Note P):

   Cash and cash equivalents--The carrying amount of cash and cash equivalents
approximates fair value.

   Interest-bearing deposits--The carrying amount of interest-bearing deposits
approximates fair value.

   Investment securities--The fair value of investment securities held to
maturity and available for sale is estimated based on bid quotations received
from independent pricing services. The carrying amount of other investments
approximates fair value.

   Loans--For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values. For
all other loans, fair values are calculated by discounting the contractual cash
flows using estimated market discount rates which reflect the credit and
interest rate risk inherent in the loan, or by using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.

   Deposits--The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.

   Short-term borrowings--The carrying amount of federal funds purchased and
other short-term borrowings maturing within 30 days approximates fair value.

   Accrued interest--The carrying amount of accrued interest receivable and
payable approximates fair value.



                                     Page 14



<PAGE>   55





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

   Off-balance-sheet instruments--The fair value of commitments to extend credit
to fund commercial, consumer, real estate-construction and real estate-mortgage
loans and to fund standby letters of credit is equal to the amount of
commitments outstanding at December 31, 1997. This is based on the fact that the
Company generally does not offer lending commitments or standby letters of
credit to its customers for long periods, and therefore, the underlying rates of
the commitments approximate market rates.


CASH AND CASH EQUIVALENTS
   For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.


RECLASSIFICATIONS
   Certain reclassifications have been made in the 1996 and 1995 financial
statements to conform with the 1997 presentation.


NEW ACCOUNTING PRONOUNCEMENTS
   ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
   EXTINGUISHMENTS OF LIABILITIES Effective January 1, 1997, the Company adopted
   Statement of Financial Accounting Standards No. 125 (SFAS 125), "Accounting
   for Transfers and Servicing of Financial Assets and Extinguishments of
   Liabilities." SFAS 125 is effective for such transactions entered into
   subsequent to December 31, 1996, and for certain excess servicing rights
   recorded at December 31, 1996. Under SFAS 125, a company recognizes the
   financial and servicing assets it controls and the liabilities it has
   incurred and derecognizes financial assets when control has been surrendered
   and liabilities when extinguished. The Financial Accounting Standards Board
   has issued Statement of Financial Accounting Standards No. 127 (SFAS 127),
   "Deferral of the Effective Date of FASB Statement No. 125," which delays the
   effective date of certain provisions of SFAS 125 until 1998. The adoption of
   SFAS 125 and SFAS 127 did not have a significant impact on the financial
   condition or results of operations of the Company.


   DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE Effective January 1, 1997,
   the Company adopted Statement of Financial Accounting Standards No. 129 (SFAS
   129), "Disclosure of Information About Capital Structure." This statement is
   effective for financial statements issued for periods ending after December
   15, 1997. This statement consolidates existing disclosure requirements on
   capital structure. The adoption of SFAS 129 did not have a significant impact
   on the financial condition or results of operations of the Company.


                                     Page 15



<PAGE>   56





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)

PENDING ACCOUNTING PRONOUNCEMENTS
   The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS
130 is effective January 1, 1998. Under SFAS 130, a company will begin showing
changes in assets and liabilities in a new comprehensive income statement or
alternative presentation, as opposed to showing some of the items as
transactions in shareholders' equity accounts. Upon adoption, all comparative
annual and interim financial statements will present a comprehensive income
statement disclosure for all years presented. The adoption of SFAS 130 is not
expected to have a significant impact on the financial condition or results of
operations of the Company.

   The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 is effective January 1, 1998, and
requires disclosure of certain financial information by segments of a company's
business. The adoption of SFAS 131 is not expected to have a significant impact
on the financial condition or results of operations of the Company.


NOTE B--MERGER

   On February 12, 1998, the Company and Regions Financial Corporation (Regions)
executed a definitive agreement (Agreement) to merge the two companies, whereby
Regions would acquire all of the issued and outstanding shares of common stock
of the Company in exchange for Regions common stock. The Agreement provides for
an exchange of 1.25 shares of Regions common stock for each outstanding share of
the Company's common stock. The merger will be accounted for as a pooling of
interest under generally accepted accounting principles. The merger is subject
to regulatory and shareholder approval and is expected to be consummated in the
third quarter of 1998.

   These consolidated financial statements have been prepared on the basis of
the Company retaining its present corporate structure and ownership and the Bank
retaining its charter. No adjustments have been made to reflect the tax
consequences of the Company being acquired, including the recapture of tax loan
loss reserves, penalties for cancellation of existing contracts with vendors,
and commissions or fees payable to the investment banker or other parties; the
effects of any changes in accounting policies, principles or practices of the
acquiror which differ from that of the Company; or any other expenses of the
acquisition which were not actual liabilities as of December 31, 1997.


NOTE C--CASH AND DUE FROM BANKS

   A bank is required to maintain average reserve balances with the Federal
Reserve Bank, on deposit with national banks or in cash. The Bank's average
reserve requirement at December 31, 1997 and 1996 was approximately $1,003,000
and $720,000, respectively. The Bank maintained cash balances which were
adequate to meet this requirement.



                                     Page 16



<PAGE>   57





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE D--INVESTMENT SECURITIES

   The amortized cost and estimated market value of investment securities held
to maturity are as follows at December 31:


<TABLE>
<CAPTION>
                                                                                   1997
                                                 -----------------------------------------------------------------
                                                  Amortized         Unrealized        Unrealized         Market
                                                    Cost              Gains             Losses            Value
                                                 ------------      ------------      ------------       ---------


<S>                                              <C>               <C>               <C>               <C>
States and political subdivisions                 $1,660,034        $   30,583        $      806        $1,689,811
                                                  ==========        ==========        ==========        ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                   1996
                                                -------------------------------------------------------------------
                                                  Amortized         Unrealized        Unrealized          Market
                                                    Cost              Gains             Losses            Value
                                                -------------      ------------       -----------       -----------


<S>                                             <C>                <C>               <C>                <C>
States and political subdivisions                 $1,659,519        $   12,652        $    6,208        $1,665,963
                                                  ==========        ==========        ==========        ==========
</TABLE>

   The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31:


<TABLE>
<CAPTION>
                                                                                   1997
                                                -------------------------------------------------------------------
                                                  Amortized         Unrealized       Unrealized          Market
                                                    Cost              Gains            Losses             Value
                                                -------------      ------------     ------------      -------------

<S>                                             <C>                <C>              <C>               <C>
U.S. Treasury securities                          $1,004,669        $    4,237        $       --       $ 1,008,906
U.S. Government agencies and
   corporations                                   17,775,443             9,698            20,174        17,764,967
States and political subdivisions                  2,213,180            30,176             1,130         2,242,226
Mortgage-backed securities                         4,096,992            12,231            71,663         4,037,560
                                                 -----------        ----------        ----------       -----------
                                                 $25,090,284        $   56,342        $   92,967       $25,053,659
                                                 ===========        ==========        ==========       ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                   1996
                                                -------------------------------------------------------------------
                                                  Amortized         Unrealized        Unrealized         Market
                                                    Cost              Gains             Losses            Value
                                                -------------      ------------      ------------     -------------

<S>                                             <C>                <C>               <C>              <C>
U.S. Treasury securities                          $  496,410        $      152        $       --       $   496,562
U.S. Government agencies and
   corporations                                    7,882,039             3,660            23,787         7,861,912
Mortgage-backed securities                         4,975,955             2,189           191,358         4,786,786
                                                 -----------        ----------        ----------       -----------
                                                 $13,354,404        $    6,001        $  215,145       $13,145,260
                                                 ===========        ==========        ==========       ===========
</TABLE>


                                     Page 17



<PAGE>   58





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE D--INVESTMENT SECURITIES, (Continued)

   Other investments at December 31, 1997 and 1996 consists of stock in the
Federal Home Loan Bank of Atlanta and Eagle Bank stock.

   The net unrealized loss on available for sale securities at December 31, 1997
and 1996, net of the related deferred taxes of $12,452 and $71,110, is $24,172
and $138,034, respectively, and is included as a separate component of
stockholders' equity.

   The investment securities classified as available for sale at December 31,
1997, with a market value of approximately $25,054,000, consist of Government
National Mortgage Association, Federal Home Loan Mortgage Corporation and
Federal National Mortgage Association mortgage-backed pools and collateralized
mortgage obligations which have floating-rate yields with caps on the yields.
Approximately $4,216,000 of these securities are derivative securities. These
securities have stated maturities ranging from 1998 through 2023 and have a
current weighted average net yield of 6.13 percent. The market value of these
securities is generally affected positively by declining interest rates and
negatively by increasing interest rates. In addition, the market value increases
or decreases based on supply and/or demand for a particular type of security and
various other factors. Presently, the market value of these securities is
volatile due to the above interest and market factors.

   The amortized cost and estimated market value of investment securities held
to maturity and available for sale at December 31, 1997, by contractual
maturity, are shown below. Expected maturities differ from contractual
maturities because borrowers may have the right to call or repay obligations
without call or prepayment penalties. Mortgage-backed securities have been
allocated based on stated maturity dates after considering assumed prepayment
patterns.


<TABLE>
<CAPTION>
                                                     Investment Securities                Investment Securities
                                                        Held to Maturity                    Available for Sale
                                                 -------------------------------     ------------------------------
                                                  Amortized           Market           Amortized           Market
                                                    Cost               Value              Cost              Value
                                                 ------------      -------------     --------------     -----------
<S>                                              <C>               <C>               <C>                <C>
Due in one year or less                           $       --        $       --       $ 9,046,701       $ 9,044,449
Due after one year through five years                884,540           895,550         5,484,253         5,495,051
Due after five years through ten years               515,505           524,084         7,525,119         7,538,634
Due after ten years                                  259,989           270,177         3,034,211         2,975,525
                                                  ----------        ----------       -----------       -----------
                                                  $1,660,034        $1,689,811       $25,090,284       $25,053,659
                                                  ==========        ==========       ===========       ===========
</TABLE>

   Proceeds from sales of investment securities available for sale during 1997
and 1996 were $6,922,630 and $9,612,201, respectively, with gross gains of
$13,144 and $27,287 and gross losses of $21,861 and $27,458 realized on those
sales. There were no sales of investment securities in 1995. Maturities and
principal repayments of investment securities available for sale during 1997,
1996 and 1995 were $417,812, $3,923,293 and $5,971,418, respectively, with gross
gains of $1,226, $660 and $32 and gross losses of $825, $347 and $0 realized on
those transactions.

                                     Page 18



<PAGE>   59





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE D--INVESTMENT SECURITIES, (Continued)

   Investment securities with amortized costs of approximately $600,000 and
$600,000 and market values of approximately $598,691 and $599,544 at December
31, 1997 and 1996, respectively, were pledged to secure public funds on deposit,
securities sold under agreements to repurchase, and other purposes as required
by law.

   At December 31, 1997, the Bank has no outstanding off-balance-sheet
derivative financial instruments such as swaps, options, futures or forward
contracts.


NOTE E--LOANS

   Major classifications of loans are as follows at December 31:


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

<S>                                              <C>                  <C>
Commercial, financial and agricultural           $ 15,855,022         $ 17,340,052
Real estate--commercial                            24,454,646           25,713,790
Real estate--individual                            18,152,167           12,898,096
Real estate--construction                          21,296,534           19,505,888
Installment and single payment individual           5,675,875            5,255,715
Credit cards                                               --            1,375,249
Other                                                  16,991               28,799
                                                 ------------         ------------
   Total loans                                     85,451,235           82,117,589
Net deferred loan fees                               (202,964)            (201,608)
                                                 ------------         ------------
   Loans, net of deferred loan fees              $ 85,248,271         $ 81,915,981
                                                 ============         ============
</TABLE>

   Substantially all loans are made to borrowers in the Bank's primary market
area of Fayette, Coweta and Fulton counties. At December 31, 1997 and 1996, the
Bank had approximately $64,000,000 and $58,000,000, respectively, of its
portfolio secured by real estate.

   Nonaccrual and restructured loans totaled $509,038 and $318,767 at December
31, 1997 and 1996, respectively. If such loans had been on a full-accrual basis,
interest income would have been approximately $38,000 and $19,000 higher in 1997
and 1996, respectively. Interest income recognized on these loans totaled
approximately $59,000 and $250, respectively.

   At December 31, 1997 and 1996, the Bank has approximately $508,000 and
$966,000 in loans which are impaired under SFAS 114. During 1997 and 1996, the
average balance outstanding on these loans was approximately $644,000 and
$1,087,000. In 1996, the Bank charged off approximately $325,000 of impaired
loans, leaving approximately $150,000 in the allowance for loan loss related to
loans impaired at December 31, 1996. During 1997, the Bank charged off
approximately $304,000 of impaired loans which were considered impaired in 1996.
The allowance for loan loss related to loans impaired at December 31, 1997, is
$51,000.

                                     Page 19



<PAGE>   60





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE E--LOANS, (Continued)

   The following is a summary of transactions in the allowance for loan losses
for the years ended December 31:


<TABLE>
<CAPTION>
                                                     1997                 1996               1995
                                                  -----------         -----------         -----------

<S>                                               <C>                 <C>                 <C>
Balance, beginning of year                        $ 1,214,173         $   918,036         $   715,230
Provision charged to expense                          620,000             856,312             335,000
Loans charged off                                    (414,590)           (583,332)           (170,909)
Recoveries of loans previously charged off            284,735              23,157              38,715
                                                  -----------         -----------         -----------
Balance, end of year                              $ 1,704,318         $ 1,214,173         $   918,036
                                                  ===========         ===========         ===========
</TABLE>

   Included in loans charged off for 1997 and 1996 were approximately $304,000
and $325,000 of impaired loans from 1996.


NOTE F--PREMISES AND EQUIPMENT

   Premises and equipment are comprised of the following at December 31:


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

<S>                                      <C>                 <C>
Land                                     $   900,187         $   900,187
Buildings                                  2,084,546           2,054,685
Furniture, fixtures and equipment          1,330,617           1,373,301
                                         -----------         -----------
                                           4,315,350           4,328,173
Less:  Accumulated depreciation           (1,150,324)           (975,769)
                                         -----------         -----------
   Premises and equipment, net           $ 3,165,026         $ 3,352,404
                                         ===========         ===========
</TABLE>

   The charge to operating expense for depreciation totaled $226,223, $216,060
and $189,228 in 1997, 1996 and 1995, respectively.




                                     Page 20



<PAGE>   61





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE G--SHORT-TERM BORROWINGS

   The Bank utilizes short-term borrowings as needed for liquidity purposes in
the form of federal funds purchased and securities sold under agreements to
repurchase, which generally represent overnight borrowing transactions. The Bank
has unsecured lines of credit for federal funds purchased from other banks
totaling $4,500,000 at December 31, 1997. There were no amounts outstanding
under these lines at December 31, 1996. The maximum and daily average amounts of
federal funds purchased during 1997 and 1996 were approximately $3,000,000 and
$342,000, respectively, for 1997 and $4,840,000 and $268,000, respectively, for
1996. The maximum outstanding amount was greater than the credit line in 1996
due to temporary increases in existing federal funds lines with a correspondent
bank. The average interest rate paid on the federal funds purchased in 1997 and
1996 was 5.93 and 4.52 percent, respectively.

   The Bank has established a $12,000,000 repurchase agreement with a
correspondent bank. Advances under this agreement will be collateralized by the
Bank's investment securities held by the correspondent bank. Management may
select the securities to sell under agreements to repurchase. At December 31,
1997, the Bank had no outstanding securities sold under agreements to
repurchase. The maximum and daily average amounts of securities sold under
agreements to repurchase during 1997 were approximately $3,000,000 and $53,000,
respectively, and the average interest rate paid was 5.78 percent. There were no
advances under this agreement during 1996.

   The Bank has also established a $5,000,000 line of credit with the Federal
Home Loan Bank. Any advances under this agreement will be collateralized by real
estate mortgage loans. There were no advances under this agreement in 1997 or
1996.


NOTE H--TIME DEPOSITS

   At December 31, 1997, the scheduled maturities of time deposits of $100,000
or more and other time deposits are as follows:


<TABLE>
<S>                                                        <C>
1998                                                       $39,073,344
1999 and 2000                                               16,218,875
2001 and thereafter                                            790,441
                                                           -----------
                                                           $56,082,660
                                                           ===========
</TABLE>




                                     Page 22



<PAGE>   62





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995



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

NOTE I--INCOME TAXES

   The following are the components of income tax expense as provided for the
years ended December 31:


<TABLE>
<CAPTION>
                                                   1997               1996                1995
                                               -----------         -----------         -----------
<S>                                            <C>                 <C>                 <C>
Current income tax provision:
   Federal                                     $ 1,020,268         $   748,799         $   466,188
   State                                           127,885              82,953              35,831
Deferred income tax provision (benefit)           (251,946)           (132,179)             59,456
                                               -----------         -----------         -----------
                                               $   896,207         $   699,573         $   561,475
                                               ===========         ===========         ===========
</TABLE>

   A reconciliation of income tax computed at the Federal statutory income tax
rate to total income taxes is as follows for the years ended December 31:


<TABLE>
<CAPTION>
                                                              1997                1996                 1995
                                                           -----------         -----------         -----------

<S>                                                        <C>                 <C>                 <C>
Pretax income                                              $ 2,463,787         $ 1,953,984         $ 1,583,722
                                                           ===========         ===========         ===========

Income taxes computed at Federal statutory tax rate        $   837,688         $   664,355         $   538,465
Increase (decrease) resulting from:
   Tax-exempt interest income                                  (33,116)            (26,876)            (29,079)
   State income taxes                                           67,057              49,938              22,310
   Other, net                                                   24,578              12,156              29,779
                                                           -----------         -----------         -----------
                                                           $   896,207         $   699,573         $   561,475
                                                           ===========         ===========         ===========
</TABLE>
















                                     Page 22



<PAGE>   63





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE I--INCOME TAXES, (Continued)

   The following summarizes the tax effects of temporary differences which
comprise the net deferred tax assets at December 31:


<TABLE>
<CAPTION>
                                                                        1997              1996
                                                                      ---------         ---------
<S>                                                                   <C>               <C>
Deferred income tax assets:
   Allowance for loan losses                                          $ 498,094         $ 311,515
   Other real estate owned                                               24,004             9,794
   Deferred loan fees                                                    77,045            99,724
   Unrealized loss on investment securities available for sale           12,452            71,110
   Nonaccrual interest                                                   30,130                97
   Capital losses                                                        15,405            23,083
                                                                      ---------         ---------
      Total deferred income tax assets                                  657,130           515,323
                                                                      ---------         ---------

Deferred income tax liabilities:
   Accumulated depreciation                                            (127,280)         (127,857)
   Intangible assets                                                    (23,282)          (74,186)
                                                                      ---------         ---------
      Total deferred income tax liabilities                            (150,562)         (202,043)
                                                                      ---------         ---------

      Net deferred income tax asset                                   $ 506,568         $ 313,280
                                                                      =========         =========
</TABLE>


NOTE J--EMPLOYEE BENEFIT PLAN

   The Bank sponsors an Internal Revenue Code Section 401(k) Employee Savings
Plan that permits an employee to defer annual cash compensation. The Bank's
Board of Directors determines the Bank's contribution, which was $46,320 in
1997, $34,526 in 1996 and $16,920 in 1995.


NOTE K--RELATED PARTY TRANSACTIONS

   As of December 31, 1997 and 1996, the Bank had direct and indirect loans
which aggregated $1,042,359 and $2,299,706, respectively, outstanding to or for
the benefit of certain of the Bank's officers, directors, and their related
interests. During 1997, $68,958 of such loans were made and repayments totaled
$1,326,305. These loans were made in the ordinary course of business in
conformity with normal credit terms, including interest rates and collateral
requirements prevailing at the time for comparable transactions with other
borrowers. These individuals and their related interests also maintain customary
demand and time deposit accounts with the Bank.



                                     Page 23



<PAGE>   64





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE K--RELATED PARTY TRANSACTIONS, (Continued)

   As discussed in Note O, the Bank had a concentration of deposits with two
customers in 1997 and three customers and their related entities in 1996. Of
these amounts, approximately $6,715,900 and $9,046,000 were from certain bank
directors and their related interests at December 31, 1997 and 1996,
respectively. These deposits were made in conformity with normal banking terms
and rates prevailing at the time of origination.


NOTE L--STOCKHOLDERS' EQUITY

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

   Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following tables) of Tier 1 capital (as defined in the regulations) to total
average assets (as defined), and minimum ratios of Tier 1 and total capital (as
defined) to risk weighted assets (as defined). As of December 31, 1997, the most
recent notification from the Federal Deposit Insurance Corporation categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since that notification
that management believes has changed the Bank's category. To be considered well
capitalized and adequately capitalized (as defined) under the regulatory
framework for prompt corrective action, the Bank must maintain minimum Tier 1
leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the
table. The Bank's actual capital amounts and ratios are also presented in the
tables.


<TABLE>
<CAPTION>
                                                                                   1997
                                               ----------------------------------------------------------------------------
                                                                                Adequately
                                                  Well Capitalized              Capitalized
                                                     Requirement                Requirement                  Actual
                                                   Amount (Ratio)             Amount (Ratio)             Amount (Ratio)
                                               -----------------------    -----------------------    ----------------------
<S>                                           <C>             <C>        <C>                 <C>    <C>               <C>
Tier 1 Capital (to Average Assets)            $>= 6,053,455   >=  5.0%   $   4,842,764       4.0%   $  10,205,032      8.4%
Tier 1 Capital (to Risk Weighted Assets)      $>= 5,851,311   >=  6.0%   $   3,900,874       4.0%   $  10,205,032     10.5%
Total Capital (to Risk Weighted Assets)       $>= 9,752,186   >= 10.0%   $   7,801,748       8.0%   $  11,424,056     11.7%
</TABLE>


<TABLE>
<CAPTION>
                                                                                   1996
                                               ----------------------------------------------------------------------------
                                                                                Adequately
                                                  Well Capitalized              Capitalized
                                                     Requirement                Requirement                  Actual
                                                   Amount (Ratio)             Amount (Ratio)             Amount (Ratio)
                                               -----------------------    -----------------------    ----------------------
<S>                                           <C>             <C>        <C>                 <C>    <C>               <C>
Tier 1 Capital (to Average Assets)            $>= 5,377,626   >=  5.0%   $   4,302,101       4.0%   $   8,817,186      8.2%
Tier 1 Capital (to Risk Weighted Assets)      $>= 5,213,522   >=  6.0%   $   3,475,681       4.0%   $   8,817,186     10.2%
Total Capital (to Risk Weighted Assets)       $>= 8,689,203   >= 10.0%   $   6,951,362       8.0%   $   9,903,347     11.4%
</TABLE>


                                    Page 24



<PAGE>   65



                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE L--STOCKHOLDERS' EQUITY, (Continued)

   Management believes, as of December 31, 1997, that the Bank meets all capital
requirements to which it is subject.

   The Parent Company's primary source of funds is the receipt of dividends from
the Bank. Banking regulations limit the amount of dividends that may be paid
without prior approval of the Bank's regulatory agency. At December 31, 1997,
total stockholder's equity of the Bank was $10,428,424 of which approximately
$802,000 will be available for dividends in 1998 without prior approval or
violation of regulatory capital requirements.

   Shares of preferred stock may be issued from time to time in one or more
series, as may be established by resolution of the Board of Directors of the
Company. Each resolution shall include the number of shares issued, distinctive
designation or title, voting powers, preferences, special rights and
restrictions as determined by the Board. The Board is also further authorized to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series.


NOTE M--STOCK-BASED COMPENSATION

   The Company granted a total of 33,075 common stock options to a former
executive. The options were granted at the rate of 6,615 per year through
January 3, 1994. The option price is the greater of book value per share at the
date of grant or the initial offering price of $4.54 per share. Each option must
be exercised within five years of the grant date. Summarized information related
to these options is as follows at December 31:


<TABLE>
<CAPTION>
                                               1997                          1996
                                      -----------------------       -----------------------
                                                    Weighted                     Weighted
                                                    Average                       Average
                                                    Exercise                     Exercise
                                       Shares       Price          Shares         Price
                                      --------      --------      --------      ----------

<S>                                   <C>           <C>           <C>           <C>
Outstanding, beginning of year         17,640        $4.54          17,640       $ 4.54
Granted during year                        --           --              --           --
Exercised during year                 (12,914)        4.54              --           --
Expired during year                        --           --              --           --
Forfeited during year                    (316)          --              --           --
                                      -------        -----          ------       ------
Outstanding, end of year                4,410        $4.54          17,640       $ 4.54
                                      =======        =====          ======       ======

Options exercisable at year-end         4,410                       17,640
                                      =======                       ======
</TABLE>



                                     Page 25



<PAGE>   66





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE M--STOCK-BASED COMPENSATION, (Continued)

   During 1995, the Company's stockholders approved a stock option plan which
allows for a total of 216,090 options to be granted to directors and executive
officers. In 1995, a total of 141,120 shares were granted to directors with an
exercise price of $5.13 per share. The options vest over a four-year period and
expire in 2004. An additional 36,603 shares were granted in 1995 to executive
officers with an exercise price of $5.56 per share. These options also vest over
a five-year period and expire in 2005. During 1996, the Company granted 38,852
shares to executive officers with an exercise price of $9.52 per share. The
options vest over a five-year period and expire in 2007. Summarized information
related to these options is as follows at December 31:


<TABLE>
<CAPTION>
                                                                           1997                         1996
                                                                 -------------------------     ------------------------
                                                                                 Weighted                    Weighted
                                                                                 Average                      Average
                                                                                 Exercise                    Exercise
                                                                   Shares         Price         Shares         Price
                                                                 ----------     ----------     ---------    -----------


<S>                                                              <C>            <C>            <C>          <C>
Outstanding, beginning of year                                    213,927        $ 6.00          175,077        $5.21
Granted during year                                                    --            --           38,850         9.52
Exercised during year                                              (5,204)         5.13               --           --
Forfeited during year                                                (150)           --               --           --
Expired during year                                                    --            --               --           --
                                                                ---------        ------         --------        -----
Outstanding, end of year                                          208,573        $ 6.02          213,927        $6.00
                                                                =========        ======         ========        =====

Options exercisable at year-end                                   121,838                         77,351
                                                                =========                       ========
   Weighted average fair value of options granted
    during the year                                                                             $   4.13
                                                                                                ========
</TABLE>

   The following tables summarize information about the Company's two fixed
stock option plans at December 31:


<TABLE>
<CAPTION>
                                                              1997
    ------------------------------------------------------------------------------------------------------------------------
                                            Options Outstanding                                 Options Exercisable
                          -------------------------------------------------------      -------------------------------------
                                                      Weighted
                                                       Average         Weighted                                    Weighted
       Range of                   Number              Remaining         Average                Number              Average
       Exercise               Outstanding at         Contractual       Exercise            Exercisable at          Exercise
         Price              December 31, 1997           Life             Price            December 31,1997          Price
    ---------------       ----------------------    -------------     -----------      ----------------------     ----------


    <S>                   <C>                       <C>               <C>              <C>                        <C>
    $ 4.54 - 5.56                 174,133                6.01            $5.20                  118,478              $5.16
         9.52                      38,850                9.80             9.52                    7,770               9.52
                                  -------                ----            -----                  -------              -----
                                  212,983                6.70            $5.99                  126,248              $5.43
                                  =======                ====            =====                  =======              =====
</TABLE>




                                     Page 26



<PAGE>   67





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE M--STOCK-BASED COMPENSATION, (Continued)


<TABLE>
<CAPTION>
                                                              1996
    ------------------------------------------------------------------------------------------------------------------------
                                            Options Outstanding                                 Options Exercisable
                          -------------------------------------------------------      -------------------------------------
                                                      Weighted
                                                       Average         Weighted                                    Weighted
       Range of                   Number              Remaining         Average                Number              Average
       Exercise               Outstanding at         Contractual       Exercise            Exercisable at          Exercise
         Price              December 31, 1996           Life             Price            December 31,1996          Price
    ---------------       ----------------------    -------------     -----------      ----------------------     ----------


    <S>                   <C>                       <C>               <C>              <C>                        <C>
    $ 4.54 - 5.56                 192,717                 6.70           $5.15                   94,991              $5.05
         9.52                      38,850                10.00            9.52                       --                 --
                                  -------                -----           -----                   ------              -----
                                  231,567                 7.30           $5.88                   94,991              $5.05
                                  =======                =====           =====                   ======              =====
</TABLE>

   At December 31, 1997, the Company has two stock-based compensation plans
which are described in the preceding table. The Company applies APB 25 and
related Interpretation in accounting for its plans. Accordingly, no compensation
cost has been recognized for the Company's stock option plans in 1997 or 1996.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net income and
earnings per common share would have been reduced to the pro forma amounts
indicated as follows:


<TABLE>
<CAPTION>
                                                      For the years
                                                   ended December 31,
                                                ------------------------
                                                   1997           1996
                                                ----------     ---------

<S>                                             <C>            <C>
Net income
   As reported                                  $1,567,580     $1,254,411
   Pro forma                                     1,478,036      1,164,867

Basic earnings per common share
   As reported                                  $     1.15     $      .92
   Pro forma                                          1.08            .86

Diluted earnings per common share
   As reported                                  $     1.09     $      .88
   Pro forma                                          1.02            .81
</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 used for grants in 1996: dividend yield of 1.5 percent, expected
volatility of 38 percent, risk-free interest rate of 6.5 percent, and expected
life of ten years.

                                     Page 27



<PAGE>   68





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE M--STOCK-BASED COMPENSATION, (Continued)

   As discussed in Note B, no adjustments for the anticipated merger of the
Company with a regional bank have been made in these consolidated financial
statements. Consequently, the contractual vesting period for the stock options
has been used for these computations.


NOTE N--COMMITMENTS AND CONTINGENCIES

   The Bank is 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. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.

   The Bank's exposure to credit loss in the event of nonperformance by the
customer on the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

   A commitment to extend credit is an agreement to lend to a customer as long
as there is no violation of any condition established in the commitment
agreement. Commitments generally have fixed expiration dates or other
termination clauses and may require the 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. At
December 31, 1997 and 1996, total commitments to extend credit were
approximately $16,661,000 and 15,771,000, respectively, in unfunded loan
commitments and $0 and $6,074,000, respectively, in available credit card
advances (see Note Q). The Bank's experience has been that approximately 60
percent of loan commitments are drawn upon by customers.

   Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Since most of the letters of credit
are expected to expire without being drawn upon, they do not necessarily
represent future cash requirements. At December 31, 1997 and 1996, commitments
under standby letters of credit aggregated approximately $228,000 and 70,000,
respectively. In 1997 and 1996, the Bank was not required to perform on any
standby letters of credit.

   The Bank evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the borrower.
Collateral held varies but may include accounts receivable; inventory; property,
plant and equipment; residential real estate; and income-producing commercial
properties on those commitments for which collateral is deemed necessary.



                                     Page 28



<PAGE>   69





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE N--COMMITMENTS AND CONTINGENCIES, (Continued)

   The Company has employment contracts with five of its executive officers.
Such agreements provide for minimum salary levels, adjustable solely at the
discretion of the Board of Directors, in the event a change in ownership occurs.
The term of the employment agreements would be 24 months for four of these
officers and 36 months for one of these officers. If such a change of ownership
had occurred on December 31, 1997, the commitment for future salary payments
would have been $1,044,520.


NOTE O--DEPOSIT CONCENTRATIONS

   At December 31, 1997 and 1996, the Bank had deposits of approximately
$17,928,000 from two customers and their related entities and $13,021,000 from
three customers and their related entities, respectively. (See Note K.)


NOTE P--SUPPLEMENTAL FINANCIAL DATA

   Components of other expense in excess of 1 percent of total interest and
other income are as follows for the years ended December 31:


<TABLE>
<CAPTION>
                                     1997             1996            1995
                                   ---------       ----------      ----------

<S>                                <C>             <C>             <C>
FDIC assessment                     $  7,609         $240,303        $113,654
Director fees                        122,500          106,900          84,600
</TABLE>


























                                     Page 29



<PAGE>   70





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE Q--FAIR VALUES OF FINANCIAL INSTRUMENTS

   The estimated fair values of the Company's financial instruments are as
follows at December 31:


<TABLE>
<CAPTION>
                                                                1997                               1996
                                                 -----------------------------        ------------------------------
                                                  Carrying         Estimated           Carrying           Estimated
                                                    Value          Fair Value            Value            Fair Value
                                                 -----------      ------------        -----------        -----------
<S>                                              <C>              <C>                 <C>                <C>
Financial assets:
   Cash and cash equivalents                     $14,819,173      $14,819,173         $ 7,177,785        $ 7,177,785
   Interest-bearing deposits                          47,286           47,286              25,088             25,088
   Investment securities held to
      maturity                                     1,660,034        1,689,811           1,659,519          1,665,963
   Investment securities available for
      sale                                        25,053,659       25,053,659          13,145,260         13,145,260
   Other investments                                 575,500          575,500             273,200            273,200
   Loans                                          85,248,271       85,141,000          81,915,981         81,989,000
   Accrued interest receivable                     1,280,200        1,280,200             885,625            885,625

Financial liabilities:
   Noncontractual deposits                       $62,951,217      $62,951,217         $42,018,990        $42,018,990
   Contractual deposits                           56,082,660       56,350,000          56,125,376         56,424,000
   Short-term borrowings                                  --               --                  --                 --
   Accrued interest payable                        1,429,043        1,429,043             941,468            941,468

Off-balance-sheet instruments:
   Undisbursed credit lines                                       $16,661,000                            $15,771,000
   Available credit card advances                                          --                              6,074,000
   Standby letters of credit                                          228,000                                 70,000
</TABLE>


NOTE R--SUBSEQUENT EVENT

   On January 15, 1998, the Board of Directors of the Company declared a
two-for-one stock split distributable on February 20, 1998, to shareholders of
record January 30, 1998. This will result in 684,506 additional shares being
issued. All references in the consolidated financial statements to numbers of
shares, per share amounts, and market prices of the Company's common stock have
been retroactively restated to reflect the increased number of shares
outstanding as if the two-for-one stock split occurred January 1, 1995.



                                     Page 30



<PAGE>   71





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE S--CONDENSED FINANCIAL INFORMATION OF FIRST COMMUNITY BANKING SERVICES,
         INC.

                            CONDENSED BALANCE SHEETS
                                  (Parent Only)


<TABLE>
<CAPTION>
                                                        December 31,
                                              --------------------------------
                                                  1997                 1996
                                              ------------         ------------
<S>                                           <C>                  <C>
                            ASSETS

Cash on deposit with subsidiary               $     81,891         $     17,291
Investment in subsidiary                        10,404,252            9,149,867
Other investment                                   250,000                   --
                                              ------------         ------------

      TOTAL ASSETS                            $ 10,736,143         $  9,167,158
                                              ============         ============

  LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Accounts payable                           $      4,733         $      2,442
                                              ------------         ------------
      TOTAL LIABILITIES                              4,733                2,442
                                              ------------         ------------

STOCKHOLDERS' EQUITY
   Common stock                                  1,369,012            1,286,124
   Treasury stock                                   (8,386)                  --
   Surplus                                       6,332,802            5,453,839
   Retained earnings                             3,062,154            2,562,787
   Market valuation reserve
      on investment securities
      available for sale                           (24,172)            (138,034)
                                              ------------         ------------

      TOTAL STOCKHOLDERS' EQUITY                10,731,410            9,164,716
                                              ------------         ------------

      TOTAL LIABILITIES AND
        STOCKHOLDERS' EQUITY                  $ 10,736,143         $  9,167,158
                                              ============         ============
</TABLE>


                                     Page 31



<PAGE>   72





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE S--CONDENSED FINANCIAL INFORMATION OF FIRST COMMUNITY BANKING SERVICES,
          INC., (Continued)

                         CONDENSED STATEMENTS OF INCOME
                                  (Parent Only)


<TABLE>
<CAPTION>
                                                    For the years ended December 31,
                                           -------------------------------------------------
                                              1997                1996               1995
                                           -----------        -----------        -----------
<S>                                        <C>                <C>                <C>
OPERATING INCOME
   Dividends from subsidiary               $   463,819        $   183,732        $    20,000
   Other income                                    441                562                651
                                           -----------        -----------        -----------
         TOTAL OPERATING INCOME                464,260            184,294             20,651
                                           -----------        -----------        -----------

OPERATING EXPENSE
   Other expense                                56,145             56,903            115,462
                                           -----------        -----------        -----------
         TOTAL OPERATING EXPENSE                56,145             56,903            115,462
                                           -----------        -----------        -----------

INCOME (LOSS) BEFORE INCOME TAX
   BENEFIT AND EQUITY IN
   UNDISTRIBUTED EARNINGS OF
   SUBSIDIARY                                  408,115            127,391            (94,811)

INCOME TAX BENEFIT                              18,940             18,841             39,036
                                           -----------        -----------        -----------

INCOME (LOSS) BEFORE EQUITY IN
   UNDISTRIBUTED EARNINGS OF
   SUBSIDIARY                                  427,055            146,232            (55,775)

EQUITY IN UNDISTRIBUTED EARNINGS OF
   SUBSIDIARY                                1,140,525          1,108,179          1,078,022
                                           -----------        -----------        -----------

NET INCOME                                 $ 1,567,580        $ 1,254,411        $ 1,022,247
                                           ===========        ===========        ===========
</TABLE>






                                     Page 32



<PAGE>   73





                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

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

NOTE S--CONDENSED FINANCIAL INFORMATION OF FIRST COMMUNITY BANKING SERVICES,
          INC., (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (Parent Only)


<TABLE>
<CAPTION>
                                                                     For the years ended December 31,
                                                            ---------------------------------------------------
                                                                1997               1996                1995
                                                            -----------         -----------         -----------
<S>                                                         <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING
   ACTIVITIES
      Net income                                            $ 1,567,580         $ 1,254,411         $ 1,022,247
      Equity in undistributed earnings of subsidiary         (1,140,525)         (1,108,179)         (1,078,022)
      Increase (decrease) in other assets                            --              39,036             (21,673)
      Increase (decrease) in other liabilities                    2,293                 180              (1,164)
                                                            -----------         -----------         -----------
         NET CASH PROVIDED (USED) BY
            OPERATING ACTIVITIES                                429,348             185,448             (78,612)
                                                            -----------         -----------         -----------

CASH FLOWS FROM INVESTING
ACTIVITIES
   Purchase of other investment                                (250,000)                 --                  --
                                                            -----------         -----------         -----------
         NET CASH USED BY INVESTING
            ACTIVITIES                                         (250,000)                 --                  --
                                                            -----------         -----------         -----------

CASH FLOWS FROM FINANCING
   ACTIVITIES
      Proceeds from exercise of stock options and
         warrants                                                87,456                  --              60,000
      Dividends paid                                           (193,818)           (183,732)           (152,360)
      Purchase of treasury stock                                 (8,386)                 --                  --
                                                            -----------         -----------         -----------
         NET CASH USED BY FINANCING
            ACTIVITIES                                         (114,748)           (183,732)            (92,360)
                                                            -----------         -----------         -----------

NET INCREASE (DECREASE) IN CASH                                  64,600               1,716            (170,972)

CASH, BEGINNING OF YEAR                                          17,291              15,575             186,547
                                                            -----------         -----------         -----------

CASH, END OF YEAR                                           $    81,891         $    17,291         $    15,575
                                                            ===========         ===========         ===========
</TABLE>


                                     Page 33
<PAGE>   74






ITEM 8.           DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         None.



                                       38

<PAGE>   75



                                    PART III

         The information required by Part III of Form 10-KSB is, pursuant to
General Information G(3) of Form 10-KSB, incorporated by reference from the
Company's definitive proxy statement (the "1998 Proxy Statement") to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A for the
Company's 1998 Annual Meeting of Shareholders to be held on April 24, 1998.


ITEM 9.           DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information set forth under the caption "Directors and Executive
Officers of the Company and the Bank" and "Compensation of Directors and
Executive Officers--Compliance with Beneficial Ownership Reporting Rules" in the
1998 Proxy Statement is incorporated herein by reference.


ITEM 10.          EXECUTIVE COMPENSATION

         The information contained under the caption "Compensation of Directors
and Executive Officers" in the 1998 Proxy Statement is incorporated herein by
reference.


ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

         The information contained under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the 1998 Proxy Statement is
incorporated herein by reference.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information contained under the caption "Certain Relationships and
Related Transactions" in the 1998 Proxy Statement is incorporated herein by
reference.


                                       39

<PAGE>   76



                                     PART IV

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

(a)       1.  Financial Statements

         The consolidated financial statements, notes thereto and independent
         accountant's report thereon, filed as part hereof, are listed in the
         Index to Item 8.

         2.  Financial Statement Schedules

         All other financial statements or schedules have been omitted since the
         required information is included in the consolidated financial
         statements or notes thereto or is not applicable or required.

         3.  Exhibits

<TABLE>
<CAPTION>
         Exhibit
         Number                                      Description
         ------                                      -----------
         <S>                        <C>

         3.1*                       Articles of Incorporation
         3.2*                       Bylaws
         10.5***                    Settlement Agreement and Release with Fayette County
                                    Bancshares, Inc. and Terry L. Miller as of October 21, 1994.
         10.6***                    Fayette County Bancshares, Inc. Stock Option Plan
         10.7****                   Purchase Agreement-Credit Card Accounts dated January 23,
                                    1997 between Fayette County Bank and Carolina First
         10.8                       Employment agreement between Fayette County
                                    Bank and Rick A. Duncan dated February 21, 1996.
         10.9                       Employment agreement between Fayette County
                                    Bank and Malcolm R. Godwin dated February 21, 1996.
         10.10                      Employment agreement between Fayette County
                                    Bank and Ira P. Shepherd dated February 21, 1996.
         10.11                      Employment agreement between Fayette County
                                    Bank and Mark B. Kearsley dated February 21, 1996.
         10.12                      Employment agreement between Fayette County
                                    Bank and Richard A. Rodriguez dated February 21, 1996.
         21.1**                     Subsidiaries of the Company
         24                         Power of Attorney (contained on the Signature Page)
         27                         Financial Data Schedule
</TABLE>


*    Previously filed as exhibits to the Company's Registration Statement on
     Form S-18 (Registration No. 33-6658-A) and incorporated herein by
     reference.


                                       40

<PAGE>   77

**       Previously filed as exhibit to the Company's Annual Report on Form
         10-KSB for the year ended December 31, 1990.

***      Previously filed as exhibits to the Company's Annual Report on Form
         10-KSB for the year ended December 31, 1994.

****     Previously filed as exhibits to the Company's Annual Report on Form
         10-KSB for the year ended December 31, 1996.

(b)      Reports on Form 8-K
         No Form 8-K was filed by the Company in the fourth quarter, 1997.
         However, the Company did file a Form 8-K on March 2, 1998 announcing a
         merger agreement between First Community Banking Services, Inc. and
         Regions Financial Corporation.

                                       41

<PAGE>   78



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized March 27,
1998.

                     FIRST COMMUNITY BANKING SERVICES, INC.

By:      /s/ Mark B. Kearsley              By:      /s/ Ira P. Shepherd
         --------------------------                     -----------------------
         Mark B. Kearsley                           Ira P. Shepherd
         Chief Financial Officer                    Chief Executive Officer


                                POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the signature page to this Registration Statement constitutes and
appoints Ira P. Shepherd and Mark B. Kearsley, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments to this Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto these attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that these attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities on March 27, 1998.

         Signature                                             Title

/s/ Robert W. Bertelsbeck                                      Director
-------------------------
Robert W. Bertelsbeck

/s/ Joseph S. Black                                            Director
-------------------------
Joseph S. Black

/s/ Robert C. Gasko                                            Director
-------------------------
Robert C. Gasko


                                       42

<PAGE>   79


<TABLE>
<S>                                                            <C>
/s/ Kerstin M. Gasko                                           Director
-------------------------
Kerstin M. Gasko

/s/ Mukut Gupta                                                Director
-------------------------
Mukut Gupta

/s/ G. Webb Howell                                             Director
-------------------------
G. Webb Howell

/s/ Mark A. Jungers                                            Director
-------------------------
Mark A. Jungers

/s/ John E. Molis                                              Director
-------------------------
John E. Molis

/s/ Richard A. Parlontieri                                     Director
-------------------------
Richard A. Parlontieri

/s/ Donnie H. Russell                                          Director
-------------------------
Donnie H. Russell

/s/ Fred B. Sheats                                             Director
-------------------------
Fred B. Sheats

/s/ H. Geoffrey Slade, Sr.                                     Director
-------------------------
-------------------------
H. Geoffrey Slade, Sr.

/s/ Enrico A. Stanziale                                        Director
-------------------------
Enrico A. Stanziale

/s/ John R. Torretto                                           Director
-------------------------
John R. Torretto


/s/ Mark B. Kearsley                                           /s/ Ira P. Shepherd
-------------------------                                      ---------------------------
Mark B. Kearsley                                               Ira P. Shepherd
Principal Financial and                                        Principal Executive Officer
Accounting Officer

</TABLE>





                                       43