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**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C.20549**

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**FORM 10-Q**

**Quarterly ReportPursuant to Section 13 or 15(d) of the Securities Exchanges Act of 1934**

**For the quarter ended June 30, 2001Commission file number 000-25128**

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**MAINSTREET BANKS, INC.**(Exact name of registrant as specified inits charter)

| **Georgia**                               | **58-2104977**                        |
|-------------------------------------------|---------------------------------------|
| (State  of Incorporation)                 | (I.R.S.  Employer Identification No.) |
| **676  Chastain Road, Kennesaw, GA**      | **30144**                             |
| (Address  of principal executive offices) | (Zip  Code)                           |

 

**770-422-2888**(Registrant’s telephone number)

**First Sterling Banks, Inc.****P.O. Box 2147Marietta, GA 30061**(Former name andaddress)

Securitiesregistered under Section 12(b) of the Exchange Act: **None**Securities registered under Section 12(g) of the Exchange Act:**Common Stock, no par value**

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Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.Yes ý   No o

**APPLICABLE ONLY TO CORPORATE ISSUERS******As of August 6, 2001, registrant had outstanding 15,644,866 shares of commonstock.

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**MAIN STREET BANKS, INC.TABLE OF CONTENTS**

** **

** **

| **PART I.**  | **FINANCIAL  INFORMATION**                                                             |
|--------------|----------------------------------------------------------------------------------------|
|         |                                                                                   |
| Item 1.      | Financial  Statements                                                                  |
|         |                                                                                   | Condensed Consolidated  Balance Sheets  June 30, 2001 (unaudited) and December 31, 2000 |
|         |                                                                                   |
|         |                                                                                   | Condensed Consolidated  Statements of Income (unaudited)  Three Months Ended June 30, 2001 and 2000 and Six Months Ended June 30, 2001  and 2000 |
|         |                                                                                   |
|         |                                                                                   | Condensed  Consolidated Statements of Comprehensive Income (unaudited)  Three Months Ended June 30, 2001 and 2000 and Six Months Ended June 30, 2001  and 2000 |
|         |                                                                                   |
|         |                                                                                   | Condensed  Consolidated Statements of Cash Flows (unaudited)  Six Months Ended June 30, 2001 and 2000 |
|         |                                                                                   |
|         |                                                                                   | Notes to  Condensed Consolidated Financial Statements (unaudited) |
|         |                                                                                   |
| Item 2.      | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|         |                                                                                   |
| Item 3.      | Quantitative  and Qualitative Disclosures about Market Risk (included in Item 2)       |
|         |                                                                                   |
|         |                                                                                   |
| **PART II.** | **OTHER INFORMATION**                                                                  |
|         |                                                                                   |
|         |                                                                                   |
| Item 4.      | Submission  of Matters to a Vote of Security Holders                                   |
|         |                                                                                   |
| Item 6.      | Exhibits and Reports  on Form 8-K                                                      |
|         |                                                                                   |
|         | Signatures                                                                             |

** **

**PART I.****– FINANCIAL INFORMATION**

**ITEM 1.****  FINANCIAL STATEMENTS**

** **

**MAIN STREET BANKS, INC.CONSOLIDATEDBALANCE SHEETS**
|                                                                                                                                    | **(Unaudited)  June 30,  2001**           |          | **December 31,  2000** |        |
|-----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|---------------|------------------------|-------------|
|                                                                                                                                    | ****                                      | ** **    | ****                   | ** **  |
|                                                                                                                                    |                                      |          |                   |        |
| **Assets**                                                                                                                              |                                      |          |                   |        |
| Cash  and due from banks                                                                                                                | $                                         | 56,626,380    |                   | $           | 39,295,553 |   |
| Interest-bearing  deposit in banks                                                                                                      | 4,877,915                                 |          | 1,665,159              |        |
| Federal  funds sold and securities purchased under agreement to resell                                                                  | 47,791,099                                |          | 88,436,897             |        |
| Investment  securities available for sale                                                                                               | 142,958,409                               |          | 152,962,319            |        |
| Investment  securities held to maturity (fair value of $733,241 and $15,879,777 at June  30, 2001 and December 31, 2000, respectively   | 686,699                                   |          | 18,538,266             |        |
| Mortgage  loans held for sale                                                                                                           | 7,443,445                                 |          | 2,248,415              |        |
| Loans,  net of unearned income                                                                                                          | 767,784,709                               |          | 735,963,071            |        |
| Allowance  for loan losses                                                                                                              | (11,416,611                               | )             | (10,907,424            | )           |
|                                                                                                                                    |                                           |          |                        |        |
| Loans,  net                                                                                                                             | 756,368,098                               |          | 725,055,647            |        |
|                                                                                                                                    |                                      |          |                   |        |
| Premises  and equipment, net                                                                                                            | 26,891,750                                |          | 27,034,148             |        |
| Other  real estate                                                                                                                      | 892,488                                   |          | 2,122,802              |        |
| Accrued  interest receivable                                                                                                            | 6,347,046                                 |          | 7,139,716              |        |
| Goodwill  and other intangible assets                                                                                                   | 825,700                                   |          | 945,534                |        |
| Other  assets                                                                                                                           | 4,412,824                                 |          | 5,130,795              |        |
|                                                                                                                                    |                                           |          |                        |        |
| Total  assets                                                                                                                           | $                                         | 1,056,121,853 |                   | $           | 1,070,575,251 |   |
|                                                                                                                                    |                                           |          |                        |        |
|                                                                                                                                    |                                      |          |                   |        |
| **Liabilities and stockholders’ equity**                                                                                           |                                      |          |                   |        |
| Liabilities:                                                                                                                            |                                      |          |                   |        |
|                                                                                                                                    | Deposits:                                 |          |                   |        |   |
|                                                                                                                                    | Noninterest-bearing  demand               | $             | 154,980,257            |        | $ | 139,119,905 |   |
|                                                                                                                                    | Interest-bearing  demand and money market | 217,055,834   |                   | 201,483,455 |   |
|                                                                                                                                    | Savings                                   | 40,628,140    |                   | 44,727,911  |   |
|                                                                                                                                    | Time  deposits of $100,000 or more        | 153,357,673   |                   | 157,782,734 |   |
|                                                                                                                                    | Other  time deposits                      | 325,626,310   |                   | 342,795,505 |   |
|                                                                                                                                    |                                      |               |                   |             |   |
| Total  deposits                                                                                                                         | 891,648,214                               |          | 885,909,510            |        |
|                                                                                                                                    |                                      |          |                   |        |
| Accrued  interest payable                                                                                                               | 5,614,732                                 |          | 5,652,685              |        |
| Federal  Home Loan Bank advances                                                                                                        | 52,121,000                                |          | 52,127,500             |        |
| Federal  funds purchased and securities sold under repurchase agreements                                                                | 6,158,813                                 |          | 32,615,659             |        |
| Other  liabilities                                                                                                                      | 1,326,876                                 |          | 495,635                |        |
|                                                                                                                                    |                                           |          |                        |        |
| Total  liabilities                                                                                                                      | 956,869,635                               |          | 976,800,989            |        |
|                                                                                                                                    |                                           |          |                        |        |
|                                                                                                                                    |                                      |          |                   |        |
| Shareholders’  equity                                                                                                              |                                      |          |                   |        |
| Common  stock3⁄4no  par value per share; 50,000,000 shares authorized; outstanding, 15,641,114  shares in 2001and 15,476,468 in 2000 | 32,051,564                                |          | 31,522,786             |        |
| Retained  earnings                                                                                                                      | 66,757,973                                |          | 63,347,204             |        |
| Accumulated  other comprehensive gain (loss)                                                                                            | 1,476,556                                 |          | (61,853                | )           |
| Treasury  stock, at cost, 169,082 shares in 2001and 2000                                                                                | (1,033,875                                | )             | (1,033,875             | )           |
|                                                                                                                                    |                                           |          |                        |        |
| Total  shareholders’ equity                                                                                                        | 99,252,218                                |          | 93,774,262             |        |
|                                                                                                                                    |                                           |          |                        |        |
| Total  liabilities and shareholders’ equity                                                                                        | $                                         | 1,056,121,853 |                   | $           | 1,070,575,251 |   |
|                                                                                                                                    |                                           |          |                        |        |
|                                                                                                                                         |                                           |               |                        |             |  |  |  |  |

 

*                                                                                 Seeaccompanying notes.*

 

**MAINSTREET BANKS, INCCONSOLIDATED STATEMENTS OF INCOME(Unaudited)**

                                                                                                                                      

|                                                 | **Three Months Ended  June 30,**                                            |       | **Six Months Ended   June 30,** |       |
|------------------------------------------------------|-----------------------------------------------------------------------------|------------|---------------------------------|------------|
|                                                 | ****                                                                        |       | ****                            |       |
|                                                 | **2001**                                                                    | ** ** | **2000**                        | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                                 | ****                                                                        |       | ****                            |       | **** |   | **** |   |
| Interest Income:                                     |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Loans,  including fees                                                      | $          | 18,488,251                      |       | $ | 18,162,380 |   | $ | 37,356,750 |   | $ | 35,128,947 |   |
|                                                 | Interest  on investment securities:                                         |       |                            |       |   |   |   |   |   |
|                                                 | Taxable                                                                     | 1,964,580  |                            | 1,754,852  |   | 4,203,020 |   | 3,462,616 |   |
|                                                 | Non-taxable                                                                 | 318,229    |                            | 262,574    |   | 636,897 |   | 536,897 |   |
|                                                 | Federal  funds sold and other short term investments                        | 593,774    |                            | 413,505    |   | 1,404,174 |   | 797,205 |   |
|                                                 | Interest-bearing  deposits in banks                                         | 13,970     |                            | 13,307     |   | 28,532 |   | 36,044 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
| Total  interest income                               | 21,378,804                                                                  |       | 20,606,618                      |       | 43,629,373 |   | 39,961,709 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Interest  expense:                                   |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Interest-bearing  demand and money market                                   | 1,011,118  |                            | 1,240,085  |   | 2,248,639 |   | 2,353,115 |   |
|                                                 | Savings                                                                     | 216,807    |                            | 272,027    |   | 479,202 |   | 515,507 |   |
|                                                 | Time  deposits of $100,000 or more                                          | 2,410,235  |                            | 1,602,846  |   | 4,895,819 |   | 2,939,308 |   |
|                                                 | Other  time deposits                                                        | 5,118,651  |                            | 4,541,196  |   | 10,672,800 |   | 8,662,020 |   |
|                                                 | Federal  funds purchased and securities sold under agreement to re-purchase | 44,064     |                            | 137,006    |   | 131,557 |   | 252,005 |   |
|                                                 | Federal  Home Loan Bank advances                                            | 691,231    |                            | 789,371    |   | 1,501,833 |   | 1,495,314 |   |
|                                                 | Other  interest expense                                                     | 14,259     |                            | 7,299      |   | 19,119 |   | 11,374 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
| Total  interest expense                              | 9,506,365                                                                   |       | 8,589,830                       |       | 19,948,969 |   | 16,228,643 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Net  interest income                                 | 11,872,439                                                                  |       | 12,016,788                      |       | 23,680,404 |   | 23,733,066 |   |
| Provision for loan losses                            | 440,000                                                                     |       | 504,000                         |       | 970,000 |   | 1,084,000 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Net  interest income after provision for loan losses | 11,432,439                                                                  |       | 11,512,788                      |       | 22,710,404 |   | 22,649,066 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Noninterest  income:                                 |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Service  charges on deposit accounts                                        | 1,464,039  |                            | 1,264,509  |   | 2,775,711 |   | 2,514,147 |   |
|                                                 | Investment  securities gains (losses)                                       | 18,536     |                            | (513,090   | ) | 22,191 |   | (516,239 | ) |
|                                                 | Gain  (loss) on sales of assets                                             | 1,382      |                            | 25,004     |   | (2,842 | ) | 27,771 |   |
|                                                 | Gain  on sales of loans                                                     | 75,178     |                            | 10,282     |   | 316,926 |   | 37,054 |   |
|                                                 | Other  income                                                               | 1,730,230  |                            | 1,483,749  |   | 3,348,165 |   | 2,847,450 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
| Total  noninterest income                            | 3,289,365                                                                   |       | 2,270,454                       |       | 6,460,151 |   | 4,910,183 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Noninterest  expense:                                |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Salaries  and other compensation                                            | 3,780,083  |                            | 3,961,638  |   | 7,884,647 |   | 8,097,481 |   |
|                                                 | Employee  benefits                                                          | 591,135    |                            | 746,080    |   | 1,267,850 |   | 1,276,473 |   |
|                                                 | Net  occupancy and equipment expense                                        | 1,223,334  |                            | 1,171,583  |   | 2,401,628 |   | 2,363,860 |   |
|                                                 | Professional services                                                       | 537,765    |                            | 257,361    |   | 915,072 |   | 390,336 |   |
|                                                 | Regulatory  agency assessments                                              | 85,703     |                            | 125,462    |   | 160,080 |   | 159,311 |   |
|                                                 | Amortization  of intangible assets                                          | 59,917     |                            | 109,691    |   | 119,834 |   | 219,383 |   |
|                                                 | Merger  expense                                                             | 861,651    |                            | 973,457    |   | 2,510,625 |   | 973,457 |   |
|                                                 | Other  expense                                                              | 2,100,156  |                            | 1,911,267  |   | 3,947,188 |   | 4,078,560 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
| Total  noninterest expense                           | 9,239,744                                                                   |       | 9,256,539                       |       | 19,206,924 |   | 17,558,861 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Income  before income taxes                          | 5,482,060                                                                   |       | 4,526,703                       |       | 9,963,631 |   | 10,000,388 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
| Income  tax expense                                  | 1,701,388                                                                   |       | 1,928,268                       |       | 3,524,118 |   | 3,823,971 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
| Net  income                                          | $                                                                           | 3,780,672  |                            | $          | 2,598,435 |   | $ | 6,439,513 |   | $ | 6,176,417 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Earnings  per share:                                 |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Basic                                                                       | $.24       |                            | $.17       |   | $.41 |   | $.40 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
|                                                 | Diluted                                                                     | $.23       |                            | $.16       |   | $.40 |   | $.39 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Dividends  declared per share                        | $.09                                                                        |       | $.04                            |       | $.18 |   | $.08 |   |
|                                                 |                                                                             |       |                                 |       |  |   |  |   |
|                                                 |                                                                        |       |                            |       |   |   |   |   |
| Weighted  average common shares outstanding:         |                                                                        |       |                            |       |   |   |   |   |
|                                                 | Basic                                                                       | 15,634,599 |                            | 15,461,577 |   | 15,618,595 |   | 15,453,398 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
|                                                 | Diluted                                                                     | 16,103,230 |                            | 15,759,880 |   | 16,053,033 |   | 15,776,912 |   |
|                                                 |                                                                        |            |                            |            |   |  |   |  |   |
|                                                      |                                                                             |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

* *

*                                                                              Seeaccompanying notes*

 

**MAINSTREET BANKS, INC.****CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME****(Unaudited)**

 

|                                                                            | **Three  Months Ended  June 30,** |       | **Six Months Ended   June 30,** |       |
|---------------------------------------------------------------------------------|-----------------------------------|------------|---------------------------------|------------|
|                                                                            | ****                              |       | ****                            |       |
|                                                                            | **2001**                          | ** ** | **2000**                        | ** ** | **2001** | ** ** | **2000** | ** ** |
|                                                                            | ****                              |       | ****                            |       | **** |   | **** |   |
|                                                                            |                              |       |                            |       |   |   |   |   |
| **Net income**                                                                  | $                                 | 3,780,672  |                            | $          | 2,598,435 |   | $ | 6,439,513 |   | $ | 6,176,417 |   |
|                                                                            |                              |       |                            |       |   |   |   |   |
| **Other  comprehensive income, net of tax**                                     |                              |       |                            |       |   |   |   |   |
|                                                                            |                              |       |                            |       |   |   |   |   |
| Unrealized  gains on securities available for sale                              | 182,023                           |       | 250,129                         |       | 1,553,055 |   | 104,695 |   |
| Less  reclassification adjustment for net (gains losses included in net income) | (12,234                           | )          | 338,639                         |       | (14,646 | ) | 340,717 |   |
|                                                                            |                                   |       |                                 |       |  |   |  |   |
|                                                                            |                              |       |                            |       |   |   |   |   |
| **Comprehensive income**                                                        | $                                 | 3,950,461  |                            | $          | 3,187,203 |   | $ | 7,977,922 |   | $ | 6,621,829 |   |
|                                                                            |                                   |       |                                 |       |  |   |  |   |

 

*See accompanying notes*

* *

 

**MAIN STREET BANKS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**

 

|                                                                               | **Six  Months Ended   June 30,******                     |        |             |
|------------------------------------------------------------------------------------|----------------------------------------------------------|-------------|-------------|
||
||
|                                                                               | **2001**                                                 | ** **  | **2000**    | ** ** |   |
|                                                                               | ****                                                     |        | ****        |   |   |
| **Operating activities**                                                           |                                                     |        |        |   |   |
| Net  income                                                                        | $                                                        | 6,439,513   |        | $ | 6,176,417 |   |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |                                                     |        |        |   |   |
|                                                                               | Provision  for loan losses                               | 970,000     |        | 1,084,000 |   |   |
|                                                                               | Depreciation  and amortization of premises and equipment | 1,103,478   |        | 1,000,631 |   |   |
|                                                                               | Amortization  of intangible assets                       | 119,834     |        | 219,383 |   |   |
|                                                                               | Loss  on sales of other real estate                 | 27,661      |        | 3⁄4 |   |   |
|                                                                               | Investment  securities (gains) losses                    | (22,191     | )           | 516,239 |   |   |
|                                                                               | Net  accretion of investment securities                  | (432,519    | )           | (43,492 | ) |   |
|                                                                               | Net  accretion of loans purchased                        | (19,682     | )           | (41,766 | ) |   |
|                                                                               | Gain  on sales of premises and equipment                 | 2,842       |        | 27,771 |   |   |
|                                                                               | Net  (increase) decrease in mortgage loans held for sale | (5,195,030  | )           | 2,187 |   |   |
|                                                                               | Gains  on sales of mortgage loans                        | (282,617    | )           | (171,127 | ) |   |
|                                                                               | Gains  on sales of other loans                           | (316,926    | )           | (37,054 | ) |   |
|                                                                               | Deferred  income tax provision (benefit)                 | 584,441     |        | (616,586 | ) |   |
|                                                                               | Deferred  net loan fees                                  | (409,148    | )           | 226,615 |   |   |
|                                                                               | Vesting  in restricted stock award plan                  | 252,482     |        | 291,630 |   |   |
|                                                                               | Changes  in operating assets and liabilities:            |        |        |   |   |   |
|                                                                               | Decrease  (increase) in accrued interest receivable      | 792,670     |        | (190,446 | ) |   |
|                                                                               | Decrease (increase) in accrued interest payable          | (37,953     | )           | 635,069 |   |   |
|                                                                               | Other                                                    | 275,445     |        | 4,697,258 |   |   |
|                                                                               |                                                     |             |        |  |   |   |
| Net  cash provided by operating activities                                         | 3,852,300                                                |        | 13,776,729  |   |   |
|                                                                               |                                                          |        |             |   |   |
|                                                                               |                                                     |        |        |   |   |
| **Investing  activities**                                                          |                                                     |        |        |   |   |
| Purchases  of investment securities held to maturity                               | 3⁄4                                                   |        | (1,283,940  | ) |   |
| Purchases  of investment securities available for sale                             | (21,449,629                                              | )           | (23,409,099 | ) |   |
| Purchases  of other investments                                                    | 3⁄4                                                   |        | (384,944    | ) |   |
| Maturities  of investment securities held to maturity                              | 3⁄4                                                   |        | 1,371,788   |   |   |
| Maturities  and calls of investment securities available for sale                  | 50,997,381                                               |        | 2,875,201   |   |   |
| Proceeds  from sales of investment securities available for sale                   | 1,104,250                                                |        | 14,605,975  |   |   |
| Net  increase in loans funded                                                      | (32,397,438                                              | )           | (57,534,921 | ) |   |
| Purchases  of premises and equipment                                               | (1,399,215                                               | )           | (465,675    | ) |   |
| Proceeds  from sales of premises and equipment                                     | 340,336                                                  |        | 3⁄4      |   |   |
| Proceeds  from sales (acquisitions of) other real estate                           | 1,815,426                                                |        | (115,609    | ) |   |
|                                                                               |                                                          |        |             |   |   |
| **Net  cash used in investing activities**                                         | (988,889                                                 | )           | (64,341,224 | ) |   |
|                                                                               |                                                          |        |             |   |   |
|                                                                               |                                                     |        |        |   |   |
| **Financing  activities**                                                          |                                                     |        |        |   |   |
| Net  increase in demand and savings accounts                                       | 27,332,950                                               |        | 46,715,835  |   |   |
| (Decrease)  increase in time deposits                                              | (21,594,256                                              | )           | 16,705,449  |   |   |
| Decrease  in federal funds purchased                                               | (26,456,846                                              | )           | (5,244,900  | ) |   |
| Net  (decrease) increase in Federal Home Loan Bank advances                        | (6,500                                                   | )           | 5,992,500   |   |   |
| Dividends  paid                                                                    | (2,701,425                                               | )           | (1,322,544  | ) |   |
| Proceeds  from the issuance of common stock                                        | 460,451                                                  |        | 163,458     |   |   |
|                                                                               |                                                          |        |             |   |   |
| Net  cash (used in)  provided by financing  activities                        | (22,965,626                                              | )           | 63,009,798  |   |   |
|                                                                               |                                                          |        |             |   |   |
| Net  (decrease) increase in cash and cash equivalents                              | (20,102,215                                              | )           | 12,445,303  |   |   |
|                                                                               |                                                          |        |             |   |   |
| Cash  and cash equivalents at beginning of year                                    | 129,397,609                                              |        | 76,317,510  |   |   |
|                                                                               |                                                          |        |             |   |   |
| Cash  and cash equivalents at end of year                                          | $                                                        | 109,295,394 |        | $ | 88,762,813 |   |   |
|                                                                               |                                                          |        |             |   |   |
| **Supplemental  disclosures of cash flow information**                             |                                                     |        |        |   |   |
| Cash  paid during the year for:                                                    |                                                     |        |        |   |   |
|                                                                               | Interest                                                 | $           | 19,986,649  |   | $ | 15,593,573 |   |   |
|                                                                               |                                                     |             |        |  |   |   |
|                                                                               | Income  taxes, net                                       | 650,000     |        | 1,889,461 |   |   |
|                                                                               |                                                     |             |        |  |   |   |
| **Supplemental  disclosures of noncash transactions**                              |                                                     |        |        |   |   |
| Loans  transferred to real estate acquired through foreclosure                     | $                                                        | 543,817     |        | $ | 176,066 |   |   |
|                                                                               |                                                          |        |             |   |   |
| Transfer  of investment securities from held to maturity to available for sale     | $                                                        | 17,851,829  |        | $ | 3⁄4 |   |   |
|                                                                               |                                                          |        |             |   |   |
|                                                                                    |                                                          |             |             |  |  |  |  |  |  |  |   |

*                                                                             Seeaccompanying notes.*

 

**MAIN STREET BANKS, INC.NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Unaudited)JUNE 30, 2001**

**NOTE 1.                BASIS OF PRESENTATION**

                Theaccompanying unaudited consolidated financial statements of Main Street Banks,Inc. (the “Company”) have been prepared in accordance with accountingprinciples generally accepted in the United States followed within thefinancial services industry for interim financial information and with theinstructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, theydo not include all of the information and notes required for complete financialstatement presentation. In the opinion of management, all adjustments(consisting solely of normal recurring adjustments) considered necessary for afair presentation of the financial position and results of operations forinterim periods have been included.                 The results of operationsfor the six month period ended June 30, 2001 are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2001. Thesefinancial statements and related “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” should be read in conjunctionwith the supplemental consolidated financial statements and notes thereto forthe year ended December 31, 2000, included in the Company’s Current Report onForm 8-K dated May 11, 2001.**NOTE 2.                BUSINESSCOMBINATION**                OnJanuary 25, 2001, the Company completed a business combination with Walton Bankand Trust Company (“Walton”) by exchanging 2.752 shares of its common stock foreach share of Walton outstanding common stock. The combination was accounted for as a pooling of interests and,accordingly, all prior financial statements have been restated to include theresults of Walton.**NOTE 3.                CURRENTACCOUNTING DEVELOPMENTS**

                TheFinancial Accounting Standards Board issued Statement No. 138, “Accounting forDerivative Instruments and Hedging Activities” (“Statement 138”) which amendedcertain provisions of Statement No. 133, “Accounting for Derivative Instrumentsand Hedging Activities.” Statement 138 requires all derivatives to be recordedat their fair value on the statement of financial condition. Accounting for thechanges in fair value of a derivative depends on the intended use of thederivative and the resulting designation. Statement 138 was effective for theCompany on January 1, 2001.  Theadoption of the standard did not result in a material financial impact based onthe Company’s limited use of derivatives.

                Underthe provisions of Statement 138, a company can elect to make a one-timetransfer of investment securities from “held to maturity” to “available forsale” without tainting the held to maturity category. Upon adoption ofStatement 138 on January 1, 2001, the Company transferred $17,851,829 of investmentsecurities to the “available for sale” category.

**NOTE 4.                EARNINGS PER COMMON SHARE**

The computation ofdiluted earnings per share is as follows:

|                             | **Three Months Ended June 30,** |      | **Six Months Ended   June 30,** |   |
|----------------------------------|--------------------------------------|-----------|---------------------------------|--------|
|                             | ****                                 |      | ****                            |   |
|                             | **2001**                             |      | **2000**                        |   | **2001** |   | **2000** |   |
|                             |                                      |      |                                 |   |  |   |  |   |
|                             |                                 |      |                            |   |   |   |   |   |
| Basic and diluted net income     | $                                    | 3,780,672 |                            | $      | 2,598,435 |   | $ | 6,439,513 |   | $ | 6,176,417 |   |
|                             |                                      |      |                                 |   |  |   |  |   |
|                             |                                 |      |                            |   |   |   |   |   |
| Basic weighted average shares    | 15,634,599                           |      | 15,461,577                      |   | 15,618,595 |   | 15,453,398 |   |
| Effect of Employee Stock Options | 468,631                              |      | 298,303                         |   | 434,438 |   | 323,514 |   |
|                             |                                      |      |                                 |   |  |   |  |   |
| Diluted weighted average shares  | 16,103,230                           |      | 15,759,880                      |   | 16,053,033 |   | 15,776,912 |   |
|                             |                                      |      |                                 |   |  |   |  |   |
|                             |                                 |      |                            |   |   |   |   |   |
| Diluted earnings per share       | $                                    | .23       |                            | $      | .16 |   | $ | .40 |   | $ | .39 |   |
|                             |                                      |      |                                 |   |  |   |  |   |

 

 

**NOTE5.                LOANS**

                Loans are stated at unpaidprincipal balances, net of unearned income and deferred loan fees.  Interest is accrued only if deemedcollectible.  The following tablerepresents the composition of the Company’s loan portfolio:

|                     | **June 30,**                 |         | **December 31,** |    |
|--------------------------|------------------------------|--------------|------------------|---------|
|                     | **2001**                     |         | **2000**         |    |
|                     | ****                         |         | ****             |    |
|                     | ***(Dollars in thousands)*** | *** *** |
|                     |                         |         |             |    |
| Commercial               | $                            | 106,668      |             | $       | 97,572 |   |
| Construction             | 163,866                      |         | 150,107          |    |
| Residential mortgage     | 154,678                      |         | 162,706          |    |
| Real estate – other | 285,507                      |         | 263,500          |    |
| Consumer                 | 58,893                       |         | 63,857           |    |
|                     |                              |         |                  |    |
| Total loans              | 769,612                      |         | 737,742          |    |
|                     |                              |         |                  |    |
| Less:                    |                         |         |             |    |
|                     | Net deferred loan fees       | (1,827       | )                | (1,779  | ) |
|                     | Allowance for loan  losses   | (11,417      | )                | (10,907 | ) |
|                     |                              |         |                  |    |
|                     |                         |         |             |    |
| Net loans                | $                            | 756,368      |             | $       | 725,056 |   |
|                     |                              |         |                  |    |

**ITEM 2****.  MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION                AND RESULTS OF OPERATIONS**

                Thefollowing is management’s discussion and analysis of certain significantfactors which have affected the Company’s financial position at June 30, 2001as compared to December 31, 2000 and operating results for the three month andsix month periods ended June 30, 2001. These comments should be read inconjunction with the Company’s condensed consolidated financial statements andaccompanying notes appearing elsewhere herein.**Forward Looking Statements******

                Thisdiscussion contains certain forward-looking statements including statementsrelating to present or future trends or factors generally affecting the bankingindustry and specifically affecting the Company’s operations, markets andproducts.  Without limiting theforegoing, the words “believes” “anticipates”, “intends”, “expects” or similarexpressions are intended to identify forward-looking statements.  These forward-looking statements involvecertain risks and uncertainties.  Actualresults could differ materially from those projected for many reasonsincluding, without limitation, changing events and trends that have influencedthe Company’s assumptions.  These trendsand events include (i) changes in the interest rate environment which mayreduce margins, (ii) non-achievement of expected growth (iii) less favorablethan anticipated changes in national and local business environment andsecurities markets (iv) adverse changes in the regulatory requirementsaffecting the Company (v) greater competitive pressures among financialinstitutions in the Company’s market and (vi) greater than expected loanlosses. Additional information and other factors that could affect futurefinancial results are included in the Company’s filings with the Securities andExchange Commission, including the Annual Report on Form 10-K for 2000 andsupplemental financial statements on Form 8-K. **Overview**

                The Company’s total assets havedecreased $14.5 million or 1.35% since December 2000.  Federal funds sold decreased $40.6 million primarily due to anincrease in loans and the decrease in a seasonal public funds deposit accountof approximately $13 million.  Totalloans have increased 4.32% or $31.8 million since December 2000.  Total deposits have increased by .65% or$5.7 million.                Return on average equity(operating income, excluding one-time charges) for the three months and sixmonths ended June 30, 2001 was 17.6% and 17.7% on average equity of $98.1million and $96.6 million, respectively. This compares to 19.4% and 19.0% on average equity of $80.9 million and$79.4 million respectively, for the same periods in 2000.                Return on average assets(operating income, excluding one-time charges) for the three months and sixmonths ended June 30, 2001 was 1.66% and 1.64%, respectively.  This compares to 1.67% and 1.63%,respectively for the same periods in 2000.**Capital**

                At June 30, 2001, the capitalratios of the Company and the Bank were adequate based on regulatory minimumcapital requirements.  The minimumcapital requirements for banks and bank holding companies require a leveragecapital to total assets ratio of at least 4%, core capital to risk-weightedassets ratio of at least 4% and total capital to risk-weighted assets of8%.  The following table reflects theCompany’s and the Bank’s compliance with regulatory capital requirements atJune 30, 2001.

 

|                        | **Company** |   | **Bank** |   |
|-----------------------------|-------------|--------|----------|--------|
|                        | ****        |   | ****     |   |
|                        |        |   |     |   |
| Leverage  ratio             | 9.29        | %      | 9.17     | %      |
|                        |        |   |     |   |
| Risk  based capital ratios: |        |   |     |   |
| Tier  1 risk based capital  | 11.86       | %      | 11.71    | %      |
| Risk-based  capital         | 13.11       | %      | 12.96    | %      |

**Loansand Allowance for Loan Losses**

                At June 30, 2001, loans, net of unearned income, were $767.8million, an increase of $31.8 million or 4.3% over net loans at December 31,2000 of $736.0 million. The growth in the loan portfolio was attributable to aconsistent focus on quality loan production and strong loan markets in thestate and region. Real estate-construction loans increased $6.1 million or 4.0%from December 31, 2000. The Company continues to monitor the composition of theloan portfolio to ensure that the market risk to the balance sheet is notadversely affected by the impact of changes in the economic environment on anyone segment of the portfolio.

                TheCompany primarily focuses on the following loan categories: (1) commercial, (2)real estate construction, (3) real estate mortgage and (4) consumer loans. TheCompany’s management has strategically located its branches in high growthmarkets and has taken advantage of a surge in residential and industrial growthin northeastern Georgia.

                Theallowance for loan losses is a reserve established through charges to earningsin the form of a provision for loan losses. The provision for loan losses is based on management’s evaluation of thesize and composition of the loan portfolio, the level of non-performing andpast due loans, historical trends of charged-off loans and recoveries,prevailing economic conditions and other factors management deems appropriate.Main Street’s management has established an allowance for loan losses which itbelieves is adequate for anticipated losses in the loan portfolio.  Based on a continuous credit evaluation ofthe loan portfolio, management presents a quarterly review of the allowance forloan losses to Main Street’s board of directors. The review that management hasdeveloped primarily focuses on risk by evaluating the level of loans in certainrisk categories.  These categories havealso been established by management and take the form of loan grades. Theseloan grades closely mirror regulatory classification guideline and include passloan categories 1 through 4 and special mention, substandard, doubtful, andloss categories of 5 through 8, respectively. By grading the loan portfolio inthis manner Main Street’s management is able to effectively evaluate theportfolio by risk, which management believes is the most effective way toanalyze the loan portfolio and thus analyze the adequacy of the reserve forloan losses. Management also reviews charge-offs and recoveries on a quarterlybasis to identify trends.  

                Main Street’s risk managementprocesses include a loan review program to evaluate the credit risk in the loanportfolio. The credit review department is independent of the loan function andreports to the Senior Vice President of Risk Management.  Through the loan review process, Main Streetmaintains an internally criticized classified loan watch list which, along withthe delinquency report of loans serves as a tool to assist management assessthe overall quality of the loan portfolio and the adequacy of the allowance forloan losses. Loans classified as “substandard” are those loans with clear anddefined weaknesses such as a highly leveraged position, unfavorable financialratios, uncertain financial ratios, uncertain repayment sources, deteriorationin underlying collateral values, or poor financial condition which mayjeopardize recoverability of the debt. Loans classified as “doubtful” are thoseloans that have characteristics similar to substandard loans but have anincreased risk of loss, or at least a portion of the loan may require beingcharged-off. Loans classified as “loss” are those loans that are in the processof being charged-off.

                For the six month period endingJune 30, 2001, net charge-offs totaled $460,813 or .18% (annualized) of averageloans outstanding for the period, net of unearned income, compared to $133,699or .11% in net charge-offs for the same period in 2000. The provision for loanlosses for the six months ended June 30, 2001 was $970,000 compared to$1,084,000 for the same period in 2000. The allowance for loan losses totaled$11,416,611 or 1.49% of total loans, net of unearned income at June 30, 2001,compared to $10,907,424 or 1.48% at December 31, 2000.

                Thefollowing table presents an analysis of the allowance for loan losses for thesix month period ended June 30, 2001 and June 30, 2000 follows:

|                                                         | **Six Months Ended**                                  |       |
|--------------------------------------------------------------|-------------------------------------------------------|------------|
|                                                         | **June 30,**                                          |       |
|                                                         | ****                                                  |       |
|                                                         | **2001**                                              |       | **2000** | ** ** |
|                                                         | ****                                                  |       | **** |   |
|                                                         |                                                  |       |   |   |
| Balance  of allowance for loan losses at beginning of period | $                                                     | 10,907,424 |   | $ | 9,743,922 |   |
|                                                         |                                                  |       |   |   |
| Provision  charged to operating expense                      | 970,000                                               |       | 1,084,000 |   |
|                                                         | Charge-offs:                                          |       |   |   |   |
|                                                         | Commercial,  financial and agricultural               | 147,174    |   | 88,066 |   |
|                                                         | Real  estate – construction and land development | 11,107     |   | 19,497 |   |
|                                                         | Real  estate – mortgage                          | 40,793     |   | 3⁄4 |   |
|                                                         | Installment  and other consumer                       | 465,417    |   | 283,616 |   |
|                                                         |                                                       |       |  |   |
|                                                         | Total  charge-offs                                    | $          | 664,491 |   | $ | 391,179 |   |
|                                                         |                                                       |       |  |   |
| Recoveries:                                                  |                                                  |       |   |   |
|                                                         | Commercial,  financial and agricultural               | 21,832     |   | 8,908 |   |
|                                                         | Real  estate – construction and land development | 3⁄4     |   | 13,000 |   |
|                                                         | Real  estate – mortgage                          | 20,836     |   | 75,400 |   |
|                                                         | Installment  and other consumer                       | 161,010    |   | 160,172 |   |
|                                                         |                                                       |       |  |   |
|                                                         | Total  recoveries                                     | $          | 203,678 |   | $ | 257,480 |   |
|                                                         |                                                       |       |  |   |
| Net  charge-offs                                             | $                                                     | 460,813    |   | $ | 133,699 |   |
|                                                         |                                                       |       |  |   |
|                                                         |                                                  |       |   |   |
| Balance  of allowance for loan losses at end of period       | $                                                     | 11,416,611 |   | $ | 10,694,223 |   |
|                                                         |                                                       |       |  |   |
|                                                              |                                                       |            |  |  |  |  |  |  |  |

** **

**Liquidity and Market Risk Sensitivity**

                Liquidity involves the Company’sability to raise funds to support asset growth or reduce assets to meet depositwithdrawals and other payment obligations, to maintain reserve requirements andotherwise to operate on an ongoing basis. During the past three years, theCompany’s liquidity needs have primarily been met by growth in core deposits,as previously discussed, together with advances from the Federal Home LoanBank. Although access to purchased funds from correspondent banks is availableand has been utilized on occasion to take advantage of investmentopportunities, the Company does not generally rely on these external fundingsources. The cash and federal funds sold position, supplemented by amortizinginvestment and loan portfolios, have generally created an adequate liquidityposition.

                TheCompany’s asset liability and funds management policy provides management withthe necessary guidelines for effective funds management and a measurement systemfor monitoring its net interest rate sensitivity position. Main Street managesits sensitivity position within established guidelines.

                Marketrisk is defined as the risk of loss arising from adverse changes in marketinterest rates and prices. In order to maintain acceptable net interest incomelevels, interest rates, liquidity and maturities of the Company’s assets andliabilities need to be managed.  In adecreasing rate environment earnings are typically negatively impacted as theCompany’s rate sensitive assets generally reprice faster than its ratesensitive liabilities thus an increase in interest rates will typically have apositive impact on earnings.                Interest rate risk ismanaged by the asset liability committee which is composed of senior officersof Main Street, in accordance with policies approved by its board of directors.The asset liability committee formulates strategies based on appropriate levelsof interest rate risk. In determining the appropriate level of interest raterisk, the asset liability committee considers the impact on earnings andcapital of the current outlook on interest rates, potential changes in interestrates, regional economies, liquidity, business strategies and other factors.The asset liability committee meets regularly to review, among other things,the sensitivity of assets and liabilities to interest rate changes, the bookand market values of assets and liabilities, unrealized gains and losses,purchase and sale activities, commitments to originate loans and the maturitiesof investments and borrowings. Additionally, the asset liability committeereviews liquidity, cash flow flexibility, maturities of deposits and consumerand commercial deposit activity. The Company’s management uses twomethodologies to manage interest rate risk: (i) an analysis of relationshipsbetween interest-earning assets and interest-bearing liabilities; and (ii) aninterest rate shock simulation model. The Company has traditionally managed itsbusiness to reduce its overall exposure to changes in interest rates.
                Main Street manages its exposureto interest rates by structuring its balance sheet in the ordinary course ofbusiness. Main Street has in the past, and may utilize interest rate swaps,financial options, or financial futures contracts in order to reduce interestrate risk. No such interest rate protection instruments were in effect at March31, 2001.

                An interest rate sensitive assetor liability is one that, within a defined time period, either matures orexperiences an interest rate change in line with general market interest rates.The management of interest rate risk is performed by analyzing the maturity andrepricing relationships between interest-earning assets and interest-bearingliabilities at specific points in time (gap) and by analyzing the effects ofinterest rate changes on net interest income over specific periods of time byprojecting the performance of the mix of assets and liabilities in variedinterest rate environments. Interest rate sensitivity reflects the potentialeffect on net interest income of a movement in interest rates. A company isconsidered to be asset sensitive, or having a positive gap, when the amount ofits interest-earning assets maturing or repricing within a given period exceedsthe amount of its interest-bearing liabilities also maturing or repricingwithin that time period. Conversely, a company is considered to be liabilitysensitive, or having a negative gap, when the amount of its interest-bearingliabilities maturing or repricing within a given period exceeds the amount ofits interest-earning assets also maturing or repricing within that time period.During a period of rising interest rates, a negative gap would tend to affectnet interest income adversely, while a positive gap would tend to result in anincrease in net interest income. During a period of falling interest rates, anegative gap would tend to result in an increase in net interest income, whilea positive gap would tend to affect net interest income adversely.

**Results of Operations for the Three Months Ended June 30,2001 and 2000**

                Net income for the quarter endedJune 30, 2001 was $3.8 million compared to $2.6 million for the quarter endedJune 30, 2000.  Operating net income,which excludes the impact of merger expenses and other one time items was $4.3million for the quarter ended June 30, 2001, an increase of $404,876 or 10.35%over the same period in 2000.  Operatingdiluted earnings per share was $.27 and $.25 for the quarters ending June 30,2001 and June 30, 2000, respectively.

                The increase in operating netincome is primarily attributable to an increase in interest income of $772,186and an increase in operating non-interest income of $506,074.  The Company was able to realize an increasein interest income as average earning assets increased $97.1 million or 11.10%over the same period in 2000. The yield on earning assets declined 64 basispoints compared to the same period in 2000, as interest rates have continued todecline in 2001. Interest expense increased $916,535 or 10.67% over the sameperiod in 2000.  Average interestbearing liabilities increased $85.3 million or 12.14% over the same period in2000 and the average rate declined eight basis points.  The bank offered several certificate ofdeposit promotions during 2000, for varying terms, as these certificatesre-price the effective rate on interest bearing liabilities will continue todecline through out 2001.  In the secondquarter of 2001, management elected to refinance the Federal Home Loan Bank (“FHLB”)debt and take advantage of the lower interest rates.  Previously FHLB debt was for staggered terms, at fixedrates.  The existing debt was rolledinto floating rate overnight advances. While the prepayment penalty was $534,568, net of tax, in the currentrate environment we will realize an immediate 200 basis point improvement inrate and thereby recover the one time prepayment penalty in less than tenmonths.  The net interest margin for thequarter ended June 30, 2001 was 4.99% compared to 5.60% for the quarter endedJune 30, 2000.  Increased servicecharges and the growth of several fee-based services further augmented theincrease in earnings. Mortgage origination fees increased $275,824 or 118.02%over the same period in 2000.  Thedecline in interest rates has resulted in an increased number of first timehomebuyers and many people taking advantage of the opportunity to reduce ratesthrough refinancing.  Operating expensesincreased only $95,011 or 1.15% over the quarter ended June 30, 2000.  The Company operates in the highlycompetitive, dynamic metro-Atlanta market and continues to enjoy excellentgrowth.  Average total deposits for thequarter ended June 30, 2001, increased $92.3 million or 11.70% over the quarterended June 30, 2000.  Average loans forthe quarter ended June 30, 2001, increased $47.8 million or 6.70% over thequarter ended June 30, 2000.

                Theprovision for loan losses was $440,000 for the three months ended June 30, 2001as compared to $504,000 for the same period in 2000.  Average loans, net of unearned income, increased $47.8 million or6.70% over the quarter ended June 30, 2000. Management closely monitors the loan portfolio and the underwriting ofloans and considers the allowance for loan losses to be adequate.

                Non-performing assets whichincludes other real estate owned and non accrual loans, totaled $2.6 million or .33% of total loans at June 30, 2001, compared to $2.3 million or .32% of totalloans at June 30, 2000.

                The effective income tax ratedecreased from 42.6% for the quarter ended June 30, 2000 to 31.0% in thequarter ended June 30, 2001.  Thedecrease is primarily due to the merger expenses incurred in the second quarterof 2000, which are generally non-deductible for income tax purposes.

**Resultsof Operations for the Six Months Ended June 30, 2001 and 2000**********                Netincome for the six months ended June 30, 2001 was $6.4 million compared to $6.2million for the six months ended June 30, 2000.  Operating net income, which excludes the impact of mergerexpenses and other one time items was $8.4 million for the six months endedJune 30, 2001, an increase of $990,518 or 13.23% over the same period in2000.  Operating diluted earnings pershare was $0.53 and $0.47 for the six months ended June 30, 2001 and June 30,2000, respectively.  Net interest incomewas $23.7 million for the six months ended June 30, 2001 and June 30,2000.  Average earning assets for thesix months ended June 30, 2001 were $974.7 million an increase of $113.3million or 13.16% over same period in 2000, related interest income increasedby $3.7 million or 9.18%.  The yield onearning assets has declined 30 basis points, compared to the same period in2000, the result of several reductions in the prime interest rate.  Since December 2000 the prime rate hasdeclined from 9.50% to 6.75.  Averageinterest bearing liabilities increased $104.2 million or 15.06%, resulting inan increase in interest expense of $3.7 million or 22.92% over the same periodin 2000, the average rate increased 33 basis points.  The higher rate is a result of several certificate of depositpromotions offered in 2000, for varying terms. As these certificates re-price over the next several months we will seea decline in the rate on interest bearing deposits.  The net interest margin for the six months ended June 30, 2001was 4.99% compared to 5.62% for the same period in 2000.                Non-interest income,excluding one-time items, for the six month period ended June 30, 2001increased $1.0 million or 19.12% over the same period in 2000.  The strong growth in deposit accountscoupled with an increase in the service charge structure has resulted in anincrease in service charges of $261,564 or 10.40% over the same period in 2000.  The decline in interest rates has been veryfavorable for the mortgage division which has seen a significant increase innew homebuyers as well as refinancing activity.  Mortgage origination fees have increased $446,780 or 100.81% overthe six month period ended June 30, 2000. Non interest expense, excluding one-time items increased $110,895 or .67% over the six month period ended June 30, 2000.

                Theprovision for loan losses declined $114,000 from the same period in 2000.  The allowance for loan losses as apercentage of total loans outstanding at June 30, 2001 and December 31, 2000amounted to 1.49% and 1.48% , respectively.

**PART II****– OTHER INFORMATION**

**ITEM 4.****      SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

                At the Company’s Annual Meetingof Shareholders held on May 9, 2001, the following individuals were elected toserve as Class I Directors for three-year terms expiring at the 2004 AnnualMeeting of Shareholders:
     **Votes For** **Votes Withheld**  Robert F. Fowler, III12,816,978 30,810Samuel B. Hay, III12,816,978 30,810C. Candler Hunt12,841,978 5,810
 

                Thefollowing proposals were approved at the Company’s Annual Meeting:

 
  **Affirmative** **Negative** **Votes**  **Votes** **Votes** **Withheld**    1.Approve the 2000  Directors Stock Option Plan10,244,309 264,987 160,277       2.Approve the Omnibus  Stock Ownership and Long Term Incentive Plan.10,465,595 161,326 42,662       
 
**ITEM 6**.          EXHIBITSAND REPORTS ON FORM 8-K
 

(a)         Current report on Form 8-K

Thecompany filed a Form 8-K on May 4, 2001 announcing its name change.On May 14, 2001, the company filed a Form 8-K to reflect supplementalconsolidated financial statements, selected financial data and management’sdiscussion and analysis of financial condition and results of operations as ofDecember 31, 2000 and 1999, and for each of the three years in the period endedDecember 31, 2000 restated to include the financial results of Walton Bank andTrust Company.

 

**SIGNATURES**

 

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

 
   **MAIN  STREET BANKS, INC.**            Date:August 9, 2001By:/s/ Edward C. Milligan       Edward C. Milligan,  President and  Chief Executive Officer            Date:August 9, 2001By:/s/ Barbara J. Bond       Barbara  J. Bond, Secretary, Principal  Financial and Accounting Officer