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                       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 (No fee required,
                           effective October 7, 1996)

  For the fiscal year ended                    Commission File Number
      December 31, 1996                                 0-18827

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

           Georgia                                      58-18357525
(State or other Jurisdiction of            (I.R.S. Employer Identification No.)
300 Peachtree Parkway South             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

        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 $10,013,597.

        The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 20, 1997, was $12,571,219.50 based on the sales price of
the Common Stock of $25.50. 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,
1997, was 646,062 shares.

Documents Incorporated by Reference:

        Portions of the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders, scheduled to be held on April 30, 1997, are incorporated by
reference in answer to Part III of this report.




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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.


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        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 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

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bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.

        In addition, and subject to certain exceptions, the BHCA and the Change
in Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of disapproval)
prior to any person or company acquiring "control" of a bank holding company,
such as the Company. Control is conclusively presumed to exist if an individual
or company acquires 25% or more of any class of voting securities of the bank
holding company. 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.


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        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 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.



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        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.

        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.


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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. Due to the high rate
of failures in recent years, the fees that commercial banks and thrifts pay to
BIF and SAIF increased. Since 1993, insured depository institutions like the
Bank have paid for deposit insurance under a risk-based premium system. Under
this system, until mid-1995 depositor institutions paid to BIF or SAIF from
$0.23 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 1996, 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 separates, 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. FICO assessment rates for the
first semi-annual period of 1997 were set at 1.30 basis points annually for BIF
deposits. For the first semi-annual period of 1997, the FDIC Board of Directors
maintained the adjusted rate schedule and the Bank's insurance assessment will
remain at $.00 per $100 in deposits through June, 1997. 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

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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 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, 1996,

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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.

        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, 1996. 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 will allow 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 will permit interstate bank mergers
beginning June 1, 1997.

        In addition, beginning June 1, 1997, the Interstate Banking Act will
permit 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,


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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.

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
Peachtree Parkway South, 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.

        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
operations center and human resources occupy 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,
1996, to a vote of security holders of the Company.


                                     10
<PAGE>   11



                                     PART II

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

        The Company had 646,062 shares of Common Stock issued and outstanding to
approximately 953 shareholders on March 20, 1997.

        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. 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            1995            $22.50              $18.50
         First  Quarter            1996            $19.87              $18.50
         Second Quarter            1996            $21.00              $18.50
         Third Quarter             1996            $21.25              $18.50
         Fourth Quarter            1996            $29.50              $18.75

</TABLE>

        Prior to September 29, 1995, there was no established trading market for
the Common Stock. On March 20, 1997, the last reported sales price of the Common
Stock on the Nasdaq SmallCap Market was $25.50 per share.

        In April 1996, the Company paid to its shareholders a $.30 per share
cash dividend, and in June 1995 the Company paid to its shareholders a $.25 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.

                                     11

<PAGE>   12

ITEM 6.              MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


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,
Income Statement Data:                      1996            1995            1994            1993           1992
                                         ---------      ----------     -----------      ----------     ----------
<S>                                      <C>            <C>             <C>              <C>            <C>
Total Interest Income                    $  9,369       $   7,187       $  5,269         $  4,440       $  4,192
Total Interest Expense                      3,687           2,789          1,559            1,312          1,536
Net Interest Income                         5,682           4,398          3,710            3,128          2,666
Provision for Loan Loss                       856             335             92              412            596
Non Interest Income                           645             536            381              536            385
Non Interest Expense                        3,517           3,015          2,831            2,348          1,986
Provision for Income Taxes                    700             562            373              325            225
Extraordinary Item                            -0-             -0-            -0-              -0-             96
Change in accounting                          -0-             -0-            -0-               27            -0-
Net Income                                  1,254           1,022            795              606            329
Net Income Per Share                         1.85            1.60           1.25             1.00            .55
Dividends paid Per Share                      .30             .25            .20              .10            -0-
Average Shares                            679,790         610,130        606,440          605,940        603,440
Dividend Payout Ratio                      16.21%          14.89%         15.26%            10.0%            -0-

</TABLE>

<TABLE>
<CAPTION>

                                                                     At December 31,
                                              1996          1995         1994           1993          1992
                                           ----------    ----------   ----------     ----------    ----------
Balance Sheet Data:

<S>                                        <C>           <C>          <C>            <C>           <C>
Total Assets                               $108,554      $90,933      $64,965        $67,814       $52,321
Loans, Net of Allowance
for Loan Loss                                80,702       66,853       41,695         42,182        32,349
Demand & Savings                             42,019       40,948       33,852         42,773        28,731
Time Deposits                                56,125       40,489       22,735         17,232        16,797
Stockholders' Equity                          9,165        8,136        6,857          6,624         6,053

Book Value Per Share                          14.25        13.29        11.31          10.92         10.03
Equity to Asset Ratio                         8.44%        8.95%       10.55%          9.77%        11.57%

</TABLE>


                                     12

<PAGE>   13

RESULTS OF OPERATIONS

        The Company's net income increased $232,164, or 22.71%, to $1,254,411 in
the year ended December 31, 1996, from $1,022,247 in the year ended December 31,
1995. This increase predominantly reflects an increase in net interest income
and an increase in other income. Return on average assets for 1996 was 1.23%
compared to 1.26% for 1995, and return on average equity was 15.07% in 1996
compared to 14.83% in 1995. Earnings per share increased $.25 to $1.85 in 1996
or 15.62% from $1.60 in 1995.

        Net interest income increased $1,284,905, or 29.22%, to $5,682,195 in
1996 from $4,397,290 in 1995, resulting from a $2,181,964 increase in interest
income and a $897,059 increase in interest expense. The improvement resulted
predominantly from an increase in the loans outstanding and the net interest
spread to 5.09% in 1996 from 5.07% in 1995, as the general rising interest rate
environment affected assets more rapidly than liabilities. The net interest
margin increased to 6.10% in 1996 from 6.03% in 1995.

        The provision for loan losses was $856,312 in 1996, an increase of
$521,312 from the provision of $335,000 in 1995, primarily as a result of the
increase of $14,144,631 from 1995 in the loan portfolio and the charge off of
commercial loans totaling $391,099. The addition of two senior loan officers
transferring loan relationships to the Bank from other financial institutions
aided in the growth of the Company's loan portfolio. The Company's allowance for
loan losses as a percentage of loans was 1.48% at December 31, 1996, compared to
1.36% at year end 1995. The Company had net charge-offs of $560,175 in 1996,
resulting in a ratio of net charge-offs to average loans of .76%.

        Noninterest income increased $108,356, or 20.19%, to $644,972 in 1996
from $536,616 in 1995. The increase was due primarily to the increase in service
charges on deposit accounts. Service charges accounted for an increase of
$85,459, to $503,621, up 20.43% from $418,162 in 1995. The Bank continues to
increase the number of deposit accounts. Other miscellaneous income such as safe
deposit box rental, check charges and fees for research increased $9,370 or
15.42% to $70,102 in 1996 from $60,732 in 1995.

        Noninterest expense increased $501,687, or 16.63%, to $3,516,871 in
1996, from $3,015,184 in 1995. Salaries and employee benefits increased
$237,844, or 17.19%, to $1,620,921 in 1996 as compared to $1,383,077 in 1995.
This increase is due to the addition of two lenders and support staff for them,
which were staffed the full year of 1996 as compared to 8 months in 1995, and a
one time assessment by the FDIC of $167,056. The Company's efficiency ratio,
which is noninterest expense as a percentage of net interest income plus
noninterest income, net of gains and losses on the sale of assets, decreased to
55.58% in 1996 from 61.12% in 1995.

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

                                     13
<PAGE>   14

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.

                                       14


<PAGE>   15


<TABLE>
<CAPTION>

                                                           1996                                 1995
                                                           ----                                 ----
                                                    Average            Yield/            Average            Yield/
                                                    Balance             Rate             Balance             Rate
<S>                                             <C>                    <C>                <C>                <C>
Assets
   Cash & due from banks                        $  3,167,769            0.00%             $ 3,156,360         0.00%
   Federal funds sold                              3,929,727            5.60%               4,462,767         5.96%
   Interest-bearing deposits with
      other banks                                    179,738            4.86%                 235,906         5.08%
   Taxable securities                             13,694,088            6.12%              12,855,049         6.38%
   Tax exempt securities (1)                       1,687,934            4.68%               1,862,014         4.60%
   Other investments                                 264,981            7.34%                  42,636         7.83%
   Loans(2)                                       73,446,044           11.17%              54,099,512        11.09%
   Other assets                                    5,232,802            0.00%               4,693,799         0.00%
                                                ------------                              -----------
      Total                                     $101,603,083                              $81,408,043
                                                ============                              ===========
Liabilities
   Demand deposits                                16,135,113            0.00%              13,621,030         0.00%
   Interest-bearing demand deposits               21,929,897            3.09%              20,239,475         3.22%
   Savings deposits                                5,963,929            2.42%               5,146,849         2.44%
   Time deposits                                  46,138,495            6.18%              33,674,596         5.94%
   Federal funds purchased                           268,005            4.52%                 101,528         6.54%
   Securities sold under agreements
      to repurchase                                      -0-            0.00%                 140,069         4.20%
   Other liabilities                               2,846,296            0.00%               1,591,243         0.00%
   Shareholders' equity                            8,321,348            0.00%               6,893,253         0.00%
                                                ------------                              -----------
      Total                                     $101,603,083                              $81,408,043
                                                ============                              ===========

</TABLE>

<TABLE>
<CAPTION>

                                                                      1996                 1995
                                                                   ----------           ---------
<S>                                                                  <C>                   <C>
Average yield on interest-earning assets                             10.05%                9.77%
Average rate paid on interest-bearing liabilities                     4.96%                4.70%
Net interest spread                                                   5.09%                5.07%
Net interest margin (net interest earnings divided
   by total interest-earning assets)                                  6.10%                5.98%
</TABLE>

<TABLE>
<CAPTION>

<S>                                                                  <C>                   <C>
Interest income:
Interest and fees on loans (3)                                       $8,202,657            $5,999,755
Investment securities:
   U.S. Treasury securities                                             133,473                87,499
   U.S. Government agencies & corp.                                     705,175               732,659
   States & political subdivisions                                       79,048                85,707
   Other investments                                                     19,460                 3,340
   Interest on federal funds sold                                       220,072               265,766
   Interest on deposits with other banks                                  8,740                11,935
                                                                     -----------           ----------
      Total interest income                                          $9,368,625            $7,186,661
                                                                     -----------           ----------

</TABLE>

                                       15

<PAGE>   16

<TABLE>
<CAPTION>

  <S>                                                            <C>                  <C>
  Interest expense:
   Interest on deposits:
      Demand                                                        678,718              651,957
      Savings                                                       144,098              125,551
      Time deposits of $100,000 or more                             912,059              632,954
      Other time deposits                                         1,939,439            1,366,384
                                                                 ----------            ---------

   Total interest on deposits                                     3,674,314            2,776,846

Interest on federal funds purchased and securities                   12,116               12,525
                                                                 ----------           ----------
   sold under agreements to repurchase

   Total interest expense                                         3,686,430            2,789,371
                                                                 ----------           ----------
   Net interest income                                           $5,682,195           $4,397,290
                                                                 ==========           ==========
</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, 1996, and 1995.

(3)     Fee income on loans totaled $614,866 for the year ended December 31,
        1996, and $395,549 for the year ended December 31, 1995.

        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.


                                     16
<PAGE>   17


                          Year Ended December 31, 1996
                                  compared with
                          Year Ended December 31, 1995

<TABLE>
<CAPTION>

                                               Increase (Decrease) Due To:

                                                   Volume              Rate                  Total
                                                ------------         --------            ------------
<S>                                              <C>                 <C>                 <C>
Interest earned on:
    Interest-earning deposits in
      other banks ............                   $    (2,703)        $   (492)           $    (3,196)
   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 ...                         1,283           (1,692)                  (409)
   Securities sold under
      agreements to repurchase                           -0-              -0-                    -0-
   Total interest expense ....                   $   842,683         $ 54,376            $   897,059
                                                 -----------         --------            -----------
   Change in net interest
   income ....................                   $ 1,340,807         $(55,902)           $ 1,284,905
                                                 ===========         ========            ===========
</TABLE>

                                       17
<PAGE>   18


                         Year Ended December 31, 1995
                                compared with
                         Year Ended December 31, 1994
                         Increase (decrease) due to:

<TABLE>
<CAPTION>


                                                   Volume              Rate                  Total
                                                ------------         --------            ------------
<S>                                              <C>                 <C>                 <C>
 Interest earned on:
  Interest-earning deposits in
      other Banks ............                   $    (7,466)        $  (3,162)          $    (4,304)
   Taxable securities ........                        36,110           125,416               161,526
   Tax exempt securities .....                         1,871               194                 2,065
   Federal funds sold ........                        67,006            67,903               134,909
   Net loans .................                     1,345,200           278,350             1,623,550
                                                 -----------         ---------           -----------
Total interest income ........                   $ 1,442,721         $ 475,025           $ 1,917,746
                                                 ===========         =========           ===========
Interest paid on:
   Demand deposits ...........                      (169,889)          287,541               117,652
   Savings deposits ..........                        (6,738)              -0-                (6,738)
   Time deposits .............                       646,987           473,239             1,120,226
   Federal funds purchased ...                         1,705             1,528                 3,233
   Securities sold under .....                        (8,799)            4,539                (4,260)
                                                 -----------         ---------           -----------
      agreements to repurchase
   Total interest expense ....                   $   463,266         $ 766,847           $ 1,230,113
                                                 -----------         ---------           -----------
   Change in net interest ....                   $   979,455         $(291,822)          $   687,633
    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 helps to hedge the
risk and minimize the impact on net interest income of rising or falling
interest rates.

                                       18

<PAGE>   19


        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, 1996.

                                       19

<PAGE>   20

                          Interest Rate Sensitivity
                              December 31, 1996
                            (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                $       25            $     -0-         $      -0-           $    -0-          $     25

Investment Securities                         5,894                  400              7,252              1,532            15,078

Federal Funds Sold                            1,860                  -0-                -0-                -0-             1,860

Loans                                        43,875               3,303              23,677              1,061            81,916
                                         ----------            ---------         ----------           --------          --------

Total Rate Sensitive                         51,654               3,703              30,929              2,593            98,879
  Assets                                 ----------            ---------         ----------           --------          --------

NOW and MMDA Dep.                            19,229                  -0-                -0-                -0-            19,229
Savings Deposits                              5,667                  -0-                -0-                -0-             5,667
Time Deposits                                21,324               19,910             14,891                -0-            56,125

Securities Sold Under
   Agreements to
   Repurchase                                   -0-                  -0-                -0-                -0-               -0-
                                         ----------            ---------         ----------           --------          --------
Total Rate Sensitive
   Liabilities                           $   46,220               19,910             14,891                -0-           -81,021
                                         ----------            ---------         ----------           --------          --------
Excess (Deficiency) of
Rate Sensetive Assets
Less Rate Sensitive
Liabilities                              $    5,434            $  (6,207)        $   16,038           $  2,593            17,858
                                         ==========            =========         ==========           ========          ========

Cumulative GAP                           $    5,434            $    (773)        $   15,265           $ 17,858

Percent of Cumulative Gap
   to Total Earning Assets                     5.49%                (.78)             15.43%             18.06%

</TABLE>


                                       20

<PAGE>   21

        As indicated in the above table, the positive gap between rate sensitive
assets and rate sensitive liabilities during the 0-3 month period 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. The negative gap between rate sensitive
assets and rate sensitive liabilities represents the liabilities repricing
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.

                                       21

<PAGE>   22

        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 two years.

<TABLE>
<CAPTION>

                                                         1996                1995
                                                   -------------      -------------
<S>                                             <C>                  <C>
Balance, beginning of year                      $       918,036      $     715,230
Provision charged to operations                         856,312            335,000

Loans charged off:
   Commercial                                          (391,099)           (53,826)
   Real Estate Mortgage                                 (10,143)               -0-
   Consumer                                             (71,099)           (28,374)
   Credit Cards                                        (110,991)           (88,709)
                                                   ------------          ---------
                                                $      (583,332)     $    (170,909)
Loan recoveries:
   Commercial                                            17,569      $      26,892
   Real Estate                                              199                -0-
   Consumer                                               3,907                647
   Credit Card                                            1,482             11,176
                                                   ------------          ----------
                                                         23,157             38,715
                                                   ------------          ----------
Net Loans Charged Off                           $      (560,175)     $    (132,194)

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

Ratio of net charge-offs during the                         .76%               .24%
period to total loans outstanding
during the period

</TABLE>

The provision for loan losses was $856,312 in the year ended December 31, 1996,
compared to $335,000 in the year ended December 31, 1995. The increase in the
provision was the result of the increase in the loan portfolio from $67,771,350
at December 31, 1995, to $81,915,981 at December 31, 1996 and the charge off of
commercial loans totalling $391,099.

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


                                       22

<PAGE>   23

                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>

                                                                       December 31,
                                           --------------------------------------------------------------------------
                                                          1996                                 1995
                                           -----------------------------------    -----------------------------------
                                                                      % of                                 % of
                                                                   Category to                           Category to
Allowance for loan loss                                              Total                                Total
balance applicable to:                              Amount           Loans             Amount             Loans
                                                  ---------         --------        ------------        ----------
   <S>                                           <C>                 <C>             <C>                 <C>
   Commercial                                    $  466,027           52.43%         $ 305,625            19.69%
   Real Estate-construction                         242,254           23.75%           140,000            20.64%
   Real Estate-mortgage                             397,019           15.71%           327,156            48.71%
   Consumer                                          63,711            6.44%            55,313             8.54%
   Credit Cards                                      45,162            1.67%            89,942             2.42%
                                                 ----------         -------          ---------           -------

                                                 $1,214,173          100.00%         $ 918,036           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, 1996                                 $   564,530         $  303,913         $    14,854

December 31, 1995                                 $   379,009         $  513,000         $   118,130

</TABLE>

Of the $564,530 in loans past due 90 days and over, at December 31, 1996,
$489,646 is represented by two commercial loans, three consumer loans totalling
$32,895, and credit card related loans totalling $41,989. The $303,913 in
restructured loans at December 31, 1996, represents one commercial loan of
which the Bank is negotiating a settlement with the borrower. At December 31,
1996, there was $250,000 in the reserve account allocated for this commercial
loan. Restructured loans at December 31, 1995, represents one commercial loan.
In addition to loans reflected as restructed in the table above, the bank also
had $662,087 and $500,000 at December 31, 1996 and 1995, respectively, which
are considered impaired under the provision of FAS 114.  If the nonaccrual
loans had been accruing interest for the full year, the Bank would have
recognized an additional $2,000 and $9,000 income in 1996 and 1995,
respectively. The Bank recognized approximately $250 and $4,000 in interest
income from these loans in 1996 and 1995, 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


                                       23

<PAGE>   24

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, 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 are carried for a term of 180
days past due before being charged off. Nonperforming loans as a percentage of
period end loans were .38% at December 31, 1996, compared to .94% at December
31, 1995. The decrease is due primarily to the reduction of restructured loans.
Of the $631,130 nonperforming loans outstanding at December 31, 1995, $325,000
was charged off in 1996. Management views this as a one time occurrence with
one borrower and it does not represent any trends of deterioration of the loan
portfolio.

        As of December 31, 1996, there were 21 loans totaling $2,000,429
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 increased $108,356, or 20.19%, to
$644,972 in 1996 from $536,616 in 1995. The largest component of noninterest
income is service charges on deposit accounts, which totaled $503,621 in 1996, a
20.43% increase over the 1995 level of $418,162. Other income increased $8,812,
or 14.51%, to $69,544 in 1996 as compared to $60,732 in 1995.

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


                                       24

<PAGE>   25

                               Noninterest Income

<TABLE>

                                                          Year Ended December 31,
                                                       1996                     1995
<S>                                                <C>                       <C>
Service charges on deposit accounts                $    503,621              $   418,162
Securities gains (losses)                                   142                       32
Gain on sale of SBA loans                                71,825                   57,690
Other                                                    69,384                   60,732
                                                   ------------              -----------
   Total noninterest income                        $    644,972              $   536,616
                                                   ============              ===========
</TABLE>



                               Noninterest Expense

<TABLE>
<CAPTION>

                                                          Year Ended December 31,
                                                       1996                     1995
                                                   ------------              ------------
<S>                                                <C>                       <C>
Salaries and employee benefits                     $  1,620,921              $  1,383,077
Net Occupancy expense                                   391,969                   373,084
Amortization of intangibles                              97,857                    97,857
Professional fees                                       427,219                   361,460
Other                                                   978,905                   799,706
                                                   ------------              ------------
   Total noninterest expense                       $  3,516,871              $  3,015,184
                                                   ============              ============

Efficiency ratio                                          55.58%                    61.12%
</TABLE>

        Salaries and employees benefits increased $237,844, or 17.20%, to
$1,620,921 in 1996 from $1,383,077 in 1995 due to the increase in staffing,
including the addition of two senior loan officers. Net occupancy increased
$18,885, or 5.06%, to $391,969 in 1996, from $373,084 in 1995. This was due
primarily to an upgrade of dated computer equipment and incorporating a network
environment between the three banking locations. Other expenses increased
$179,199 or 18.31% to $978,905 in 1996 from $799,706 in 1995. This increase is
due to a one time assessment by the FDIC based on the thrift deposits the Bank
had. This assessment totaled $167,056 and was reflected in the third quarter
earnings report.

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 $73,446,044 in
1996 compared to $54,099,512 in 1995, an increase of $19,346,532 or


                                       25

<PAGE>   26

35.76%. At December 31, 1996, total loans were $81,915,981 compared to
$67,771,350 at the end of 1995.

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

                                            COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>


               Types of Loans                        1996                 1995
                                                 -------------     ---------------

<S>                                             <C>                <C>
Commercial                                      $    17,340,052    $    13,352,445
Real estate - commercial                             25,713,790         19,508,647
Real estate - individual                             12,898,096         13,533,383
Real estate - construction                           19,505,888         14,000,093
Installment & single payment ind.                     5,255,715          5,413,624
Credit Cards                                          1,375,249          1,635,306
Other                                                    28,799            396,491
                                                ---------------    ---------------

   Total loans                                       82,117,589         67,839,989

   Net deferred loan fees/cost                         (201,608)           (68,639)
                                                ---------------    ---------------

   Total net loans                              $    81,915,981    $    67,771,350
                                                 ==============     ==============
</TABLE>

        The principal component of the Company's loan portfolio is real estate
loans. At year end 1996, loans secured by real estate totalled $58,117,774, or
70.77% of the portfolio. Commercial real estate made up $25,713,790 of the
portfolio and represents the principal component of the Bank's loan portfolio.
This category of loans increased $6,205,143, or 31.80%, from 1995 due to
relationships moving from another financial institution in connection with the
Bank's hiring of two senior loan officers who had previously been with that
other financial institution. Nonresidential mortgage loans, which include
commercial loans, single family construction, and other loans secured by
multi-family properties and farmland, increased $9,493,402, or 34.70%, to
$36,845,940 at December 31, 1996, from $27,352,538 at year end 1995. 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 $785,658, or 10.55%, to $6,659,763 in 1996,
from $7,445,421 in 1995. The credit card portfolio decreased $260,057, or
15.90%, to $1,375,249 at December 31, 1996. Due to the increase in national
trends of bankruptcy and the Bank's increase in credit card charge offs,
management has entered into an agreement in 1997 with another financial
institution to sell the credit card portfolio. This portfolio did not perform as
expected over the past years and management did not forsee any increase in its
performance. Settlement for this


                                     26
<PAGE>   27

transaction will occur on January 31, 1997, based on that day's balances. The
sale of the portfolio will result 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, 1996 (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                                      $   12,651       $    4,467       $     222       $   17,340
Real estate (commercial)                            15,982            9,455             277           25,714
Real estate (industrial)                             6,894            5,569             435           12,898
Real estate (construction)                          19,207              299             -0-           19,506
Installment                                          1,252            3,877             126            5,255
Credit Card                                          1,375              -0-             -0-            1,375
Other                                                   29              -0-             -0-               29
                                                ----------       -----------      ----------      ----------
Total                                           $   57,390       $   23,667       $   1,060       $   82,117
                                                ==========       ===========      ==========       =========
</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, 1996 (in thousands) :

<TABLE>
<CAPTION>
<S>                                                          <C>
Loans due after 1 year with
predetermined interest rates..................               $ 23,128
Loans due after 1 year with
floating interest rates.......................               $  1,599
</TABLE>

        INVESTMENT PORTFOLIO. Investment securities comprised approximately 14%
and 15% of the Bank's assets on December 31, 1996 and 1995, respectively. The
Bank invests primarily in obligations of the United States or obligations
guaranteed as to principal and interest by the United


                                      27
<PAGE>   28

States and other taxable and tax exempt securities. During 1995 and 1996, the
Bank purchased primarily securities issued by U.S. Government Agencies and
Treasuries with maturities of three years or less. This will be the investing
philosophy of management during 1997 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. Retroactive
application of SFAS 115 to prior years is not allowed. At December 31, 1996, the
Bank had $13,145,260 in investment securities available-for-sale and $1,659,519
in securities held-to-maturity. The net unrealized loss on available
for-sale-securities, net of deferred income taxes of $71,110, was $138,034 on
December 31, 1996.

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

<TABLE>
<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>

<TABLE>
<CAPTION>

                                                                          1995
                                        -------------------------------------------------------------------
                                            Carrying          Unrealized       Unrealized         Market
                                              Value              Gains           Losses            Value
                                        ------------          -----------      ---------          ---------
<S>                                     <C>                   <C>              <C>             <C>
States and political
subdivisions                            $ 1,858,720           $ 11,140         $8,351          $ 1,861,509

</TABLE>

                                      28

<PAGE>   29

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

<TABLE>
<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                      4,975,955              2,189            191,358            4,786,786
   securities

</TABLE>

<TABLE>
<CAPTION>

                                                                  1995
                                  ---------------------------------------------------------------------
                                    Amortized         Unrealized       Unrealized           Market
                                      Cost               Gains           Losses              Value
                                  -------------       -----------      -----------       --------------
<S>                               <C>                <C>              <C>                <C>
U.S. Treasury Securities          $    1,254,124     $    9,470       $        -0-       $    1,263,594
U.S. Government
   Agencies and
   Corporations                        5,704,379         35,167             35,250            5,703,296
Mortgage-backed
   securities                          4,079,081            871            155,422            3,924,530

</TABLE>

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, 1996, 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.

                                       29

<PAGE>   30

<TABLE>
<CAPTION>

                               Investment Securities              Investment Securities
                                Available-for-Sale                  Held-to-Maturity
                            --------------------------------    -----------------------------------------
                            Carrying              Market          Amortized         Market          Net
                              Value                Value            Cost             Value         Yield
                            ---------           ---------         ---------        --------       -------
<S>                       <C>                  <C>                <C>              <C>              <C>
Due in one year or
   less                   $    1,344,715       $ 1,346,327        $    -0-         $     -0-        5.65%
Due after one year
   through five
   years                       8,144,198         8,135,232         614,994           616,418        5.92%
Due after five
   years through
   ten years                     500,000           487,656         784,537           784,498        5.35%
Due after ten years            3,365,491         3,173,045         259,988           265,047        6.10%

</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, 1996. 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.                   $          -0-       $       496,410     $         -0-        $          -0-
U.S. Government Agencies
   & Corp.                                1,344,715             6,037,324           500,000                   -0-
Mortgage Backed                                 -0-             1,610,463               -0-             3,365,492
States & Political
   subdivisions                                 -0-               614,994           784,537               259,988
                                     --------------        --------------      ------------        --------------
     Total                           $    1,344,715       $     8,759,191     $   1,284,537        $    3,625,480

</TABLE>


        SHORT-TERM INVESTMENTS. Short-term investments, which consist primarily
of federal funds sold and interest bearing deposits with other banks, averaged
$4,109,465 in 1996, compared to $4,698,673 in 1995. At December 31, 1996,
short-term investments totaled $1,885,088. 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.


                                       30

<PAGE>   31
<TABLE>
<CAPTION>

                                                         1996          Rate               1995          Rate
                                                   ----------------   -------       ----------------   -----
<S>                                                <C>                 <C>          <C>                 <C>
(1)      Non-interest Bearing
            Demand Deposits                        $     16,135,113    0.00%        $   13,621,030      0.00%
(2)      Interest Bearing Demand
            Deposits                                     21,929,897    3.09%            20,239,475      3.22%
(3)      Savings Deposits                                 5,963,929    2.42%             5,146,849      2.44%
(4)      Time Deposits                                   46,138,495    6.18%            33,674,596      5.94%

</TABLE>


At December 31, 1996, the Bank had $15,290,467 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>

          <S>                              <C>
          3 months or less                 $     11,772,653
          3 months to 6 months                    1,318,566
          6 months to 12 months                   1,173,219
          12 months & over                        1,026,029

          Total                            $     15,290,467
                                            ===============
</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, 1996, was $9,164,716, or
8.44% of total assets. The increase of $1,029,113 from 1995 was primarily
attributable to the retention of earnings for 1996 offset by the decrease in
market value of 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, 1996:

<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%               8.2%             4.0%           10.2%              10.0%               11.4%

</TABLE>


                                       31

<PAGE>   32

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 $3,929,727 during the year ended December 31, 1996 and was
$1,860,000 at December 31, 1996; averaged $4,462,767 during the year ended
December 31, 1995, and was $2,880,000 at December 31, 1995. 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) to one commercial
customer. 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, 1996, the Bank had $21,845,000 in unfunded loan
commitments. There were $6,074,000 included in the above number that represents
credit card commitments and $15,771,000 in unfunded commercial real estate
construction and land development loans. 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 be collateralized by real estate mortgage
loans. There were no advances under these lines during 1996 or 1995.


                                      32
<PAGE>   33


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


                                      33
<PAGE>   34


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."


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.

     F-1  Report of Independent Auditors

     F-2  Consolidated Balance Sheets, December 31, 1996 and 1995

     F-5  Consolidated Statements of Income for the years ended December 31,
          1996, 1995 and 1994

     F-8  Consolidated Statements of Changes in Stockholders' Equity for the
          years ended December 31, 1996, 1995 and 1994

     F-9  Consolidated Statements of Cash Flows for the years ended December 31,
          1996, 1995 and 1994

     F-12 Notes to Consolidated Financial Statements

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

     None.


                                       34

<PAGE>   35

                                    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 "1997 Proxy Statement") to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A for the Company's
1997 Annual Meeting of Shareholders to be held on April 24, 1997.

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
1997 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 1997 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 1997 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 1997 Proxy Statement is incorporated herein by
reference.


                                       35

<PAGE>   36

                                     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

     Exhibit
     Number                            Description

     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
     11                 Computation of Net Income Per Share
     21.1**             Subsidiaries of the Company
     24                 Power of Attorney (contained on the Signature Page)
     27                 Financial Data Schedule (for SEC use only)

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

**   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.

(b)  Reports on Form 8-K
     NONE.


                                       36

<PAGE>   37

                                   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, 1997.

                     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, 1997.

         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



                                      37
<PAGE>   38


/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

                                       38
<PAGE>   39



                          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, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years ended December
31, 1996. 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, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

         As discussed in Note A to the consolidated financial statements, in
1996 First Community Banking Services, Inc. and subsidiary changed its method of
disclosure for stock-based compensation.


BRICKER & MELTON, P.A.

January 31, 1997
Duluth, Georgia

                                       F1

<PAGE>   40


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


<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                       -----------------------------------
                                                                                            1996                 1995
                                                                                       --------------       --------------
                           ASSETS
<S>                                                                                   <C>                  <C>
Cash and due from banks (Note B)                                                      $     5,317,785      $     2,972,249
Federal funds sold                                                                          1,860,000            2,880,000
Interest-bearing deposits in other financial institutions                                      25,088              195,000
Investment securities held to maturity (market value of
         $1,665,963 and $1,861,509, respectively)                                           1,659,519            1,858,720
         (Note C)
Investment securities available for sale (Note C)                                          13,145,260           10,891,420
Other investments (Note C)                                                                    273,200              251,000

Loans, net of deferred loan fees (Notes D and J)                                           81,915,981           67,771,350
Less:  Allowance for loan losses (Note D)                                                   1,214,173              918,036
                                                                                       --------------       --------------
         Loans, net                                                                        80,701,808           66,853,314

Premises and equipment, net (Note E)                                                        3,352,404            3,266,404
Other real estate                                                                             399,199               68,931
Accrued interest receivable                                                                   885,625              700,771
Intangible assets, net of accumulated amortization of
         $539,226 and $441,369, respectively                                                  470,774              568,631
Other assets (Note H)                                                                         463,027              426,163
                                                                                       --------------       --------------

                                    TOTAL ASSETS                                      $   108,553,689      $    90,932,603
                                                                                       ==============       ==============
            LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
         Deposits (Notes G and N):
                  Noninterest-bearing demand                                          $    17,122,818      $    13,650,114
                  Interest-bearing demand and money                                        19,229,218           21,964,114
                  market
                  Savings                                                                   5,666,954            5,333,685
                  Time deposits of $100,000 or more                                        15,290,467           12,301,137
                  Other time deposits                                                      40,834,909           28,187,826
                                                                                       --------------       --------------
</TABLE>


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



                                       F2

<PAGE>   41


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


<TABLE>
<CAPTION>

                                                                                                  December 31,
                                                                                       -----------------------------------
                                                                                            1996                 1995
                                                                                       --------------       --------------
         <S>                                                                              <C>                  <C>
                         Total Deposits                                                   98,144,366           81,436,876


         Federal funds purchased and securities sold
                  under agreements to repurchase (Note F)                                  --                       1,161
                  F)
         Accrued interest payable                                                            941,468            1,169,413
         Other liabilities (Note H)                                                          303,139              189,550
                                                                                       --------------       --------------
                                    TOTAL                                                 99,388,973           82,797,000
                                    LIABILITIES
                                                                                       --------------       --------------
</TABLE>

                                   (Continued)


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


                                       F3

<PAGE>   42


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


<TABLE>
<CAPTION>


                                                                                                  December 31,
                                                                                       -----------------------------------
                                                                                            1996                 1995
                                                                                       --------------       --------------
<S>                                                                                   <C>                  <C>
STOCKHOLDERS' EQUITY (Notes K and L)
         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, 643,062 and
                  612,440 shares issued and outstanding                                       643,062              612,440
         Surplus                                                                            6,096,901            5,561,016
         Retained earnings                                                                  2,562,787            2,058,615
         Market valuation reserve on investment
                  securities available for sale (Note C)                                     (138,034)             (96,468)
                                                                                       --------------       --------------
                                    TOTAL                                                   9,164,716            8,135,603
                                    STOCKHOLDERS'
                                    EQUITY                                             --------------       --------------

Commitments and contingent liabilities (Note M)

                                    TOTAL
                                         LIABILITIES                                  $   108,553,689      $    90,932,603
                                         AND
                                         STOCKHOL
                                         DERS'                                         ==============       ==============
                                         EQUITY

</TABLE>


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


                                       F4

<PAGE>   43


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


<TABLE>
<CAPTION>


                                                                              For the years ended December 31,
                                                                  --------------------------------------------------------
                                                                       1996                 1995                 1994
                                                                  ---------------      --------------       --------------
<S>                                                              <C>                  <C>                  <C>
INTEREST INCOME
         Loans, including fees                                   $      8,202,657     $     5,999,755      $     4,376,205
         Investment securities:
                  U.S. Treasury securities                                133,473              87,499               83,882
                  U.S. Government agencies and                            705,175             732,659              578,090
                  corporations
                  States and political subdivisions                        79,048              85,707               83,642
                  Other investments                                        19,460               3,340            --
         Federal funds sold                                               220,072             265,766              130,857
         Interest-bearing deposits in other financial
                  institutions                                              8,740              11,935               16,239
                                                                  ---------------      --------------       --------------
                           TOTAL INTEREST                               9,368,625           7,186,661            5,268,915
                                                                  ---------------      --------------       --------------

INTEREST EXPENSE
         Interest-bearing demand and money market                         678,718             651,957              534,305
         Savings                                                          144,098             125,551              132,289
         Time deposits of $100,000 or more                                912,059             632,954               46,806
         Other time deposits                                            1,939,439           1,366,384              832,306
         Federal funds purchased and securities sold
                  under agreements to repurchase                           12,116              12,525               13,552
                                                                  ---------------      --------------       --------------
                           TOTAL INTEREST                               3,686,430           2,789,371            1,559,258
                           EXPENSE                                ---------------      --------------       --------------

                           NET INTEREST INCOME                          5,682,195           4,397,290            3,709,657

PROVISION FOR LOAN LOSSES (Note D)                                        856,312             335,000               92,000
                                                                  ---------------      --------------       --------------

                           NET INTEREST INCOME
                                    AFTER                               4,825,883           4,062,290            3,617,657
                                    PROVISION FOR
                                    LOAN LOSSES
                                                                  ---------------      --------------       --------------

OTHER INCOME
         Service charges on deposit accounts                              503,621          418,162                 341,911
</TABLE>


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


                                       F5

<PAGE>   44


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


<TABLE>
<CAPTION>

                                                                        For the years ended December 31,
                                                                     -------------------------------------
                                                                       1996          1995           1994
                                                                     -------       -------        -------
         <S>                                                         <C>           <C>            <C>
         Investment securities gains(losses), net (Note                  142            32       (101,126)
         Gains on sales of SBA loans                                  71,825        57,690        102,742
         Loss on sale of loans                                          (160)       --             --
         Other income                                                 69,544        60,732         37,504
                                                                     -------       -------        -------
                           TOTAL OTHER INCOME                        644,972       536,616        381,031
                                                                     -------       -------        -------
</TABLE>

                                   (Continued)

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

                                       F6

<PAGE>   45


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

<TABLE>
<CAPTION>


                                                                  --------------------------------------------------------
                                                                       1996                 1995                 1994
                                                                  ---------------      --------------       --------------
<S>                                                              <C>                  <C>                  <C>
OTHER EXPENSE
         Salaries and wages                                      $      1,395,694     $     1,210,974      $       973,658
         Employee benefits (Note I)                                       225,227             172,103              174,709
         Net occupancy expense                                            181,831             198,565              179,818
         Furniture, fixtures and equipment expense                        210,138             174,519              193,369
         Professional and outside services                                427,219             361,460              390,223
         Amortization of intangible assets                                 97,857              97,857               97,857
         Other expense (Note O)                                           978,905             799,706              821,444
                                                                  ---------------      --------------       --------------
                           TOTAL OTHER EXPENSES                         3,516,871           3,015,184            2,831,078
                                                                  ---------------      --------------       --------------

                           INCOME BEFORE
                                    INCOME TAX                          1,953,984           1,583,722            1,167,610
                                    EXPENSE

INCOME TAX EXPENSE (Note H)                                               699,573             561,475              372,236
                                                                  ---------------      --------------       --------------

                           NET INCOME                            $      1,254,411     $     1,022,247      $       795,374
                                                                  ===============      ==============       ==============

EARNINGS PER SHARE (Note A)                                      $           1.85     $          1.60      $          1.25
                                                                  ===============      ==============       ==============
</TABLE>


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



                                       F7

<PAGE>   46


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

<TABLE>
<CAPTION>

                                                           For the years ended December 31, 1996, 1995 and 1994
                                               ----------------------------------------------------------------------------
                                                                                Retained          Market
                                                 Common                         Earnings        Valuation
                                                 Stock          Surplus         (Deficit)        Reserve           Total
                                               ----------     -----------      -----------      ----------      -----------
<S>                                           <C>            <C>              <C>              <C>             <C>
BALANCE AT DECEMBER 31, 1993                  $   606,440    $  5,507,016     $    514,642     $    (4,177)    $  6,623,921

Net income                                        --              --               795,374         --               795,374

Cash dividends declared - $.19 per share          --              --              (121,288)        --              (121,288)

Market valuation adjustment                       --              --               --             (441,377)        (441,377)
                                               ----------     -----------      -----------      ----------      -----------

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 percent               30,622         535,885         (566,507)        --               --

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
                                               ==========     ===========      ===========      ==========      ===========
</TABLE>


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

                                       F8

<PAGE>   47


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

<TABLE>
<CAPTION>

                                                                              For the years ended December 31,
                                                                  --------------------------------------------------------
                                                                       1996                 1995                 1994
                                                                  ---------------      --------------       --------------
<S>                                                              <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net income                                              $      1,254,411     $     1,022,247      $       795,374
         Adjustments to reconcile net income to net
                  cash provided by operating activities:
                           Net amortization (accretion) of                (12,425)            (34,487)               7,548
                           investments
                           Amortization of intangible                      97,857              97,857               97,857
                           assets
                           Depreciation of premises and                   216,060             189,228              203,817
                           equipment
                           Provision for loan losses                      856,312             335,000               92,000
                           Deferred income tax provision                 (132,179)             59,456               48,418
                           (benefit)
                           Deferred net loan fees                         132,968              82,026              (55,891)
                           Investment securities (gains)                     (142)                (32)             101,126
                           losses, net
                           Gains on sales of SBA loans                    (71,825)            (57,690)            (102,742)
                           Loss on sale of loans                              160                --                   --
                           Increase in interest receivable               (184,854)           (150,098)            (106,534)
                           Increase (decrease) in interest               (227,945)            803,360               83,818
                           payable
                           (Increase) decrease in other                   116,729             (90,557)              47,734
                           assets
                           Increase (decrease) in other                   113,589              72,258             (284,442)
                           liabilities
                                                                  ---------------      --------------       --------------
                                    NET CASH
                                            PROVIDED                    2,158,716           2,328,568              928,083
                                            BY
                                            OPERATING
                                            ACTIVITIES
                                                                  ---------------      --------------       --------------

CASH FLOWS FROM INVESTING ACTIVITIES
         Net decrease in interest-bearing deposits in
                  other financial institutions                            169,912             199,000                --
</TABLE>

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


                                       F9

<PAGE>   48


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

<TABLE>
<CAPTION>

                                                                              For the years ended December 31,
                                                                  --------------------------------------------------------
                                                                       1996                 1995                 1994
                                                                  ---------------      --------------       --------------
         <S>                                                           <C>                 <C>                   <C>
         Purchases of investment securities held to                     --                  --                  (2,000,000)
         maturity
         Maturities of investment securities held to                      200,000           --                   --
         maturity
         Purchases of investment securities available                 (15,840,688)         (3,695,725)          (7,269,558)
         for sale
         Purchases of other investments                                   (22,200)           (251,000)           --
         Sales of investment securities available for sale              9,612,343           --                   4,182,800
         Maturities of investment securities available                  3,923,293           5,971,482            1,981,332
         for sale
         Proceeds from sales of SBA loans                               2,262,441           1,015,625            1,201,400
         Proceeds from sales of loans                                   3,767,646           --                   --
         Loans originated or acquired, net of principal
                  repayments                                          (21,233,730)        (26,532,829)            (819,552)
         Purchases of premises and equipment                             (302,060)           (102,365)            (559,100)
         Sales of premises and equipment                                --                  --                      68,098
         Sales of other real estate                                       107,266             424,295              168,350
                                                                  ---------------      --------------       --------------
                                    NET CASH USED BY
                                          INVESTING                   (17,355,777)        (22,971,517)          (1,246,230)
                                          ACTIVITIES                  -----------         -----------           ----------

                                   (Continued)
</TABLE>


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


                                       F10

<PAGE>   49


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

<TABLE>
<CAPTION>
                                                                              For the years ended December 31,
                                                                  --------------------------------------------------------
                                                                       1996                 1995                 1994
                                                                  ---------------      --------------       --------------
<S>                                                              <C>                  <C>                  <C>
CASH FLOWS FROM FINANCING ACTIVITIES
         Net increase (decrease) in federal funds
                  purchased and securities sold under
                  agreements to repurchase                       $         (1,161)    $    (1,036,703)     $       535,790
         Net increase (decrease) in demand, money
                  market and savings accounts                           1,071,077           7,096,301           (8,921,263)
         Time deposits accepted, net of repayments                     15,636,413          17,753,553            5,503,590
         Proceeds from exercise of stock options and
                  warrants                                                 --                  60,000                --
         Cash dividends paid                                             (183,732)           (152,360)            (121,288)
                                                                  ---------------      --------------       --------------
                                    NET CASH
                                            PROVIDED                   16,522,597          23,720,791           (3,003,171)
                                            (USED) BY
                                            FINANCING
                                            ACTIVITIES
                                                                  ---------------      --------------       --------------

NET INCREASE (DECREASE) IN CASH AND
         CASH EQUIVALENTS                                               1,325,536           3,077,842           (3,321,318)
CASH AND CASH EQUIVALENTS AT
         BEGINNING OF YEAR                                              5,852,249           2,774,407            6,095,725
                                                                  ---------------      --------------       --------------
CASH AND CASH EQUIVALENTS AT END OF
         YEAR                                                    $      7,177,785     $     5,852,249      $     2,774,407
                                                                  ===============      ==============       ==============

SUPPLEMENTAL DISCLOSURES OF CASH
         PAID:
                  Interest                                       $      3,914,375     $     1,986,011      $     1,475,440
                                                                  ===============      ==============       ==============
                  Income taxes                                   $        751,000     $       508,650      $       556,932
                                                                  ===============      ==============       ==============

SUPPLEMENTAL DISCLOSURES OF NONCASH
         FINANCING AND INVESTING
         ACTIVITIES:
                  Acquisition of real estate in settlement       $        437,534     $      --            $       171,520
                  of loans
                                                                  ===============      ==============       ==============

</TABLE>

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


                                       F11

<PAGE>   50


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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 fullservice 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 financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the 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.


                                       F12

<PAGE>   51



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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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



                                     F13
<PAGE>   52

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




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.

         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.


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



                                       F14

<PAGE>   53


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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.


                                       F15

<PAGE>   54


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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

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 include amounts for goodwill, deposit assumption
premium, and premium for purchased credit card loans. Goodwill and the deposit
assumption premium are being amortized over 14 years, the estimated average life
of the deposit base acquired, using the straight-line method. The premium for
credit card loans is being amortized on the straight-line basis over seven
years, the estimated life of the portfolio.

         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.

EARNINGS PER SHARE


                                     F16
<PAGE>   55





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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

         Earnings per share has been computed based on the weighted average
number of common shares outstanding during the period, which totaled 679,790,
640,752 and 637,062 shares in 1996, 1995 and 1994, respectively. Stock options
and warrants, as described in Note L, are considered to be common stock
equivalents for purposes of calculating earnings per share. The effect of
including these common stock equivalents in the earnings per share calculations
for the year ended December 31, 1996 is dilutive. Stock dividends issued have
been retroactively recognized for all periods presented.


                                       F17

<PAGE>   56


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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

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.


FINANCIAL INSTRUMENTS
         In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.


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



                                     F18
<PAGE>   57


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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.


                                       F19

<PAGE>   58


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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

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

         Off-balance-sheet instruments--Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
borrower's credit standing.


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.


PENDING ACCOUNTING PRONOUNCEMENTS
         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 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 the 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 is not expected to
have a significant impact on the financial condition or results of operations of
the Company.


RECLASSIFICATIONS
         Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform with the 1996 presentation.


NOTE B--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, 1996 and 1995

                                       F20

<PAGE>   59


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994



was approximately $720,000 and $450,000, respectively. The Bank maintained cash
balances which were adequate to meet this requirement.

                                     F21

<PAGE>   60
                     FIRST COMMUNITY BANKING SERVICES, INC.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE C--INVESTMENT SECURITIES

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

<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
                                                =============         ========           ==========          =============


                                                                                   1995
                                                --------------------------------------------------------------------------
                                                  Amortized         Unrealized           Unrealized             Market
                                                    Cost              Gains                Losses                Value
                                                -------------      ------------         ------------         -------------

States and political subdivisions              $    1,858,720        $  11,140          $     8,351         $    1,861,509
                                                =============         ========           ==========          =============
</TABLE>

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

<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
                                                =============         ========           ==========          =============


                                                                                   1995
                                                --------------------------------------------------------------------------
                                                  Amortized         Unrealized           Unrealized             Market
                                                    Cost              Gains                Losses                Value
                                                -------------      ------------         ------------         -------------


U.S. Treasury securities                       $    1,254,124        $   9,470          $    -              $    1,263,594
U.S. Government agencies and
         corporations                               5,704,379           35,167               36,250              5,703,296
Mortgage-backed securities                          4,079,081              871              155,422              3,924,530
                                                -------------         --------           ----------          -------------
                                               $   11,037,584        $  45,508          $   191,672         $   10,891,420
                                                =============         ========           ==========          =============
</TABLE>

         Other investments at December 31, 1996 and 1995 consists of stock in
the Federal Home Loan Bank of Atlanta.

                                       F22

<PAGE>   61


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE C--INVESTMENT SECURITIES, (Continued)

         The net unrealized loss on available for sale securities at December
31, 1996 and 1995, net of the related deferred taxes of $71,110 and $49,696, is
$138,034 and $96,468, respectively, and is included as a separate component of
stockholders' equity.

         The investment securities classified as available for sale at December
31, 1996, with a market value of approximately $13,145,000, 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 $5,864,000 of these securities are derivative
securities. These securities have stated maturities ranging from 1997 through
2023 and have a current weighted average net yield of 5.92 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, 1996, 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                           $     --           $     --            $     1,344,715    $    1,346,327
Due after one year through five years                    614,994            616,418            8,144,198         8,135,232
Due after five years through ten years                   784,537            784,498              500,000           487,656
Due after ten years                                      259,988            265,047            3,365,491         3,176,045
                                                   -------------      -------------       --------------     -------------
                                                  $    1,659,519     $    1,665,963      $    13,354,404    $   13,145,260
                                                   =============      =============       ==============     =============
</TABLE>


         Proceeds from sales of investment securities available for sale during
1996 and 1994 were $9,612,201 and $4,182,800, respectively, with gross gains of
$27,287 and $27,663 and gross losses of $27,458 and $127,545 realized on those
sales. There were no sales of investment securities in 1995. Maturities of
investment securities available for sale during 1996, 1995 and 1994 were
$3,923,293, $5,971,418 and $1,981,332, respectively, with gross gains of $660,
$32 and $55 and gross losses of $347, $0 and $1,299 realized on those
transactions.


                                       F23

<PAGE>   62


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


         Investment securities with amortized costs of approximately $600,000
and $500,000 and market values of approximately $600,000 and $501,000 at
December 31, 1996 and 1995, 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, 1996, the Bank has no outstanding off-balance-sheet
derivative financial instruments such as swaps, options, futures or forward
contracts.


                                       F24

<PAGE>   63


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE D--LOANS

         Major classifications of loans are as follows at December 31:

<TABLE>
<CAPTION>

                                                                                              1996               1995
                                                                                         --------------      -------------

<S>                                                                                     <C>                 <C>
Commercial, financial and agricultural                                                  $    17,340,052     $   13,352,445
Real estate--commercial                                                                      25,713,790         19,508,647
Real estate--individual                                                                      12,898,096         13,533,383
Real estate--construction                                                                    19,505,888         14,000,093
Installment and single payment individual                                                     5,255,715          5,413,624
Credit cards (see Note Q)                                                                     1,375,249          1,635,306
Other                                                                                            28,799            396,491
                                                                                         --------------      -------------
         Total loans                                                                         82,117,589         67,839,989
Net deferred loan fees                                                                         (201,608)           (68,639)
                                                                                         --------------      -------------
         Loans, net of deferred loan fees                                               $    81,915,981     $   67,771,350
                                                                                         ==============      =============
</TABLE>


         Substantially all loans are made to borrowers in the Bank's primary
market area of Fayette, Coweta and Fulton counties. At December 31, 1996 and
1995, the Bank had approximately $58,000,000 and $47,000,000, respectively, of
its portfolio secured by real estate.

         Nonaccrual and restructured loans totaled $14,854 and $118,130 at
December 31, 1996 and 1995, respectively. If such loans had been on a
full-accrual basis, interest income would have been approximately $2,000 and
$9,000 higher in 1996 and 1995, respectively. Interest income recognized on
these loans totaled approximately $250 and $4,000, respectively.

         At December 31, 1996 and 1995, the Bank has approximately $966,000 and
$1,013,000, respectively, in loans which are impaired under SFAS 114. The
allowance for loan losses related to these loans is approximately $150,000 and
$247,000, respectively, for those years ended. During 1996 and 1995, the average
balance outstanding on these loans was approximately $1,087,000 and $1,017,000,
respectively.

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


                                     F25

<PAGE>   64

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>

                                                                             1996               1995              1994
                                                                         ------------       ------------      ------------
<S>                                                                     <C>                <C>               <C>
Balance, beginning of year                                              $     918,036      $     715,230     $     832,938

                                                                                 1996               1995              1994
                                                                         ------------       ------------      ------------
Provision charged to expense                                                  856,312            335,000            92,000
Loans charged off                                                            (583,332)          (170,909)         (244,549)
Recoveries of loans previously charged off                                     23,157             38,715            34,841
                                                                         ------------       ------------      ------------
Balance, end of year                                                    $   1,214,173      $     918,036     $     715,230
                                                                         ============       ============      ============

         Included in loans charged off for 1996 and 1995 were approximately
$325,000 and $14,000 of impaired loans.

</TABLE>

                                       F26

<PAGE>   65

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE E--PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>

                                                                                                1996              1995
                                                                                            ------------      ------------
<S>                                                                                        <C>               <C>
Land                                                                                       $     900,187     $     900,187
Buildings                                                                                      2,054,685         2,051,185
Furniture,  fixtures and equipment                                                             1,373,301         1,141,487
                                                                                            ------------      ------------
                                                                                               4,328,173         4,092,859
Less:  Accumulated depreciation                                                                 (975,769)         (826,455)
                                                                                            ------------      ------------
         Premises and equipment, net                                                       $   3,352,404     $   3,266,404
                                                                                            ============      ============
</TABLE>

         The charge to operating expense for depreciation totaled $216,060,
$189,228 and $203,817 in 1996, 1995 and 1994, respectively.


NOTE F--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, 1996. There were no amounts
outstanding under these lines at December 31, 1996 and 1995. The maximum and
daily average amounts of federal funds purchased during 1996 and 1995 were
approximately $4,840,000 and $268,000, respectively, for 1996 and $4,000,000 and
$101,000, respectively, for 1995. 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 1996 and 1995 was 4.52 and 6.54 percent,
respectively.

         There were no securities sold under agreements to repurchase
outstanding during 1996. At December 31, 1995, the Bank had outstanding
securities sold under agreements to repurchase of $1,161. The maximum and daily
average amounts of securities sold under agreements to repurchase during 1995
were approximately $848,000 and $140,000, respectively, and the average interest
rate paid was 4.2 percent.

         The Bank also has established a $12,000,000 repurchase agreement with a
correspondent bank. Any advances under this agreement will be collateralized by
investment securities of the Bank. There were no advances under this agreement
during 1996 or 1995.

                                       F27

<PAGE>   66

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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 1996 or 1995.


                                     F28
<PAGE>   67

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

NOTE G--TIME DEPOSITS

         At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>


                                                                                                                 1996
                                                                                                             -------------
<S>                                                                                                         <C>
1997                                                                                                        $   41,234,679
1998                                                                                                            11,135,975
1999 and thereafter                                                                                              3,754,722
                                                                                                             -------------
                                                                                                            $   56,125,376
                                                                                                             =============
</TABLE>

NOTE H--INCOME TAXES

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

                                                                             1996               1995              1994
                                                                         ------------       ------------      ------------
<S>                                                                     <C>                <C>               <C>
Current income tax provision:
         Federal                                                        $     748,799      $     466,188     $     293,626
         State                                                                 82,953             35,831            30,192
Deferred income tax provision (benefit)                                      (132,179)            59,456            48,418
                                                                         ------------       ------------      ------------
                                                                        $     699,573      $     561,475     $     372,236
                                                                         ============       ============      ============
</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>

                                                                             1996               1995              1994
                                                                         ------------       ------------      ------------
<S>                                                                     <C>                <C>               <C>
Pretax income                                                           $   1,953,984      $   1,583,722     $   1,167,610
                                                                         ============       ============      ============

Income taxes computed at Federal statutory tax rate                     $     664,355      $     538,465     $     396,987
Increase (decrease) resulting from:
         Tax-exempt interest income                                           (26,876)           (29,079)          (28,438)
         State income taxes                                                    49,938             35,831            30,192
         Other, net                                                            12,156             16,258           (26,505)
                                                                         ------------       ------------      ------------
                                                                        $     699,573      $     561,475     $     372,236
                                                                         ============       ============      ============

</TABLE>


                                       F29

<PAGE>   68


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE H--INCOME TAXES, (Continued)

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

<TABLE>
<CAPTION>

                                                                                                 1996             1995
                                                                                              -----------      -----------
<S>                                                                                          <C>              <C>
Reserve for loan losses                                                                      $    311,515     $    240,150
Intangible assets                                                                                 (74,186)         (78,173)
Accumulated depreciation                                                                         (127,857)        (113,113)
Deferred loan fees                                                                                 99,724           26,083
Market valuation reserve                                                                           71,110           49,696
Other, net                                                                                         32,974           35,044
                                                                                              -----------      -----------
                                                                                             $    313,280     $    159,687
                                                                                              ===========      ===========
</TABLE>

NOTE I--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 $34,526 in
1996, $16,920 in 1995 and $8,341 in 1994, respectively.


NOTE J--RELATED PARTY TRANSACTIONS

     As of December 31, 1996 and 1995, the Bank had direct and indirect loans
which aggregated $2,229,706 and $1,702,209, respectively, outstanding to or for
the benefit of certain of the Bank's officers, directors, and their related
interests. During 1996, $1,037,836 of such loans were made and repayments
totaled $440,339. 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.

     As discussed in Note N, the Bank had a concentration of deposits with three
customers in 1996 and two customers and their related entities in 1995. Of these
amounts, approximately $9,046,000 and $6,852,000 were from certain bank
directors and their related interests at December 31, 1996 and 1995,
respectively. These deposits were made in conformity with normal banking terms
and rates prevailing at the time of origination.


                                       F30

<PAGE>   69

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE K--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 table) 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, 1996, 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
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>                                       -

<TABLE>
<CAPTION>

                                                                                   1995
                                               ----------------------------------------------------------------------------
                                                                                Adequately
                                                  Well Capitalized              Capitalized
                                                     Requirement                Requirement                  Actual
                                                   Amount (Ratio)             Amount (Ratio)             Amount (Ratio)
                                               -----------------------    -----------------------    ----------------------
<S>                                           <C>                      <C>                 <C>    <C>                <C>
Tier 1 Capital (to Average Assets)            $> 4,591,746   >= 5.0%   $   3,673,397       4.0%   $   7,613,050      8.3%
                                               -
Tier 1 Capital (to Risk Weighted Assets)      $> 4,316,719   >= 6.0%   $   2,877,813       4.0%   $   7,613,050     10.6%
                                               -
Total Capital (to Risk Weighted Assets)       $> 7,194,532   >=10.0%   $   5,755,626       8.0%   $   8,512,406     11.8%
                                               -

</TABLE>

     Management believes, as of December 31, 1996, that the Bank meets all
capital requirements to which it is subject.

                                       F31

<PAGE>   70


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


     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,
1996, total stockholder's equity of the Bank was $9,287,901 of which
approximately $549,000 was available for dividends without prior approval or
violation of regulatory capital requirements.


                                       F32

<PAGE>   71


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE K--STOCKHOLDERS' EQUITY, (Continued)

     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 L--STOCK-BASED COMPENSATION

     The Company granted a total of 15,000 common stock options to a former
executive. The options were granted at the rate of 3,000 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 $10 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>

                                                                            1996                             1995
                                                                   -----------------------          -----------------------
                                                                                 Weighted                        Weighted
                                                                                 Average                          Average
                                                                                 Exercise                        Exercise
                                                                    Shares        Price              Shares        Price
                                                                   --------     ----------          --------    -----------
<S>                                                                   <C>         <C>                 <C>          <C>
Outstanding, beginning of year                                        8,000       $ 10.00             14,000       $ 10.00
Granted during year                                                     --            --                --             --
Exercised during year                                                   --            --              (6,000)        10.00
Expired during year                                                     --            --                --             --
                                                                      -----        ------              -----        ------
Outstanding, end of year                                              8,000       $ 10.00              8,000       $ 10.00
                                                                      =====       =======              =====       =======

Options exercisable at year-end                                       8,000                            8,000
                                                                      =====                            =====
</TABLE>

          During 1995, the Company's stockholders approved a stock option plan
     which allows for a total of 98,000 options to be granted to directors and
     executive officers. In 1995, a total of 64,000 shares were granted to
     directors with an exercise price of $11.31 per share. The options vest over
     a four-year period and expire in 2004. An additional 16,600 shares were
     granted in 1995 to executive officers with an exercise price of $12.26 per
     share. These options also vest over a five-year period and expire in 2005.
     During 1996, the Company granted 18,500 shares to executive officers with
     an exercise price of $20.00 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:


                                       F33

<PAGE>   72


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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

<TABLE>
<CAPTION>

                                                                            1996                             1995
                                                                   -----------------------          -----------------------
                                                                                 Weighted                        Weighted
                                                                                 Average                          Average
                                                                                 Exercise                        Exercise
                                                                    Shares        Price              Shares        Price
                                                                   --------     ----------          --------    -----------
<S>                                                               <C>             <C>              <C>             <C>
Outstanding, beginning of year                                       79,400       $ 11.49             --           $   --
Granted during year                                                  18,500         20.00             80,600        11.51
Exercised during year                                                --             --                --               --
Forfeited during year                                                --             --                (1,200)       12.26
Expired during year                                                  --             --                --               --
                                                                   --------        ------           --------        -----
Outstanding, end of year                                             97,900       $ 13.10             79,400       $11.49
                                                                   ========       =======           ========       ======

Options exercisable at year-end                                      35,080                           16,000
                                                                   ========                         ========
   Weighted average fair value of options granted
    during the year                                                $   8.68                         $   5.75
                                                                   ========                         ========
</TABLE>

   The following table summarizes information about the Company's two fixed
stock option plans at December 31, 1996:

<TABLE>
<CAPTION>

                                            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>
   $ 10.00 - 14.25                87,400                  6.7          $ 11.36                   43,080            $ 11.13

             20.00                18,500                 10.0            20.00                   --                  --
                              ----------               ------           ------                ---------             ------
                                 105,900                  7.3          $ 12.87                   43,080            $ 11.13
                              ==========               ======          =======                =========            =======
</TABLE>

     At December 31, 1996, 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 1996 or 1995.
Had compensation cost for the Company's stock-based compensation plans been
determined based


                                       F34

<PAGE>   73


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

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 share
would have been reduced to the pro forma amounts indicated as follows:


                                     F35
<PAGE>   74

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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

NOTE L--STOCK-BASED COMPENSATION, (Continued)
<TABLE>
<CAPTION>


                                                                                                     For the years
                                                                                                   ended December 31,
                                                                                             ------------------------------
                                                                                                 1996              1995
                                                                                             ------------      ------------
<S>                                                                                         <C>               <C>
Net income
   As reported                                                                              $   1,254,411     $   1,022,247
   Pro forma                                                                                    1,148,428           716,629

Earnings per share
   As reported                                                                              $        1.85     $        1.60
   Pro forma                                                                                         1.69              1.12
</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 and 1995: dividend yield of 1.5 percent and
1.8 percent, expected volatility of 38 percent for both years, risk-free
interest rate of 6.5 percent and 5.8 percent, and expected lives of ten years
and seven years, respectively.


NOTE M--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

     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, 1996 and 1995, total commitments to extend credit were
approximately $15,771,000 and $12,177,000, respectively, in unfunded loan
commitments and $6,074,000 and $6,492,000, 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.


                                       F36

<PAGE>   75


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE M--OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS, (Continued)

     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, 1996 and 1995, commitments
under standby letters of credit aggregated approximately $70,000 and $28,000,
respectively. In 1996 and 1995, the Bank was required to perform on a standby
letter of credit totaling approximately $0 and $16,000, respectively.

     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.


NOTE N--DEPOSIT CONCENTRATIONS

     At December 31, 1996 and 1995, the Bank had deposits of approximately
$13,021,000 from three customers and their related entities and $14,607,000 from
two customers and their related entities, respectively. (See Note J)


NOTE O--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>


                                                                                  1996             1995            1994
                                                                                ---------       ----------      ----------
<S>                                                                            <C>             <C>             <C>
Printing and supplies                                                          $   89,164      $    57,160     $    57,160
FDIC assessment                                                                   240,303          113,654         150,897
Insurance premiums on loans                                                        47,782           75,958          72,843
Director fees                                                                     106,900           84,600          66,481
</TABLE>


                                       F37

<PAGE>   76


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


NOTE P--FAIR VALUES OF FINANCIAL INSTRUMENTS

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


                                                                1996                                   1995
                                              ---------------------------------    ---------------------------------
                                                Carrying          Estimated          Carrying           Estimated
                                                  Value           Fair Value           Value            Fair Value
                                              -------------      -------------     --------------      -------------
<S>                                           <C>                <C>                <C>                <C>
Financial assets:
   Cash and cash equivalents                  $ 7,177,785        $ 7,177,785        $ 5,852,249        $ 5,852,249
   Interest-bearing deposits                       25,088             25,088            195,000            195,000
   Investment securities held to
      maturity                                  1,659,519          1,665,963          1,858,720          1,861,509
   Investment securities available for
      sale                                     13,145,260         13,145,260         10,891,420         10,891,420
   Other investments                              273,200            273,200            251,000            251,000
   Loans                                       81,915,981         81,989,000         67,771,350         67,885,000
   Accrued interest receivable                    885,625            885,625            700,771            700,771

Financial liabilities:
   Noncontractual deposits                    $42,018,990        $42,018,990        $40,947,913        $40,947,913
   Contractual deposits                        56,125,376         56,424,000         40,488,963         40,628,000
   Short-term borrowings                             --                 --                1,161              1,161
   Accrued interest payable                       941,468            941,468          1,169,413          1,169,413

Off-balance-sheet instruments:
   Undisbursed credit lines                                      $15,771,000                           $12,194,048
   Available credit card advances                                  6,074,000                             6,501,089
   Standby letters of credit                                          69,575                                28,039

</TABLE>

NOTE Q--SUBSEQUENT EVENT

     On January 30, 1997, the Company sold its credit card portfolio to a third
party. At December 31, 1996, $1,375,249 was outstanding in credit card loans.
Total proceeds from this sale were approximately $1,366,000, which resulted in a
loss of $72,970, including $72,863 in write-off of unamortized purchase premium.
This transaction will be reflected in the Company's 1997 financial statements.


                                       F38

<PAGE>   77


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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


                            CONDENSED BALANCE SHEETS
                                  (Parent Only)
<TABLE>
<CAPTION>


                                                                               December 31,
                                                                     ---------------------------------
                                                                          1996              1995
                                                                     --------------     -------------
                            ASSETS
<S>                                                                  <C>                 <C>
Cash on deposit with subsidiary                                      $    17,291         $    15,575
Investment in subsidiary                                               9,149,867           8,083,254
Other assets                                                                --                39,036
                                                                     -----------         -----------

         TOTAL ASSETS                                                $ 9,167,158         $ 8,137,865
                                                                     ===========         ===========

             LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
   Accounts payable                                                  $     2,442         $     2,262
                                                                     -----------         -----------
         TOTAL LIABILITIES                                                 2,442               2,262
                                                                     -----------         -----------

STOCKHOLDERS' EQUITY
   Common stock                                                          643,062             612,440
   Surplus                                                             6,096,901           5,561,016
   Retained earnings                                                   2,562,787           2,058,615
   Market valuation reserve on investment securities
      available for sale                                                (138,034)            (96,468)
                                                                     -----------         -----------

         TOTAL STOCKHOLDERS' EQUITY                                    9,164,716           8,135,603
                                                                     -----------         -----------

         TOTAL LIABILITIES AND
            STOCKHOLDERS' EQUITY                                     $ 9,167,158         $ 8,137,865
                                                                     ===========         ===========
</TABLE>


                                       F39

<PAGE>   78


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


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

                         CONDENSED STATEMENTS OF INCOME
                                  (Parent Only)
<TABLE>
<CAPTION>


                                                                                For the years ended December 31,
                                                                      ----------------------------------------------------
                                                                          1996                1995               1994
                                                                      -------------      --------------      -------------
<S>                                                                  <C>                <C>                 <C>
OPERATING INCOME
   Dividends from subsidiary                                         $      183,732     $        20,000     $      121,288
   Other income                                                                 562                 651                 49
                                                                      -------------      --------------      -------------
         TOTAL OPERATING INCOME                                             184,294              20,651            121,337
                                                                      -------------      --------------      -------------

OPERATING EXPENSE
   Amortization of organization costs                                      --                 --                     5,772
   Depreciation of premises                                                --                 --                       722
   Other expense                                                             56,903             115,462             17,468
                                                                      -------------      --------------      -------------
         TOTAL OPERATING EXPENSE                                             56,903             115,462             23,962
                                                                      -------------      --------------      -------------

INCOME (LOSS) BEFORE INCOME TAX
   BENEFIT AND EQUITY IN UNDISTRIBUTED
   EARNINGS OF SUBSIDIARY                                                   127,391             (94,811)            97,375

INCOME TAX BENEFIT                                                           18,841              39,036              9,571
                                                                      -------------      --------------      -------------

INCOME (LOSS) BEFORE EQUITY IN
   UNDISTRIBUTED EARNINGS OF
   SUBSIDIARY                                                               146,232             (55,775)           106,946

EQUITY IN UNDISTRIBUTED EARNINGS OF
   SUBSIDIARY                                                             1,108,179           1,078,022            688,428
                                                                      -------------      --------------      -------------

NET INCOME                                                           $    1,254,411     $     1,022,247     $      795,374
                                                                      =============      ==============      =============
</TABLE>


                                       F40

<PAGE>   79


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

                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


      NOTE R--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,
                                                                      ----------------------------------------------------
                                                                          1996                1995               1994
                                                                      -------------      --------------      -------------
<S>                                                                  <C>                <C>                 <C>
CASH FLOWS FROM OPERATING
   ACTIVITIES
      Net income                                                     $    1,254,411     $     1,022,247     $      795,374
      Equity in undistributed earnings of subsidiary                     (1,108,179)         (1,078,022)          (688,428)
      Amortization of organization costs                                   --                 --                     5,772
      Depreciation of premises                                             --                 --                       722
      Increase (decrease) in other assets                                    39,036             (21,673)            (9,571)
      Increase (decrease) in other liabilities                                  180              (1,164)               213
                                                                      -------------      --------------      -------------
         NET CASH PROVIDED (USED) BY
            OPERATING ACTIVITIES                                            185,448             (78,612)           104,082
                                                                      -------------      --------------      -------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Sale of premises                                                        --                 --                    68,098
                                                                      -------------      --------------      -------------
         NET CASH PROVIDED BY INVESTING
            ACTIVITIES                                                     --                 --                    68,098
                                                                      -------------      --------------      -------------

CASH FLOWS FROM FINANCING
   ACTIVITIES
      Proceeds from exercise of stock options and
         warrants                                                          --                    60,000           --
      Dividends paid                                                       (183,732)           (152,360)          (121,288)
                                                                      -------------      --------------      -------------
         NET CASH USED BY FINANCING
            ACTIVITIES                                                     (183,732)            (92,360)          (121,288)
                                                                      -------------      --------------      -------------

NET INCREASE (DECREASE) IN CASH                                               1,716            (170,972)            50,892

CASH, BEGINNING OF YEAR                                                      15,575             186,547            135,655
                                                                      -------------      --------------      -------------
CASH, END OF YEAR                                                     $      17,291      $       15,575      $     186,547



</TABLE>

                                       F41