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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001

Commission file number 000-25128

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MAIN STREET BANKS, INC.(Exact name of registrant as specified in its charter)

Georgia

58-2104977(State of Incorporation)

(I.R.S. Employer Identification No.)676 Chastain Road, Kennesaw, GA

30144(Address of principal excutive offices)

(Zip Code)


770-422-2888(Registrant's telephone number)

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

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 ý    No o

Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K 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-K or any amendment to this
Form 10-K. o

As
of February 28, 2002, the registrant had outstanding 15,664,622 shares of common stock. As of February 28, 2002, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $177,896,392.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the 2002 Annual Meeting of Shareholders are incorporated by reference into Part III.

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TABLE OF CONTENTS

|         |          |    |                                                                                      | Page
|-------- | -------- | -- | ------------------------------------------------------------------------------------ | ----
|PART I   |          | 3 
|         | ITEM 1.  |    | BUSINESS                                                                             |     
|         | ITEM 2.  |    | DESCRIPTION OF PROPERTY                                                              |     
|         | ITEM 3.  |    | LEGAL PROCEEDINGS                                                                    |     
|         | ITEM 4.  |    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  |     
|PART II  |          | 13
|         | ITEM 5.  |    | MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS             |     
|         | ITEM 6.  |    | SELECTED FINANCIAL DATA                                                              |     
|         | ITEM 7.  |    | MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION                            |     
|         | ITEM 7A. |    | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            |     
|         | ITEM 8.  |    | FINANCIAL STATEMENTS                                                                 |     
|         | ITEM 9.  |    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |     
|PART III |          | 36
|         | ITEM 10. |    | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                   |     
|         | ITEM 11. |    | EXECUTIVE COMPENSATION                                                               |     
|         | ITEM 12. |    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                       |     
|         | ITEM 13. |    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                       |     
|         | ITEM 14. |    | EXHIBITS AND REPORTS ON FORM 8-K                                                     |     

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K may contain or incorporate by reference statements which may constitute "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Exchange Act of 1934, as amended, including statements relating to present or future trends or
factors generally affecting the banking industry and specifically affecting Main Street Banks, Inc.'s (the "Company") operations, markets and products. Without limiting the foregoing, the words
"believes", "anticipates", "intends", "expects" or similar expressions are intended to identify forward-looking statements. These forward-looking statements involve certain risks and uncertainties.
Actual results could differ materially from those projected for many reasons including, without limitation, changing events and trends that have influenced the Company's assumptions. These trends and
events include (i) changes in the interest rate environment which may reduce margins, (ii) non-achievement of expected growth, (iii) less favorable than anticipated changes in
national and local business environment and securities markets, (iv) adverse changes in the regulatory requirements affecting the Company, (v) greater competitive pressures among
financial institutions in Company's market, and (vi) greater than expected loan losses. Additional information and other factors that could affect future financial results are included in the
Company's filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for 2001.

ITEM 1.    BUSINESS

The Company is a financial holding company which engages through its subsidiaries, Main Street Bank ("the Bank") and Williamson, Musselwhite & Main Street
Insurance, Inc. ("Williamson"), in providing a full range of banking, mortgage banking, investment and insurance services to its retail and commercial customers located primarily in Barrow,
Clarke, Cobb, DeKalb, Gwinnett, Newton, Rockdale and Walton counties in Georgia. The Bank, a commercial bank, provides traditional deposit, lending, mortgage and securities brokerage services. Prior
to January 2, 2001, the Company was known as First Sterling Banks, Inc. On December 29, 2000, former bank subsidiaries, The Westside Bank and Trust Company ("Westside"), The
Eastside Bank and Trust Company ("Eastside") and Community Bank of Georgia ("Community") were merged into the Bank. The Company was incorporated on March 16, 1994 as a Georgia business
corporation. The Company's executive offices are located at 676 Chastain Road,
Kennesaw, Georgia 30144, and its telephone number is 770-422-2888. Neither the Company nor the Bank has any foreign activities.

During
2001 the Bank formed MSB Holdings, Inc., a holding company, and MSB Investments Inc., a real estate investment trust ("REIT"). These companies were established in order to
strengthen the Bank's capital position. The establishment of a REIT subsidiary is expected to allow the Bank to increase the effective yield on its real estate related assets and residential mortgage
loan portfolios by transferring a portion of those assets and loans to an entity that receives favorable tax treatment.

Since
1995, the Company has been reviewing and analyzing possible acquisition and growth opportunities in the Atlanta metropolitan area. Its strategic plan has been to enhance
shareholder value by creating a larger high performing banking company in the Atlanta area. The goal has been to provide broader and more comprehensive services to its customers, create efficiencies
in the administration and service functions, and provide a larger shareholder base with a more liquid security trading on a national market.

The
first merger occurred in 1996 when the Company merged with Eastside Holding Corporation, a one-bank holding company located in Snellville, Gwinnett County, Georgia. In 1999, the
Company consummated a merger with Georgia Bancshares, Inc. and thereby acquired Community Bank located in DeKalb County, Georgia. In May of 2000, the Company consummated a merger with
the former

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Main Street Banks Incorporated, the former parent of the Bank. In December of 2000, the Company consummated a merger with Williamson Insurance Agency, Inc. and Williamson and
Musselwhite Insurance Agency, Inc. In January of 2001, the Company consummated a merger with Walton Bank and Trust Company.

Recent Developments

Effective November 17, 2000, the Company became a financial holding company under the provisions of the Gramm-Leach-Bliley Act of 1999, which amended the
Bank Holding Company Act and expands the activities in which the Company may engage. After becoming a financial holding company, in December 2000 the Company acquired Williamson. Upon
consummation of the acquisition, the two insurance companies were combined with the Bank's Insurance division and the name was changed to Williamson, Musselwhite & Main Street
Insurance, Inc.

Market Area and Competition

The Bank encounters vigorous competition from other commercial banks, savings and loan associations and other financial institutions and intermediaries in the
Bank's primary service areas.

The
Bank competes with other banks in their primary service area in obtaining new deposits and accounts, making loans, obtaining branch banking locations and providing other banking
services. The Bank also competes with savings and loan associations and credit unions for savings and transaction deposits, certificates of deposit and various types of retail and commercial loans.

Competition
for loans is also offered by other financial intermediaries, including savings and loan associations, mortgage banking firms and real estate investment trusts, small loan and
finance companies, insurance companies, credit unions, leasing companies, and certain government agencies. Competition for time deposits and, to a more limited extent, demand and transaction deposits
is also offered by a number of other financial intermediaries and investment alternatives, including money market mutual funds, brokerage firms, government and corporate bonds and other securities.

Competition
for banking services in the State of Georgia is not limited to institutions headquartered in the State. A number of large interstate banks, bank holding companies, and other
financial institutions and intermediaries have established loan production offices, small loan companies, and other offices and affiliates in the State of Georgia. Many of the interstate financial
organizations that compete in the Georgia market engage in regional, national or international operations and have greater financial resources than the Company.

Since
July 1, 1995, numerous interstate acquisitions involving Georgia based financial institutions have been announced or consummated. Though interstate banking has resulted in
significant changes in the structure of financial institutions in the southeastern region, including the Bank's primary service areas, management does not feel that such changes have had or will have
a significant impact upon its operations.

The
Company's marketing strategy emphasizes its local nature and involvement in the communities located in its' primary service area.

Management
expects that competition will remain intense in the future due to State and Federal laws and regulations, and the entry of additional bank and nonbank competitors.

Employees

As of February 28, 2002, the Company had a total of 376 full-time equivalent employees. These employees are provided with fringe benefits in varying
combinations, including health, accident, disability and life insurance plans. None of the Company's employees are subject to a collective

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bargaining agreement, and the Company has never experienced a work stoppage. In the opinion of management, the Company enjoys excellent relations with its employees.

Products and Services

The Company provides a full range of traditional banking, mortgage banking, investment, and insurance services to individual and corporate customers.

Lending

The Company's primary lending activities include real estate loans (mortgage and construction), commercial and industrial loans to small and medium sized
businesses and consumer loans. The Company originates first mortgage loans and enters into a commitment to sell these loans in the secondary market. The Company limits its interest rate risk on such
loans originated by selling individual loans immediately after the customer lock-in their rate and after the loan is closed.

Deposits

The Company offers a full range of depository accounts and services to both individuals and businesses. These deposit accounts have a wide range of interest rates
and terms and consist of demand, savings, money market and time accounts.

Insurance Services

The Company provides insurance services to individuals and businesses through its subsidiary, Williamson. Williamson provides a variety of insurance products for
consumers including life, health, homeowners, automobile and umbrella liability coverage. Commercial products include coverage for property, general liability, worker's compensation, and group life
and health.

Investment Services

The Company, through a division of the Bank, provides its customers with comprehensive investment and brokerage services through an arrangement with SAL
Financial, an affiliate of Sterne, Agee & Leach, Inc. Products and services include stocks and bonds, mutual funds, annuities, 401(k) plans, life insurance, individual retirement
accounts, simplified employee pension accounts, estate planning and financial needs analysis.

Supervision and Regulation

General

The Company is a financial holding company registered with the Federal Reserve Board ("Federal Reserve") and the Georgia Department of Banking and Finance under
the Bank Holding Company Act of 1956 as amended "Holding Company Act" and the Georgia Bank Holding Company Act, respectively. As a result, it is subject to the supervision, examination and reporting
requirements of these acts and the regulations of the Federal Reserve and the Georgia Department of Banking and Finance issued under these acts. To qualify as a financial holding company, a bank
holding company must demonstrate that each of its bank subsidiaries is well capitalized and well managed and has a rating of "satisfactory" or better under the Community Reinvestment Act of 1977
("CRA"). The Bank is a Georgia chartered commercial bank and subject to the supervision, examination and reporting requirements of the Georgia Department of Banking and Finance and the Federal Deposit
Insurance Company ("FDIC").

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The
Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:



The
Gramm-Leach-Bliley Act substantially expanded the activities permissible to bank holding companies and their affiliates. Gramm-Leach-Bliley repeals the anti-affiliation provisions of
the Glass-Steagall Act to permit the common ownership of commercial banks, investment banks and insurance companies. The Holding Company Act was amended to permit a financial holding company to engage
in any activity and acquire and retain any company that the Federal Reserve determines to be (a) financial in nature or incidental to such financial activity or (b) complementary to a
financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

The
FDIC and the Georgia Department of Banking and Finance regularly examine the operations of the bank and are given the authority to approve or disapprove mergers, consolidations, and
the establishment of branches and similar corporate actions. The FDIC and the Georgia Department of Banking and Finance also have the power to prevent the continuance or development of unsafe or
unsound banking practices or other violations of law.

Capital Adequacy

The Company and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve and the FDIC. There are two basic measures
of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk-based measure and a leverage measure. All applicable capital standards must be satisfied for a
bank holding company to be considered in compliance.

The
risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account
for off-balance sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The
minimum guideline for the ratio of total capital ("Total Capital") to risk-weighted assets (including certain off-balance sheet items, such as standby letters of credit) is 8.0%. At
least half of the Total Capital must be composed of common equity, undivided profits, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock,
and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder may consist of subordinated debt, other preferred
stock, and a limited
amount of loan loss reserves. The minimum guideline for Tier 1 Capital ratio is 4.0%. At December 31, 2001, the Company's consolidated Tier 1 Capital and Total Capital ratios were 11.59% and
12.83%, respectively.

In
addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average
assets, less goodwill and certain other intangible assets (the "Leverage Ratio"), of 4.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory
rating. All other

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bank holding companies generally are required to maintain a Leverage Ratio of at least 4.0%, plus an additional cushion of 100 to 200 basis points. The Company's Leverage Ratio at December 31,
2001, was 9.24%.

The
guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital leverage ratio" (deducting
all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

The
Bank is subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar to those adopted by the Federal Reserve. The Bank was in
compliance with applicable minimum capital requirements as of December 31, 2001. Neither the Company nor the Bank has been advised by any federal banking agency of any violations of specific
minimum capital ratio requirement applicable to it.

Failure
to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on
its business. See "Prompt Corrective Action."

Support of Subsidiary Bank

Under Federal Reserve policy, the Company is expected to act as a source of financial strength to, and to commit resources to support, the Bank. This support may
be required at times when, absent such Federal Reserve policy, the Company may not be inclined to provide it. In addition, any capital loans by a bank holding company to the Bank are subordinate in
right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

Prompt Corrective Action

Federal Deposit Insurance Corporation Improvement Act ("FDICIA") establishes a system of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective in December 1992, the federal banking regulators are required to establish five capital categories ("well capitalized", "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized") and to take certain mandatory supervisory actions, and are authorized to take other discretionary
actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.

Under
the agency rule implementing the prompt corrective action provisions, an institution that (i) has a Total Capital ratio of 10.0% or greater, a Tier 1 Capital ratio of
6.0% or greater, and a Leverage Ratio of 5.0% or greater and (ii) is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be "well capitalized."

An
institution with a Total Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be "adequately
capitalized." A depository institution that has a Total Capital ratio of less than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be
"undercapitalized." A depository

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institution that has a Total Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be "significantly undercapitalized," and
an institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative perpetual preferred stock (including related
surplus), minus all intangible assets with certain exceptions. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position
if it receives an unsatisfactory examination rating.

An
institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its
appropriate federal banking agency. Under FDICIA, a bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The
obligation of a controlling bank holding company under FDICIA to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets and the amount required to
meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches, or engaging
in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority
with respect to any
undercapitalized depository institution to take any of the actions it is required to or may take with respect to a significantly undercapitalized institution as described below if it determines "that
those actions are necessary to carry out the purpose" of FDICIA.

For
those institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved
capital restoration plan, the appropriate federal banking agency must require the institution to take one or more of the following actions: (i) sell enough shares, including voting shares, to
become adequately capitalized; (ii) merge with (or be sold to) another institution (or holding company), but only if grounds exist for appointing a conservator or receiver;
(iii) restrict certain transactions with banking affiliates as if the "sister bank" exception to the requirements of Section 23A of the Federal Reserve Act did not exist;
(iv) otherwise restrict transactions with bank or nonbank affiliates; (v) restrict interest rates that the institution pays on deposits to "prevailing rates" in the institution's
"region"; (vi) restrict asset growth or reduce total assets; (vii) alter, reduce, or terminate activities; (viii) hold a new election of directors; (ix) dismiss any
director or senior executive officer who held office for more than 180 days immediately before the institution became undercapitalized, provided that in requiring dismissal of a director or senior
officer, the agency must comply with certain procedural requirements, including the opportunity for an appeal in which the director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease accepting deposits from correspondent depository institutions; (xii) divest certain nondepository affiliates which pose a
danger to the institution; or (xiii) be divested by a parent holding company.

In
addition, without the prior approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to any senior executive officer or
increase the rate of compensation for such an officer without regulatory approval.

At
December 31, 2001, the Bank had the requisite capital levels to qualify as well capitalized.

FDIC Insurance Assessments

Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The risk-based system, which went into effect on January 1, 1994, assigns an institution to one of three capital categories:
(i) well capitalized; (ii) adequately capitalized; and

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(iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions
that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. An institution is also assigned by the FDIC to one of three
supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds (which may include, if applicable, information provided by the institution's state supervisor). An institution's insurance assessment rate is then determined
based on the capital category and supervisory category to which it is assigned. Under the final risk-based assessment system, there are nine assessment risk classifications (i.e., combinations of
capital groups and supervisory subgroups) to which different assessment rates are applied.

The
Bank is assessed at the well-capitalized level where the premium rate is currently zero. Like all insured banks, the Bank also must pay a quarterly assessment of approximately $.02
per $100 of assessable deposits to pay off bonds that were issued in the late 1980's by a government corporation, the financing corporation, to raise funds to cover costs of the resolution of the
savings and loan crisis.

Under
Federal Deposit Insurance Act ("FDIA"), insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.

Safety and Soundness Standards

FDIA, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the federal bank regulatory agencies to prescribe
standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset
growth, asset quality, earnings, stock valuation and compensation, fees and benefits and such other operational and managerial standards as the agencies deem appropriate. The federal bank regulatory
agencies adopted in 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended.

The
guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in
the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to
the services performed by an executive officer, employee, director, or principal stockholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails
to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may
issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. See "Prompt Corrective Action." If an
institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. The federal bank regulatory agencies also
proposed guidelines for asset quality and earnings standards.

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Depositor Preference

The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general unsecured claims against such an institution in the "liquidation or other resolution" of such an institution by any receiver.

Other

The United States Congress continues to consider a number of wide-ranging proposals for altering the structure, regulation, and competitive relationships of the
nation's financial institutions. It cannot be predicted whether or in what form further legislation may be adopted or the extent to which the business of the Company may be affected thereby.

Risk Factors

Credit Risk and Loan Concentration

A major risk facing lenders is the risk of losing principal and interest as a result of a borrower's failure to perform according to the terms of the loan
agreement, or "credit risk." Real estate loans include residential mortgages and construction and commercial loans secured by real estate. The Company's credit risk with respect to its real estate
loans relates principally to the value of the underlying collateral. The Company's credit risk with respect to its commercial loans relates principally to the general creditworthiness of the
borrowers, who primarily are individuals and small and medium-sized businesses in the Company's primary service areas. There can be no assurance that the allowance for loan losses will be adequate to
cover future losses in the existing loan portfolios. Loan losses exceeding the Company's historical rates could have a material adverse affect on the results of operations and financial condition of
the Company.

Potential Impact of Change in Interest Rates

The potential of the Company depends to a large extent upon its net interest income, which is the difference between interest income on interest-earning assets,
such as loans and investments, and interest expense on interest-bearing liabilities, such as deposits and borrowings. The net interest income of the Company would be adversely affected if changes in
market interest rates resulted in the interest-bearing assets of the Company being reduced because of softening loan demand. In addition, a decline in interest rates may result in greater than normal
prepayments of the higher interest-bearing obligations held by the Company.

Management Information Systems

The sophistication and level of risk of the Company's business requires the utilization of thorough and accurate management information systems. Failure of
management to effectively implement, maintain, update and utilize updated management information systems could prevent management from recognizing in a timely manner deterioration in the performance
of its business, particularly its loan portfolios. Such failure to effectively implement, maintain, update and utilize comprehensive management information systems could have a material adverse effect
on the results of operations and financial condition of the Company.

Adverse Economic Conditions

The Company's major lending activities are real estate and commercial loans. Residential mortgage loans are also produced for resale. An increase in interest
rates could have a material adverse effect on the housing industries and consumer spending generally. In addition, an increase in interest rates could

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cause a decline in the value of residential mortgages. These events could adversely affect the results of operations and financial condition of the Company.

Governmental RegulationBanking

The Company and the Bank are subject to extensive supervision, regulation and control by several Federal and state governmental agencies, including the Federal
Reserve, FDIC, and the Georgia Department of Banking and Finance. Future legislation, regulations and government policy could adversely affect the Company and the financial institutions industry as a
whole, including the cost of doing business. Although the impact of such legislation, regulation and policies cannot be predicted, future changes may alter the structure of and competitive
relationships among financial institutions and the cost of doing business.

Consumer and Debtor Protection Laws

The Company is subject to numerous Federal and state consumer protection laws that impose requirements related to offering and extending credit. The United States
Congress and state governments may enact laws and amend existing laws to regulate further the consumer industry or to reduce finance charges or other fees or charges applicable to credit card and
other consumer revolving loan accounts. Such laws, as well as any new laws or rulings which may be adopted, may adversely affect the Company's ability to collect on account balances or maintain
previous levels of finance charges and other fees and charges with respect to the accounts. Any failure by the Company to comply with such legal requirements also could adversely affect its ability to
collect the full amount of the account balances. Changes in federal and state bankruptcy and debtor relief laws could adversely affect the results of operations and financial condition of the Company
if such changes result in, among other things, additional administrative expenses and accounts being written off as uncollectable.

Composition of Real Estate Loan Portfolio

The real estate loan portfolio of the Company includes residential mortgages and construction and commercial loans secured by real estate. The Company generates
all of its real estate mortgage loans in Georgia. Therefore, conditions of these real estate markets could strongly influence the level of the Company's non-performing mortgage loans and the results
of operations and financial condition of the Company. Real estate values and the demand for mortgages and construction loans are affected by, among other things, changes in general or local economic
conditions, changes in governmental rules or policies, the availability of loans to potential purchasers, and acts of nature. Although the Company's underwriting standards are intended to
protect the Company against adverse general and local real estate trends, declines in real estate markets could adversely impact the demand for new real estate loans, the value of the collateral
securing the Company's loans and the results of operations and financial condition of the Company.

Monetary Policy

The operating results of the Bank are affected by credit policies of monetary authorities, particularly the Federal Reserve. The instruments of monetary policy
employed by the Federal Reserve include open market operations in U.S. Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits.
In view of changing conditions in the national economy and in the money markets, as well as the effect of action by monetary and fiscal authorities, including the Federal Reserve, no prediction can be
made as to possible future changes in interest rates, deposit levels and loan demand on the results of operations and business of the Company.

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ITEM 2.    DESCRIPTION OF PROPERTY

The Company's corporate headquarters are located at 676 Chastain Road, Kennesaw, Georgia. The main office of the Bank is located at 1134 Clark Street, Covington,
Georgia. The Bank leases space for its headquarters and various support functions. These support functions include: operations center, marketing offices, and accounting facilities.

The
Bank has 21 branch offices located in Barrow, Clarke, Cobb, DeKalb, Gwinnett, Newton, Rockdale and Walton counties, Georgia, 19 of which are owned and two of which are leased.
Deposit and loan operations, proof and purchasing are located in leased space at 2118 Usher Street in Covington. Human resources and training are in a bank owned building at 1122 Pace Street in
Covington. The Bank's corporate headquarters and marketing division are in leased space at 1121 Floyd Street, Covington, Georgia. The bank also leases a building in Covington, adjacent to the owned
facility on Pace Street, which serves as the location of the accounting department.

Certain Transactions

The Company's directors and certain business organizations and individuals associated with them are customers of and have banking transactions with the Bank in
the ordinary course of business. Such transactions include loans, commitments, lines of credit and letters of credit. All of those transactions were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not and do not involve more than normal risk of collectibility or present any
other unfavorable features. Additional transactions with these persons and businesses are anticipated in the future.

Robert
R. Fowler, III, chairman of the board, has entered into three lease agreements with the Company, through which he leases to the Company buildings that it uses for its operations
center, corporate and marketing offices, and accounting facilities. The Company believes that the terms of the lease agreements are at least as favorable to it as terms available from unrelated third
parties.

ITEM 3.    LEGAL PROCEEDINGS

Neither the registrant nor its subsidiaries are a party to, nor is any of their property the subject of, any material pending legal proceedings, other than
ordinary routine proceedings incidental to the business of the Company, nor to the knowledge of the management of the registrant are any such proceedings contemplated or threatened against it or its
subsidiaries.

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

None

12

---



PART II

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



Fiscal Year 2001

Fiscal Year 2000High

Low

High

LowFirst quarter

$
14.688

$
12.250

$
12.125

$
8.063Second quarter


19.650


12.500


11.625


8.625Third quarter


19.620


15.500


12.188


11.000Fourth quarter


18.000


15.911


12.500


11.125






The
Company is a legal entity separate and distinct from its subsidiaries. Substantially all of the Company's revenues result from amounts paid as dividends to the Company by its
subsidiaries. The Bank is subject to statutory and regulatory limitations on the payment of dividends to the Company, and the Company is subject to statutory and regulatory limitations on dividend
payments to its shareholders.

If
in the opinion of the Federal banking regulators, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, the regulatory
authority may require, after notice and hearing, that the institution cease and desist from the practice. The Federal banking agencies have indicated that paying dividends that deplete a depository
institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under FDICIA, a depository institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. The Federal agencies have also issued policy statements that provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.

The
Georgia Financial Institutions Code and the Georgia Banking Department's regulations provide:



13

---



The
payment of dividends by the Company may also be affected or limited by other factors, such as a requirement by the Federal Reserve to maintain adequate capital above regulatory
guidelines.

14

---

ITEM 6.    SELECTED FINANCIAL DATA

|                                   |       | Year Ended December 31, |          
|---------------------------------- | ----- | ----------------------- | ---------
|
|
|EARNINGS                           |       |                         |          
|Interest income                    |       | $                       | 84,752   
|Interest expense                   |       |                         | 35,222   
|Net interest income                |       |                         | 49,530   
|Non-interest income                |       |                         | 14,112   
|Non-interest expense               |       |                         | 39,342   
|Operating income(1)                |       |                         | 17,717   
|Net income                         |       |                         | 14,347   
|SELECTED AVERAGE BALANCES          |       |                         |          
|Assets                             |       | $                       | 1,063,215
|Earning assets                     |       |                         | 990,358  
|Loans                              |       |                         | 775,236  
|Total deposits                     |       |                         | 896,804  
|Shareholders' equity               |       |                         | 99,951   
|Common shares outstandingdiluted  |       |                         | 16,111   
|YEAR-END BALANCES                  |       |                         |          
|Assets                             |       | $                       | 1,110,168
|Earning assets                     |       |                         | 1,016,163
|Loans                              |       |                         | 811,446  
|Total deposits                     |       |                         | 908,181  
|Shareholders' equity               |       |                         | 105,121  
|Common shares outstanding          |       |                         | 15,699   
|PER COMMON SHARE                   |       |                         |          
|Earnings per sharebasic           |       | $                       | 0.92     
|Earnings per sharediluted         |       |                         | 0.89     
|Book value                         |       |                         | 6.70     
|Cash dividends paid                |       |                         | 0.36     
|Market price:                      |       |                         |          
|                                   | Close |                         | $        
|                                   | High  |                         |          
|                                   | Low   |                         |          
|OPERATING INCOME DATA(1)           |       |                         |          
|Earnings per sharebasic           |       | $                       | 1.13     
|Earnings per sharediluted         |       |                         | 1.10     
|Operating return on average assets |       |                         | 1.67     
|Operating return on average equity |       |                         | 17.7     
|Price to operating earnings        |       |                         | 14.9     
|FINANCIAL RATIOS                   |       |                         |          
|Return on average assets           |       |                         | 1.35     
|Return on average equity           |       |                         | 14.4     
|Average equity to average assets   |       |                         | 9.40     
|Dividend payout ratio(1)           |       |                         | 32.7     
|Price to earnings                  |       |                         | 18.4     
|Price to book value                |       |                         | 2.45     
|NONFINANCIAL                       |       |                         |          
|Shareholders                       |       |                         | 2,882    
|Employees                          |       |                         | 392      
|Banking offices                    |       |                         | 21       
|ATMs                               |       |                         | 23       

---

All periods restated for pooling.

15

---



ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION

Management's discussion and analysis of financial condition and results of operations analyzes the major elements of the Company's consolidated statements of
income. This section should be read in conjunction with the Company's consolidated financial statements and accompanying notes and other detailed information appearing elsewhere herein.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion contains certain forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements include statements identified by use of the words "may," "should," "will," "contemplate," "continue," "possible," "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain and involve risks and
uncertainties that may cause actual results, performance or such investments to be materially different from those expressed or implied from such forward looking statements. Factors which could have a
material adverse effect on our operations include, but are not limited to, changes in interest rates and the level and composition of deposits, loan demand and the values of loan collateral,
mortgages, securities and other interest sensitive assets and liabilities, general economic conditions, legislation and regulation, monetary and fiscal policies of the federal government, including
policies of the Treasury Department and the Federal Reserve Board, competition, demand for financial services in our market area, accounting principles and guidelines, and the failure of assumptions
underlying the establishment of the reserve for loan losses. You should consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on such
statements. We will not publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events. All written or oral forward statements attributable to the Company are qualified in their entirety by these cautionary statements.

FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

OVERVIEW

Economy

While 2000 saw interest rates climb with a Federal Reserve Bank ("Fed") bias toward inflation, 2001 saw numerous interest rate reductions. 2001 was a year of
significant contraction in the economy and the assertion from economists that the economy was headed into a recession. The NAPM Index (National Association of Purchasing Management) is an economic
indicator of whether the economy is growing or contracting. By mid-year 2000, this index had fallen to a level that was showing signs of a weakening economy. It continued to drop throughout 2001 and
reached its lowest level in October 2001.

At
the end of 2000, the Fed became concerned about a slowing economy, and at its January 3, 2001 meeting, lowered the federal funds rate 50 basis points to 6.00%. At that time the
Fed adopted a weakening bias. Consumer sentiment was still respectable at the time, an important factor since consumer spending is a key component to minimizing the length and severity of a recession.
The Fed again lowered short-term rates 50 basis points at the end of January as the unemployment rate began to increase, capacity utilization and industrial production declined, and personal
income began to decrease.

By
the end of the first quarter, the Fed had reduced interest rates again by 50 basis points. The federal funds rate was lowered to 5.00%. The New York prime interest rate had followed
each of the rate cuts made by the Fed through the first quarter, being lowered from 9.50% to 8.00%. Despite

16

---

efforts from the Fed, economic indicators continued to show signs of weakness. By the end of the second quarter, Gross Domestic Product ("GDP") growth had slowed to 0.3%. Again, the Fed cut rates
over the summer, and the Congress approved a consumer tax refund. Both fiscal and monetary policy was geared toward stimulating the economy.

The
tragedy of September 11 brought the economy to a standstill as Americans were shocked by the terrorist attacks on the World Trade Center Towers and the Pentagon. A sense of
insecurity spread throughout the country. The consumer confidence index fell to its lowest level for the year and the economy stalled. Unemployment continued to rise with major layoffs in the
manufacturing and the airline sector. The third quarter GDP had dropped to a negative 13%. With predictions that the fourth quarter would see negative growth as well, it was declared that the economy
was in a recession and had been since March.

Over
the course of the year, the Fed reduced interest rates eleven times. At December 31,2001, the discount, federal funds, and prime interest rates had fallen to 1.25%, 1.75%,
and 4.75% respectively. Each rate had been reduced 4.75% since December 31, 2000.

Critical Accounting Policies

The company's critical accounting policy relates to the allowance for loan losses.

Allowance
for loan losses is based on management's opinion of an amount that is adequate to absorb losses in the existing loan portfolio. The allowance for loan losses is established
throughout a provision for losses based on management's evaluation of current economic conditions. The evaluation, which includes a review of all loans on which full collection may not be reasonably
assumed, considers among other matters, economic conditions, the fair market value or the estimated net realizable value of the underlying collateral, management's estimate of probable credit losses,
historical loan loss experience, and other factors that warrant recognition in providing for an adequate loan loss allowance.

Performance Results

The Company's net income was $14.3 million, $13.9 million, and $12.1 million or the years ended December 31, 2001, 2000, and 1999, respectively. Basic
earnings per share were $0.92, $0.90 and $0.78 for the same periods, respectively, and diluted earnings per share were $0.89, $0.88 and $0.77 for the same periods. Earnings growth from 1999 to 2000
and from 2000 to 2001 resulted principally from an increase in non-interest income fueled mainly by mortgage origination fees and service charges on deposit accounts. Earnings growth was further
augmented by an increase in net interest income, which resulted because of an increase in the Company's earning assets.

On
an operating basis, which excludes the impact of merger-related expenses and other onetime items, such as merger related professional fees, conversion costs, and Federal Home Loan
Bank Advances being restructured, the Company's net earnings were $17.7 million, $15.2 million, and $12.1 million for the years ended December 31, 2001, 2000, and 1999, respectively. Diluted
earnings per share on an operating basis were $1.10, $0.96 and $0.76 for the same periods, respectively. Also on an operating basis, the Company posted returns on average assets of 1.67%, 1.55%, and
1.44% for the same three years, as well as returns on average equity of 17.7%, 18.2%, and 15.7%.

Total
assets at December 31, 2001 and 2000 were $1.110 billion and $1.071 billion, respectively. At the same time, total deposits were $908.2 million and $885.9 million. Loans
totaled $811.4 million and $736.0 million for the two year-end dates. From year-end 2000 to year-end 2001, the Company experienced loan and deposit growth of $75.5 million, or 10.3%, and $22.3
million, or 2.5%, respectively. Transaction, savings, and money market account growth during this period increased $76.6
million or 19.9%. Shareholder's equity was $105.1 million and $93.8 million December 31, 2001 and 2000, respectively.

17

---

RESULTS OF OPERATIONS

NET INTEREST INCOME.Net interest income for 2001 was $49.5 million compared to $48.2 million in 2000, an increase of 2.7% or
$1.3 million. The increase in net interest income was largely the result of overall balance sheet growth and the corresponding increase in average interest earning assets, which grew 8.3% over the
December 31, 2000 level. Growth in average loans of 8.6% provided the bulk of the increase in earning assets and contributed most significantly to the growth in net interest income. In a
steadily declining interest rate environment, yields on earning assets declined throughout the year. Interest on earning assets yielded 8.65% in 2001 versus 9.37% in 2000 (a 72 basis point decrease).
The cost of interest bearing liabilities decreased 66 basis points from 5.05% to 4.39%.

Net
interest income for 2000 was $48.2 million compared to $42.0 million in 1999, an increase of $6.2 million or 14.7%. This increase was produced by growth in interest earning assets,
in a rising interest rate environment. Average earning assets grew 18.7% from $770.1 million to $914.1 million, an increase that was driven significantly by 16.2% average loan growth from 1999 to
2000.

18

---

The
following table presents the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense
on average interest-bearing liabilities, expressed both in dollars and rates.

|                                             |                                            | YEARS ENDED DECEMBER 31 |        
|-------------------------------------------- | ------------------------------------------ | ----------------------- | -------
|
|
|
|AVERAGE ASSETS INTEREST-EARNING ASSETS:      |                                            |                         |        
|                                             | Loans, net of unearned income(1)(2)        |                         | $      
|                                             | Mortgage loans held for sale               |                         |        
|                                             | Investment securities:                     |                         |        
|                                             |                                            | Taxable                 |        
|                                             |                                            | Non-taxable(3)          |        
|                                             | Interest-bearing deposits                  |                         |        
|                                             | Federal funds sold                         |                         |        
|                                             |                                            |                         |        
|Total interest earning assets                |                                            |                         | 990,358
|Non-interest-earning assets                  |                                            |                         |        
|                                             | Cash and due from banks                    |                         |        
|                                             | Allowance for loan losses                  |                         |        
|                                             | Premises and equipment                     |                         |        
|                                             | Other real estate owned                    |                         |        
|                                             | Other assets                               |                         |        
|                                             |                                            |                         |        
|                                             |                                            | Total assets            |        
|                                             |                                            |                         |        
|AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY |                                            |                         |        
|INTEREST-BEARING LIABILITIES:                |                                            |                         |        
|Demand and money market deposits             |                                            | $                       | 222,644
|Savings deposits                             |                                            |                         | 43,650 
|Time deposits                                |                                            |                         | 477,922
|FHLB advances                                |                                            |                         | 52,390 
|Federal funds purchased and other borrowings |                                            |                         | 5,300  
|                                             |                                            |                         |        
|Total interest bearing Liabilities           |                                            |                         | 801,906
|Non-interest-bearing:                        |                                            |                         |        
|                                             | Demand deposits                            |                         |        
|                                             | Other liabilities                          |                         |        
|                                             |                                            |                         |        
|                                             | Total liabilities                          |                         |        
|Shareholders' equity                         |                                            |                         | 99,951 
|                                             |                                            |                         |        
|                                             | Total liabilities and Shareholders' equity |                         | $      
|                                             |                                            |                         |        
|Net interest rate spread                     |                                            |                         |        
|Net interest income and margin(4)            |                                            |                         |        

---

19

---

The following schedule presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning
assets and interest-bearing liabilities and distinguishes between the change related to higher outstanding balances and the change in interest rates. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated to rate.

2001 VS. 2000
INCREASE (DECREASE) DUE TO

2000 VS. 1999
INCREASE (DECREASE) DUE TOVOLUME

RATE

TOTAL

VOLUME

RATE

TOTAL(DOLLARS IN THOUSANDS)Interest-earning assets:Loans

$
6,297

$
(6,337
)
$
(40
)
$
9,649

$
4,033

$
13,682Mortgage loans held for sale


283


(80
)

203


(17
)

6


(11
)Investment securities:Taxable


158


(104
)

54


758


523


1,281Non-taxable


(20
)

130


110


248


(214
)

34Interest-bearing deposits


111


(46
)

65


21


16


37Federal funds sold


462


(1,737
)

(1,275
)

1,442


718


2,160Total increase (decrease) in interest income


7,291


(8,174
)

(883
)

12,101


5,082


17,183Interest-bearing liabilities:Demand and money market deposits


973


(2,503
)

(1,530
)

210


1,333


1,543Savings deposits


(21
)

(279
)

(300
)

(13
)

(18
)

(31
)Time deposits


2,058


(1,349
)

709


4,548


3,459


8,007FHLB advances


(1
)

(875
)

(876
)

995


604


1,599Federal funds purchased and other borrowings


(142
)

(38
)

(180
)

124


(257
)

(133
)Total increase (decrease) in interest expense


2,867


(5,044
)

(2,177
)

5,864


5,121


10,985Increase (decrease) in net interest income

$
4,424

$
(3,130
)
$
1,294

$
6,237

$
(39
)
$
6,198


PROVISION FOR LOAN LOSSES.Management's policy is to maintain the allowance for loan losses at a level
sufficient to absorb estimated losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses and decreased by charge-offs, net of recoveries. In determining
inherent losses, management considers financial services industry trends, conditions of individual borrowers, historical loan loss experience and the general economic environment. As these factors
change, the level of loan loss provision changes. The allowance for loan losses at December 31, 2001 was $12.0 million, representing 1.48% of outstanding loans, compared to $10.9 million or
1.48% of outstanding loans as of December 31, 2000. The 2001 provision of $2.5 million was $268,000 higher than the provision of $2.2 million in 2000.

Net
loans charged off in 2001 was $1,342,000 compared to $1,021,000 in 2000 and $639,000 in 1999. The 2000 provision of $2.2 million was $389,000 higher than the provision of $1.8
million in 1999.

NON-INTEREST INCOME.For 2001, non-interest income totaled $14.1 million, an increase of $3.4 million over non-interest
income of $10.7 million in 2000. Excluding a merger related restructuring loss on the Company's Federal Home Loan Bank advances of $513,000; non-interest income for 2000 totaled $11.2 million, which
represented a 26.1% increase in 2001 over 2000. The growth in fee income is mainly a result of higher service charges and the growth in number of demand deposit accounts. The increase is also
attributed to the growth in the Company's mortgage, investment, and insurance business lines. Non-interest income in 2000 adjusted for the Company's loss of $513,000 increased $0.7 million over the
$10.4 million total for 1999. This increase is again the result of growth in demand deposit accounts, increased pricing on these accounts and growth in the Company's mortgage, investment, and
insurance business lines.

20

---

The
following table presents the major categories of non-interest income:

YEARS ENDED DECEMBER 312001

2000

1999(DOLLARS IN THOUSANDS)Service charges on deposit accounts

$
5,993

$
5,104

$
4,672Mortgage origination fees


1,445


939


1,037Investment agency commissions


382


428


278Insurance division income


2,677


2,308


1,764Gain on sales of SBA and mortgage loans


1,230


457


351Net realized gains (losses) on securities


22


(513
)

9Other non-interest income


2,363


1,953


2,337Total non-interest income

$
14,112

$
10,676

$
10,448


NON-INTEREST EXPENSE.For the years ended 2001, 2000 and 1999, non-interest expense totaled $39.3 million, $35.0 million and
$32.3 million, respectively. The following table presents the major categories of non-interest expense:

YEARS ENDED DECEMBER 312001

2000

1999(DOLLARS IN THOUSANDS)Salaries and employee benefits

$
19,630

$
18,995

$
17,533Occupancy and equipment expense


4,883


4,887


4,477Data processing fees


706


654


527Professional fees


1,032


912


1,020Regulatory assessments


249


340


257Intangible amortization


240


439


439Merger expense


3,303


1,086


309Other*


9,299


7,728


7,700Total non-interest expense

$
39,342

$
35,041

$
32,262


---

For
2001, non-interest expense increased 12.3% or $4.3 million over 2000. The majority of this increase was related to an increase in one-time expenses associated with prior acquisitions
and personnel related costs of $3.4 million and $0.6 million respectively.

Comparing
2000 to 1999, non-interest expenses rose 8.6% with higher salaries and employee benefits constituting the largest portion of this increase. Personnel related costs rose from
$17.5 million to $19.0 million or an 8.3% increase. Occupancy and equipment increased 9.2%. These increases were mainly the result of two new banking offices and growth throughout the Company.

INCOME TAXES.Income tax expense includes both federal income tax and Georgia state income tax. The amount of federal income
tax expense is influenced by the amount of taxable income, the amount of tax-exempt income and the amount of non-deductible expenses. In 2001, income tax expense was $7.5 million compared to $7.8
million in 2000. In 1999, income tax expense was $6.3 million. The Company's effective tax rates in 2001, 2000 and 1999, respectively, were 34.3%, 35.8% and 34.4%.

21

---

FINANCIAL CONDITION

LOANS.At December 31, 2001, loans, net of unearned income, were $811.4 million, an increase of $75.5 million or 10.3%
over net loans at December 31, 2000 of $736.0 million. The growth in the loan portfolio was attributable to a consistent focus on quality loan production and strong loan markets in the state
and region. The Bank's loan portfolio experienced growth in both real estate categories of loans at December 31, 2001. Real estate mortgage loans increased $91.9 million or 22% from
December 31, 2000. There was also a strong increase in real estate-construction loans from December 31, 2000 to December 31, 2001, with an increase of $23.4 million or 16%. The
Company continues to monitor the composition of the loan portfolio to ensure that the market risk to the balance sheet is not adversely affected by the impact of changes in the economic environment on
any one segment of the portfolio.

The
following table summarizes the loan portfolio by type of loan:

DECEMBER 312001

2000

1999

1998

1997(DOLLARS IN THOUSANDS)Commercial and industrial

$
68,320

$
97,572

$
75,747

$
56,980

$
54,626Real estate construction


173,464


150,107


127,657


100,224


86,442Real estate mortgage


516,722


424,774


397,910


332,956


283,385Consumer and other


52,940


63,510


67,133


56,182


51,874$
811,446

$
735,963

$
668,447

$
546,342

$
476,327Mortgage loans held for sale

$
9,194

$
2,248

$
1,357

$
4,283

$
Percent of loans by category to total loans (excluding loans held for sale):Commercial and industrial


8.42
%

13.26
%

11.33
%

10.43
%

11.47
%Real estate construction


21.38
%

20.40
%

19.10
%

18.34
%

18.15
%Real estate mortgage


63.68
%

57.71
%

59.53
%

60.95
%

59.49
%Consumer and other


6.52
%

8.63
%

10.04
%

10.28
%

10.89
%100.00
%

100.00
%

100.00
%

100.00
%

100.00
%


To
accomplish the Company's lending objectives, management seeks to achieve consistent loan growth within its primary market areas while maximizing loan yields and maintaining a high
quality loan portfolio. The Company monitors its lending objectives primarily through its eastern and western division senior loan committees. In addition to the senior loan committees, the Bank's
executive loan committee reviews larger credits. The Company's lending objectives are clearly defined in its Lending Policy, which is reviewed annually and approved by the board of directors. That
division's credit officer chairs the senior loan committee in each division. Members of the senior loan committee include the president of the Bank, regional executives from the respective divisions,
its risk management officer and various lending officers. The president or the chief executive officer of the Bank chairs the executive loan committee, and it includes the division senior credit
officers and the risk management officer.

Generally,
the senior loan committee reviews all loans with total related debt of between $250,000 and $2,500,000 for approval. However, for certain loans that have been identified as
low risk loans, i.e., residential mortgage loans and consumer loans, the division executives have approval authority up to $500,000. The next level of approval authority rests with the executive loan
committee, which has approval authority for loan relationships with committed debt of $5,000,000. The Company has established an internal limit of $5,000,000, and the board of directors must approve
any relationship, which exceeds this limit. The board of directors is generally responsible for ratifying the actions of the senior loan committee and the executive loan committee and serving as the
ultimate approval authority

22

---

for single advances or total commitments over $5 million. Additionally, the Bank's board of directors is responsible for approving all new loan requests for which a borrower's total debt exceeds $5
million.

The
Bank primarily focuses on the following loan categories: (1) commercial with an emphasis on owner-occupied commercial real estate, (2) real estate construction,
(3) residential real estate and (4) consumer loans. The Company's management has strategically located its branches in high growth markets and has taken advantage of a surge in
residential and industrial growth in the Atlanta area.

Commercial
mortgage lending has significantly contributed to the Bank's loan growth during the past several years. Loans included in this category are primarily for the acquisition or
refinancing of owner-occupied commercial buildings. These loans are underwritten on the borrower's ability to meet certain minimum debt service requirements and the value of the underlying collateral
to meet certain loan to value guidelines. The Bank also perfects its interest in equipment or other business assets of the borrower and obtains personal guaranties. The Bank also underwrites
residential real estate loans.

Generally,
these loans are owner-occupied and are amortized over a 15 to 20 year period with three to five year maturity or repricing. The underwriting criteria for these loans are very
similar to the underwriting criteria used in the mortgage industry. Typically, a borrower's debt to income ratio cannot exceed 36% and the loan to appraised value ratio cannot exceed 89.9%. However,
the Bank's knowledge of its customers and its market allows the company to be more flexible in meeting its customers' needs.

The
Bank also underwrites loans to finance the construction of residential properties, and on a limited basis, commercial properties, which include speculative and pre-sale loans.
Speculative construction loans involve a higher degree of risk, as these are made on the basis that a borrower will be able to sell the project to a potential buyer after a project is completed.
Pre-sale construction loans usually have a pre-qualified buyer under contract before construction is to begin. The major risk for pre-sale loans is getting the project completed in a timely manner and
according to plan specifications. Non-residential construction loans include construction loans for churches, commercial buildings, strip shopping centers, and acquisition and development loans. These
loans also carry a higher degree of risk and require strict underwriting guidelines. All construction loans are secured by first liens on real estate and generally have floating interest rates. The
Bank conducts periodic inspections either directly or through an agent prior to approval of periodic draws on these loans. As an underwriting guideline, management focuses on the borrowers' past
experience in completing projects in a timely manner and the borrowers' financial condition with special emphasis placed on liquidity ratios. Although construction loans are deemed to be of higher
risk, the Bank believes that it can monitor and manage this risk properly.

The
Bank also underwrites commercial and industrial loans. Generally, these loans are for working capital purposes and are secured by inventory, accounts receivable or equipment. The
Bank maintains strict underwriting standards for this type of lending. Potential borrowers must meet certain working capital and debt ratios as well as generate positive cash flow from operations.
Borrowers in this
category will generally have a debt service coverage ratio of at least 1.3 to 1. The Bank will also perfect its interest in equipment or other business assets of the borrower and obtain personal
guaranties. The Bank does not originate and does not currently hold in its portfolio any foreign loans. The Bank is also an active participant in the origination of Small Business Administration
("SBA") loans.

These
loans are solicited from the Company's market areas, and are generally underwritten in the same manner as conventional loans generated for the Bank's portfolio. The portion of
loans that are secured by the guaranty of the SBA may from time to time be sold in the secondary market to provide additional liquidity, and to provide a source for fee income.

Consumer
loans include automobile loans, recreational vehicle loans, boat loans, home improvement loans, home equity loans, personal loans (collateralized and uncollateralized) and
deposit

23

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account collateralized loans. The terms of these loans typically range from 12 to 120 months and vary based upon the nature of collateral and size of the loan. Consumer loans involve greater risk
than residential mortgage loans.

This
is due to the fact that these loans may be unsecured or secured by rapidly depreciating assets such as automobiles. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit the amount, which can be recovered on such loans.

The
contractual maturity ranges of the commercial and industrial and real estate-construction portfolios and the amount of such loans with predetermined interest rates and floating rates
in each maturity range as of December 31, 2001 are summarized as follows:

|                                         |  | ONE YEAR OR LESS |         | AFTER ONE YEAR THROUGH FIVE YEARS |   | AFTER FIVE YEARS |  | TOTAL
|---------------------------------------- |  | ---------------- | ------- | --------------------------------- | - | ---------------- |  | -----
|
|Commercial and industrial                |  | $                | 43,561  |                                   | $ | 18,997           |  | $    
|Real estateconstruction                 |  |                  | 166,093 |                                   |   | 6,302            |  |      
|                                         |  |                  |         |                                   |   |                  |  |      
|Total                                    |  | $                | 209,654 |                                   | $ | 25,299           |  | $    
|Loans with a predetermined interest rate |  | $                | 47,959  |                                   | $ | 24,489           |  | $    
|Loans with a floating interest rate      |  |                  | 161,695 |                                   |   | 810              |  |      
|                                         |  |                  |         |                                   |   |                  |  |      
|Total                                    |  | $                | 209,654 |                                   | $ | 25,299           |  | $    

NON-PERFORMING ASSETS.The Company has several procedures in place to assist management in maintaining the overall quality of
its loan portfolio. The Company has established written guidelines contained in its Lending Policy for the collection of past due loan accounts. These guidelines explain in detail the Company's policy
on the collection of loans over 30, 60, and 90 days delinquent. Generally, loans over 90 days delinquent are placed in a non-accrual status.

However,
if the loan is deemed to be in process of collection, it may be maintained on an accrual basis. The Company's management conducts continuous training and communicates regularly
with loan officers to make them aware of its lending policy and the collection policy contained therein on a
continuous basis. The Company's management has also staffed its collection department with properly trained staff to assist lenders with collection efforts and to maintain records and develop reports
on delinquent borrowers. The Company's lending approach has resulted in strong asset quality. The Company had non-performing assets of $2.7 million, $3.3 million, and $2.7 million as of
December 31, 2001, 2000 and 1999, respectively. For 2001, 2000 and 1999, the gross amount of interest income that would have been recorded on non-performing loans, if all such loans had been
accruing interest at the original contract rate, was approximately $63,421, $109,997, and $172,402 respectively. Management is not aware of any loans that meet the definition of a troubled debt
restructuring as of December 31, 2001 or 2000. The Company records real estate acquired through foreclosure at the lesser of the outstanding loan balance or the fair value at the time of
foreclosure, less estimated cost to sell.

The
Company usually disposes of real estate acquired through foreclosure within one year; however, if it is unable to dispose of the foreclosed property, the property's value is assessed
annually and written down to its fair value less cost to sell.

24

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The following table presents information regarding non-performing assets at the dates indicated:

|                                                                                          |  | DECEMBER 31 |      
|----------------------------------------------------------------------------------------- |  | ----------- | -----
|
|
|Non-performing Assets                                                                     |  |             |      
|Non-accrual loans                                                                         |  | $           | 1,415
|Other real estate and repossessions                                                       |  |             | 1,309
|                                                                                          |  |             |      
|Total non-performing assets                                                               |  | $           | 2,724
|Loans past due 90 days or more and still accruing                                         |  | $           | 3,000
|Ratio of past due loans to loans, net of unearned income(1)                               |  |             | 0.37 
|Ratio of non-performing assets to loans, net of unearned income, and other real estate(1) |  |             | 0.34 

---

Management
is not aware of any potential problem loans other than those noted in the table above.

ALLOWANCE
FOR LOAN LOSSES. The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for loan losses. The provision for loan losses is
based on management's evaluation of the economic environment, the history of charged-off loans and recoveries, size and composition of the loan portfolio, non-performing and past-due loans, and other
aspects of the loan portfolio. The Bank's management has established an allowance for loan losses, which it believes, is adequate for anticipated losses in its loan portfolio. Based on a continuous
credit evaluation of the loan portfolio, management presents a quarterly review of the allowance for loan losses to the Bank's board of directors. The review that management has developed primarily
focuses on risk by evaluating the level of loans in certain risk categories. These categories have also been established by management and take the form of loan grades. These loan grades closely
mirror regulatory classification guidelines and include pass loan categories 1 through 4 and special mention, substandard, doubtful, and loss categories of 5 through 8, respectively. By grading the
loan portfolio in this manner, the Bank's management is able to effectively evaluate the portfolio by risk, which management believes is the most effective way to analyze the loan portfolio and thus
analyze the adequacy of the allowance for loan losses. Also, the Bank's management reviews activity in the allowance for loan losses, such as charge-offs and recoveries, during each quarter to
identify trends.

The
Bank follows a loan review program to evaluate the credit risk in the loan portfolio. Through the loan review process, the Bank maintains an internally classified loan list, which,
along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses.

Loans
classified as "substandard" are those loans with clear and defined weaknesses such as a highly-leveraged position, unfavorable financial ratios, uncertain financial ratios,
uncertain repayment sources, or poor financial condition which may jeopardize recoverability of the debt. Loans classified as "doubtful" are those loans that have characteristics similar to
substandard loans but have an increased
risk of loss, or at least a portion of the loan may require being charged-off. Loans classified as "loss" are those loans that are in the process of being charged-off. For the year ended 2001, net
charge-offs totaled $1.342 million or 0.17% of average loans outstanding for the period, net of unearned income, compared to $1.021 million or 0.14% in net charge-offs during 2000. The Company's net
charge-offs totaled $0.639 million or 0.10% of average loans, net of unearned income, outstanding in 1999. The

25

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Company recorded a provision for loan losses of $2,452,000, $2,184,000 and $1,795,000 in 2001, 2000 and 1999, respectively. At December 31, 2001, the allowance for loan losses totaled $12.0
million, or 1.48% of total loans, net of unearned income. At December 31, 2000, the allowance for loan losses was $10.9 million, or 1.48% of total loans, net of unearned income.

The
following table presents an analysis of the allowance for loan losses and other related data:

|                                                         |  | YEARS ENDED DECEMBER 31 |        
|-------------------------------------------------------- |  | ----------------------- | -------
|
|
|Average loans outstanding (net of unearned income)       |  | $                       | 775,236
|Total loans, net of unearned income, at end of period    |  |                         | 811,446
|Allowance for loan losses at beginning of period         |  |                         | 10,907 
|Provision for loan losses                                |  |                         | 2,452  
|Charge offs:                                             |  |                         |        
|Commercial and industrial                                |  |                         | (329   
|Real estate                                              |  |                         | (399   
|Consumer                                                 |  |                         | (957   
|Recoveries:                                              |  |                         |        
|Commercial and industrial                                |  |                         | 80     
|Real estate                                              |  |                         | 23     
|Consumer                                                 |  |                         | 240    
|                                                         |  |                         |        
|Net charge offs                                          |  |                         | (1,342 
|Allowance for loan losses at end of period               |  | $                       | 12,017 
|Ratio of allowance to end of period loans                |  |                         | 1.48   
|Ratio of net charge offs to average loans                |  |                         | 0.17   
|Ratio of allowance to end of period non-performing loans |  |                         | 849.26 

The
following tables describe the allocation of the allowance for loan losses among various categories of loans and certain other information. The allocation is made for analytical
purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of loans.

26

---

|                                                    |  | DECEMBER 31 |       
|--------------------------------------------------- |  | ----------- | ------
|
|
|
|Balance of allowance for loan losses applicable to: |  |             |       
|Commercial and industrial                           |  | $           | 1,012 
|Real estate                                         |  |             | 10,222
|Consumer and other                                  |  |             | 783   
|                                                    |  |             |       
|Total allowance for loan losses                     |  | $           | 12,017
|                                                    |  |             |       

The Company believes that the allocation of its allowance for loan losses is reasonable. Where management is able to identify specific loans or
categories of loans where specific amounts of reserve are required, allocations are assigned to those categories. Federal and state bank regulators also require that a bank maintain a reserve that is
sufficient to absorb an estimated amount of potential losses based on management's perception of economic conditions, loan portfolio growth, historical charge-off experience and exposure
concentrations.

The
Company believes that the allowance for loan losses at December 31, 2001 is adequate to cover losses inherent in the portfolio as of such date. There can be no assurance that
the Company will not sustain losses in future periods, which could be substantial in relation to the size of the allowance for loan losses at December 31, 2001.

The
allowance for loan losses is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate
the allowance and the size of the allowance for loan losses in comparison to a group of peer banks identified by the regulators. During their routine examinations of banks, the FDIC and the Georgia
Department of Banking may require a bank to make additional provisions to its allowance for loan losses when, in the
opinion of the regulators, credit evaluations and allowance for loan loss methodology differ materially from those of management.

While
it is the Bank's policy to charge off in the current period loans for which a loss is considered probable there are additional risks of future losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy, management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.

INVESTMENT
SECURITIES. The Company uses its securities portfolio both as a source of income and as a source of liquidity. At December 31, 2001, investment securities totaled
$116.5 million, a decrease of $51.2 million from $167.7 million at December 31, 2000. At December 31, 2001, investment securities represented 10.5% of total assets, compared to 15.7% of
total assets at December 31, 2000. The average yield on a fully taxable equivalent basis on the investment portfolio for the year ended December 31, 2001 was 6.56% compared to a yield of
6.50% for the year ended December 31, 2000 and 6.27% for the year ended December 31, 1999. At December 31, 2001, investment securities represented 12.8% of total deposits.
Approximately $11.5 million or 9.9% of investment securities reprice within one year.

27

---

The
following table summarizes the contractual maturity of investment securities and their weighted average yields.

|                                          |  | DECEMBER 31, 2001
|----------------------------------------- |  | -----------------
|
|
|
|U.S. Treasury securities                  |  | $                
|U.S. Government agencies and corporations |  |                  
|Mortgage-backed securities                |  |                  
|States and political subdivisions         |  |                  
|                                          |  |                  
|Total                                     |  | $                
|                                          |  |                  

The following table presents the amortized costs and fair value of securities classified as available for sale and held-to-maturity at
December 31, 2001, 2000 and 1999:

|                                          |  | 2001 |         | 2000 |   | 1999   
|----------------------------------------- |  | ---- | ------- | ---- | - | -------
|
|
|HELD TO MATURITY SECURITIES               |  |      |         |      |   |        
|States and political subdivisions         |  | $    | 687     |      | $ | 729    
|                                          |  |      |         |      |   |        
|AVAILABLE FOR SALE SECURITIES             |  |      |         |      |   |        
|U.S.Treasury securities                   |  | $    | 87      |      | $ | 91     
|U.S. Government agencies and corporations |  |      | 53,557  |      |   | 55,218 
|Mortgage-backed securities                |  |      | 31,136  |      |   | 31,517 
|States & political sub                    |  |      | 30,996  |      |   | 31,503 
|                                          |  |      |         |      |   |        
|                                          |  | $    | 115,776 |      | $ | 118,329
|                                          |  |      |         |      |   |        

Mortgage-backed securities are securities, which have been developed by pooling real estate mortgages and are principally issued by federal
agencies such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These securities are deemed to have high credit
ratings, and minimum regular monthly cash flows of principal and interest and are guaranteed by the issuing agencies.

In
June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities,"("SFAS No. 138") which
amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities and is effective simultaneously with SFAS No. 133. The Company adopted
the standards as of January 1, 2001. The adoption of the standards by the Company as of January 1, 2001, had no material effect on earnings and financial position based on the Company's
limited use of derivatives.

At
December 31, 2001, 47.3% of the mortgage-backed securities the Company held had contractual final maturities of more than ten years. However, unlike U.S. Treasury and U.S.
Government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout
the lives of the securities. Mortgage-backed securities, which are purchased at a premium, will generally suffer decreasing net yields as interest rates drop because homeowners tend to refinance their
mortgages. Thus, the premium paid must be amortized over a shorter period. Conversely, these

28

---

securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment. As interest rates rise, the opposite will generally be true. During a period of increasing
interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal and consequently, the average life of this security will not be unduly shortened. If
interest rates begin to fall, prepayments will increase, and the average life of these securities will decrease.

The
Company has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At the date of purchase, The Company is
required to classify debt and equity securities into one of three categories: held to maturity, trading or available for sale. At each reporting date, the appropriateness of the classification is
reassessed. Investments in debt securities are classified as held to maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold
those securities to maturity.

Securities
that are bought and held principally for the purpose of selling them in the near term are classified as trading and measured at fair value in the financial statements with
unrealized gains and losses included in earnings. The Company does not have any securities classified as trading securities. Investments not classified as either held to maturity or trading are
classified as available for sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in accumulated other comprehensive income, a separate
component of shareholders' equity, until realized.

DEPOSITS.
The Bank offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposits consist of demand, savings, money market and time accounts.
The Bank
relies primarily on competitive pricing policies and customer service to attract and retain these deposits. The Bank has a limited amount of brokered deposits. The Bank's lending and investing
activities are funded principally by deposits, approximately 46.7% of which are demand, money market and savings deposits. Deposits at December 31, 2001 were $896.8 million, an increase of
$68.0 million or 8.2% from $828.8 million at December 31, 2000. Non-interest-bearing deposits were $152.6 million at December 31, 2001, an increase of $2.2 million, or 1.5% from $150.3
million at December 31, 2000. Certificates of Deposit were $477.9 at December 31, 2001, an increase of $33.8 million, or 7.6% from $444.1 million at December 31, 2000.

The
daily average balances and weighted average rates paid on deposits for each of the years ended December 31, 2001, 2000 and 1999 are presented below:

|                                     |  | YEARS ENDED DECEMBER 31 |        
|------------------------------------ |  | ----------------------- | -------
|
|
|
|Non-interest bearing demand deposits |  | $                       | 152,588
|Demand and money market deposits     |  |                         | 222,644
|Savings deposits                     |  |                         | 43,650 
|Time deposits                        |  |                         | 477,922
|                                     |  |                         |        
|Total deposits                       |  | $                       | 896,804
|                                     |  |                         |        

29

---

The
following table sets forth the amount of The Company's certificates of deposit that are $100,000 or greater by time remaining until maturity:

DECEMBER 31, 2001(DOLLARS IN THOUSANDS)Three months or less

$
47,912Over three through six months


92,610Over six through 12 months


9,684Over 12 months


2,543Total

$
152,749


OTHER
BORROWINGS. Deposits are the primary source of funds for the Company's lending and investment activities. Occasionally, it obtains additional funds from the Federal Home Loan Bank
(FHLB) and correspondent banks. At December 31, 2001, the Company had borrowings of $75.1 million in the form of FHLB advances and $15.5 million in Federal Funds purchased and securities sold
under repurchase agreements compared to $52.1 million and $32.6 million, respectively, at December 31, 2000. The Company's weighted average interest rate on FHLB advances for the period ended
December 31, 2000 was 4.44%. For a more detailed discussion of the borrowings of the Company, see note 7 to the Company's Consolidated Financial Statements included herein.

INTEREST
RATE SENSITIVITY AND LIQUIDITY.

Interest Rate Sensitivity

The Bank's asset liability and funds management policy provides management with the necessary guidelines for effective funds management and a measurement system
for monitoring its net interest rate sensitivity position. The Company manages its sensitivity position within established guidelines.

Interest
rate risk is managed by the asset liability committee, which is composed of senior officers of the Bank, in accordance with policies approved by its board of directors. The
asset liability committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the asset liability committee considers
the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, 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 book and market values of assets and liabilities, unrealized
gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the asset liability committee reviews liquidity, cash
flow flexibility, maturities of deposits and consumer and commercial deposit activity. The Bank's management uses two methodologies to manage interest rate risk: (i) an analysis of
relationships between interest-earning assets and interest-bearing liabilities; and (ii) an interest rate shock simulation model.

The
Bank has traditionally managed its business to reduce its overall exposure to changes in interest rates. The Bank manages its exposure to interest rates by structuring its balance
sheet in the ordinary course of business. The Bank has in the past, and may utilize interest rate swaps, financial options, or financial futures contracts in order to reduce interest rate risk.

At
yearend a $50 million notional amount interest rate floor was in place to protect the bank from further interest rate reductions. The interest rate floor was for 12 months and
protected the Company from further interest rate reductions. The instrument was tied to the 3 month London Interbank Offered Rate (LIBOR) and had a strike price of 2.0%.

30

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In
June 2000, the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities,"("SFAS No. 138") which
amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities and is effective simultaneously with SFAS No. 133. The Company adopted
the
standards as of January 1, 2001. The adoption of the standards by the Company as of January 1, 2001, had no material effect on earnings and financial position based on the Company's
limited use of derivatives.

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

31

---

The
following table sets forth an interest rate sensitivity analysis for The Company at December 31, 2001:

|                                              |                                              | VOLUMES SUBJECT TO REPRICING WITHIN
|--------------------------------------------- | -------------------------------------------- | -----------------------------------
|
|
|Interest-earning assets:                      |                                              |                                    
|Investment securities                         |                                              | $                                  
|Loans                                         |                                              |                                    
|Mortgage loans held for sale                  |                                              |                                    
|Interest bearing deposits                     |                                              |                                    
|Federal funds sold and short term investments |                                              |                                    
|Total interest-earning assets                 |                                              |                                    
|Interest-bearing liabilities:                 |                                              |                                    
|Demand, money market and savings deposits     |                                              |                                    
|                                              | Time deposits                                |                                    
|                                              | FHLB advances                                |                                    
|                                              | Federal funds purchased and other borrowings |                                    
|Total interest-bearing liabilities            |                                              |                                    
|Period gap                                    |                                              | $                                  
|Cumulative gap                                |                                              | $                                  
|Period gap to total assets                    |                                              |                                    
|Cumulative gap to total assets                |                                              |                                    

Shortcomings
are inherent in any gap analysis since certain assets and liabilities may not move proportionally as interest rates change. In addition to gap analysis, the Company uses an
interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and the balance sheet, respectively. Contractual maturities and repricing
opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio.

Assumptions
based on past experience are incorporated into the model for non-maturity deposit accounts. Based on the Company's December 31, 2001 simulation analysis, the
simulation model estimates that a 200 basis point rise or decline in rates over the next 12 month period would have an adverse impact of no more than 4% on its net interest income for the period. The
change is relatively small, despite the Company's asset sensitive position.

As
a financial institution, the Company's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and
expense recorded on most of the company's assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to
maturity. Based upon the nature of the Company's operations, it is not subject to foreign exchange or commodity price risk. The Company does not own investment securities held as trading assets.

The
Company's exposure to market risk is reviewed on a regular basis. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses
can be reflected

32

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as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the
inherent risk while at the same time maximizing income. The Company's management recognizes these inherent risks and has structured processes and systems to identify, measure and control these risks.

Liquidity

Liquidity involves the Company's ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other payment obligations, to
maintain reserve requirements and otherwise to operate on an ongoing basis. During the past three years, the Company's liquidity needs have primarily been met by growth in core deposits, as previously
discussed, together with advances from the Federal Home Loan Bank. Although access to purchased funds from correspondent banks is available and has been utilized on occasion to take advantage of
investment opportunities, the Company does not generally rely on these external-funding sources. The cash and federal funds sold position, supplemented by amortizing investment and loan portfolios,
have generally created an adequate liquidity position. The Company reviews liquidity monthly. This review is from a regulatory as well as static and a four-quarter forecasted standpoint.

Market
and public confidence in the financial strength of the Company and financial institutions in general will determine the Corporation's access to appropriate levels of liquidity.
This confidence is largely dependant on the Corporation's ability to maintain appropriate levels of capital and maintain sound asset credit quality.

IMPACT
OF INFLATION. The effects of inflation on the local economy and on the Company's operating results have been relatively modest for the past several years. Since substantially all
of the Company's assets and liabilities are monetary in nature, such as cash, securities, loans and deposits, their values are less sensitive to the effects of inflation than to changing interest
rates, which do not necessarily change in accordance with inflation rates.

The
Company attempts to control the impact of interest rate fluctuations by managing the relationship between its interest sensitive assets and liabilities. Changes in interest rates
will affect the volume of loans generated and the values of investment securities and collateral held. Increasing interest rates such as those experienced in 1999 generally decrease the value of
securities and collateral and reduce loan demand, especially the demand for real estate loans. Declining interest rates tend to increase the value of securities and increase the demand for loans.

CAPITAL
RESOURCES. Capital management consists of providing equity to support both current and future operations. The Company is subject to capital adequacy requirements imposed by the
Federal Reserve Board and the Company is subject to capital adequacy requirements imposed by the FDIC and the Georgia Department of Banking and Finance.

Both
the Federal Reserve Board and the FDIC have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define and
establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make
regulatory capital
requirements more sensitive to differences in risk profiles among bank holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets.

Assets
and off-balance sheet items are assigned to broad risk categories, each with appropriate relative risk weights. The resulting capital ratios represent capital as a percentage of
total risk-weighted assets and off-balance sheet items.

The
risk-based capital standards issued by the Federal Reserve Board require all bank holding companies to have "Tier 1 capital" of at least 4.0% and "Total risk-based capital" (Tier 1
and Tier 2) of at least 8.0% of total risk-adjusted assets. "Tier 1 capital" generally includes common shareholders'

33

---

equity and qualifying perpetual preferred stock together with related surpluses and retained earnings, less deductions for goodwill and various other intangibles. "Tier 2 capital" may consist of a
limited amount of intermediate-term preferred stock, a limited amount of term subordinated debt, certain hybrid capital instruments and other debt securities, perpetual preferred stock not qualifying
as Tier 1 capital, and a limited amount of the general valuation allowance for loan losses. The sum of Tier 1 capital and Tier 2 capital is "Total risk-based capital."

The
Federal Reserve Board has also adopted guidelines which supplement the risk-based capital guidelines with a minimum ratio of Tier 1 capital to average total consolidated assets
("leverage ratio") of 3.0% for institutions with well diversified risk, including no undue interest rate exposure; excellent asset quality; high liquidity; good earnings; and that are generally
considered to be strong banking organizations, rated composite 1 under applicable federal guidelines, and that are not experiencing or anticipating significant growth. Other banking organizations are
required to maintain a leverage ratio of at least 4.0% to 5.0%. These rules further provide that banking organizations experiencing internal growth or making acquisitions will be expected to
maintain capital positions substantially above the minimum supervisory levels and comparable to peer group averages, without significant reliance on intangible assets.

Pursuant
to the Federal Deposit Insurance Corporation Improvement Act of 1991, each federal banking agency revised its risk-based capital standards to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the risks of nontraditional activities, as well as reflect the actual performance and expected risk of loss on multifamily
mortgages. The Company is subject to capital adequacy guidelines of the FDIC that are substantially similar to the Federal Reserve Board's guidelines. Also pursuant to the Federal Deposit Insurance
Corporation Improvement Act, the FDIC has promulgated regulations setting the levels at which an insured institution such as the Company would be considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Under the FDIC's regulations, The Company is classified "well capitalized" for purposes of prompt
corrective action.

Shareholders'
equity increased to $105.1 million at December 31, 2001 from $93.8 million at December 31, 2000, an increase of $11.3 million or 12.1%. This increase was
primarily the result of net
income of $14.3 million and net unrealized gains on investment securities available for sale of $2.6 million, less dividends declared on common stock of $5.6 million.

The
following table provides a comparison of The Company's and its banking subsidiary's leverage and risk-weighted capital ratios as of December 31, 2001 to the minimum and
well-capitalized regulatory standards:

|                    |                                 | MINIMUM REQUIRED FOR CAPITAL ADEQUACY PURPOSES |      | TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE PROVISIONS ACTION |       | ACTUAL RATIO AT DECEMBER 31, 2001 |      
|------------------- | ------------------------------- | ---------------------------------------------- | ---- | ---------------------------------------------------------------- | ----- | --------------------------------- | -----
|The Company:        |                                 |                                                |      |                                                                  |       |                                   |      
|                    | Leverage ratio                  |                                                | 4.00 | %                                                                | 5.00  | %                                 | 9.24 
|                    | Tier 1 risk-based capital ratio |                                                | 4.00 |                                                                  | 6.00  |                                   | 11.59
|                    | Risk-based capital ratio        |                                                | 8.00 |                                                                  | 10.00 |                                   | 12.83
|Banking Subsidiary: |                                 |                                                |      |                                                                  |       |                                   |      
|                    | Leverage ratio                  |                                                | 4.00 | %                                                                | 5.00  | %                                 | 9.09 
|                    | Tier 1 risk-based capital ratio |                                                | 4.00 |                                                                  | 6.00  |                                   | 11.34
|                    | Risk-based capital ratio        |                                                | 8.00 |                                                                  | 10.00 |                                   | 12.58

34

---

RECENT
ACCOUNTING PRONOUNCEMENTS. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" (Statement 141), effective for
business combinations initiated after June 30, 2001. Under Statement 141, the pooling of interests method of accounting for business combinations is eliminated. The adoption of the standard by
the Company had no material effect on earnings and financial position on the Company's operations.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets" (Statement 142). Under Statement 142, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The adoption of the standard by the
Company is not expected to have a material effect on earnings and financial position on the Company's operations.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", (Statement 144) effective January 2002. Under Statement 144
will supercede Statement 121 and Accounting Principal's Board ("APB 30"). Statement 144 retains the fundamental provisions of Statement 121 related to the recognition and measurement of long-lived
assets. Statement 144 provides more guidance on estimating cash flows when performing a recoverability test. Further, Statement 144 requires that operating losses from a "component of an entity" would
be recognized in the period in which they occur rather than as of the measurement date as presently required by APB 30. The adoption of the standard by the Company is not expected to have a material
effect on earnings and financial position on the Company's operations.

QUARTERLY
RESULTS (Unaudited)

The
following table sets forth certain consolidated quarterly financial information of the Company. This information is derived from unaudited consolidated financial statements, which
include, in the opinion of management, all normal recurring adjustments which management considers necessary for a fair presentation of the results for such periods.

The
results for any quarter are not necessarily indicative of results for any future period. This information should be read in conjunction with the Company's consolidated financial
statements and the notes thereto included elsewhere in this report.

|                                       |  | 2001 QUARTER ENDED
|-------------------------------------- |  | ------------------
|
|
|Interest income                        |  | $                 
|Interest expense                       |  |                   
|Net interest income                    |  |                   
|Provision for loan losses              |  |                   
|Securities gains (losses)              |  |                   
|Earnings before income taxes           |  |                   
|Operating income(1)                    |  |                   
|Net income                             |  |                   
|Net income per share, basic            |  | $                 
|Net income per share, diluted          |  | $                 
|Operating income per share, diluted(1) |  | $                 

35

---

|                                       |  | 2000 QUARTER ENDED
|-------------------------------------- |  | ------------------
|
|
|Interest income                        |  | $                 
|Interest expense                       |  |                   
|Net interest income                    |  |                   
|Provision for loan losses              |  |                   
|Securities gains (losses)              |  |                   
|Earnings before income taxes           |  |                   
|Operating income(2)                    |  |                   
|Net income                             |  |                   
|Net income per share, basic            |  | $                 
|Net income per share, diluted          |  | $                 
|Operating income per share, diluted(2) |  | $                 

---

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The discussion on Market Risk appears under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations- Interest Rate
Sensitivity and Liquidity".

ITEM 8.    FINANCIAL STATEMENTS

The following consolidated financial statements of the Company and its subsidiaries are included on pages F-1 through F-43 of this Annual Report on
Form 10-K.



ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During 2001, the Company did not change its accountants and there was no disagreement on any matter of accounting principles or practices for financial statement
disclosure that would have required the filing of a current report on Form 8-K.

36

---



PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the caption "Board of Directors", "Officers" and "Reports required by Section 16 (a) of the Securities Exchange Act of
1934" of the Proxy Statement of the Company for the 2002 Annual Meeting is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

The information set forth under the caption "Executive Compensation", "Stock Options" and "Director Compensation" of the Proxy Statement of the Company for the
2002 Annual Meeting is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Security Ownership" of the Proxy Statement of the Company for the 2002 Annual Meeting is incorporated herein by
reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Transactions" and "Officers" of the Proxy Statement of the Company for the 2002 Annual Meeting is
incorporated herein by reference.

ITEM 14.    EXHIBITS AND REPORTS ON FORM 8-K



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Articles of Incorporation of Main Street Bank, Inc. (incorporated by reference to Exhibit 3.1 to Registration Statement No. 33-78046 on Form S-4) as amended by Certificate of Merger and Name Change
(incorporated by reference to Exhibit 3.1 of the December 31, 1996, Form 10-KSB)
|3.2         |  | Bylaws of Main Street Bank, Inc. (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-78046 on Form S-4)                                                                                                                                                        
|10.1        |  | Registrant's 1994 Substitute Incentive Stock Option Plan for The Westside Bank & Trust Company's Incentive Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-97300) (incorporated by reference)                                                                         
|10.2        |  | Form of Registrant's 1994 Incentive Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No. 33-97300) (incorporated by reference)                                                                                                                                           
|10.3        |  | Registrant's 1995 Directors Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-81053) (incorporated by reference)                                                                                                                                                        
|10.4        |  | Form of Registrant's 1995 Directors Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No. 33-81053) (incorporated by reference)                                                                                                                                           
|10.5        |  | Registrant's 1996 Substitute Incentive Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-15069) (incorporated by reference)                                                                                                                                            
|10.6        |  | Form of Registrant's 1996 Substitute Incentive Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-15069) (incorporated by reference)                                                                                                                               
|10.7        |  | Registrant's 1997 Directors Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-56473) (incorporated by reference)                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                       

37

---

|10.8    |  | Form of Registrant's 1997 Directors Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-56473) (incorporated by reference)                                                                                           
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9    |  | Registrant's 1997 Incentive Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated by reference)                                                                                                        
|10.10   |  | Form of Registrant's 1997 Incentive Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-74555) (incorporated by reference)                                                                                           
|10.11   |  | Registrant's 1999 Directors Stock Option Plan included asAppendix Bto the Joint Proxy Statement/Prospectus set forth in Part I of the Registration Statement                                                                           
|10.12   |  | Form of Registrant's 1999 Directors Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-88645) (incorporated by reference)                                                                                           
|10.13   |  | Registrant's 2000 Directors Stock Option Plan files as Exhibit 4.1 to Form S-8 (File No. 333-49436) (incorporated by reference)                                                                                                        
|10.14   |  | Form of Registrant's 2000 Director's Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-49436) (incorporated by reference)                                                                                          
|10.15   |  | Registrant's Omnibus Stock Ownership and Long Term Incentive Plan filed as Exhibit 4.1 to Form S8 (File No. 33365188) (incorporated by reference)                                                                                      
|10.15.1 |  | Form of Registrant's Omnibus Stock Ownership and Long Term Incentive Plan Incentive Plan Option Agreement filed as Exhibit 4.2 to File S-8 (File No. 333-65188) (incorporated by reference)                                            
|10.17   |  | Form of Registrant's Omnibus Stock Ownership and Long Term Incentive Plan Restricted Stock Grant Agreement filed as Exhibit 4.3 to Form S-8 (File No. 333-65188)                                                                       
|10.18   |  | Employment Agreement dated May 24, 2000 between Registrant and Edward C. Milligan (incorporated by referenced to Exhibit 10.13 to Registration Statement No. 333-50762 on Form S-4)                                                    
|10.19   |  | Employment Agreement dated May 24, 2000 between the Registrant and Robert R. Fowler, III (incorporated by referenced to Exhibit 10.14 to Registration Statement No. 333-50762 on Form S-4)                                             
|10.20   |  | Employment Agreement dated May 24, 2000 between the Registrant and Sam B. Hay (incorporated by referenced to Exhibit 10.15 to Registration Statement No. 333-50762 on Form S-4)                                                        
|10.21   |  | Employment Agreement dated September 17, 2001 between the Registrant and Robert D. McDermott                                                                                                                                           
|21      |  | The sole subsidiaries of the Registrant are Main Street Bank (Ga.) and Williamson, Musselwhite & The Company Insurance, Inc. (Ga.) and Main Street Bank has two subsidiaries, MSB Holdings, Inc. (Del.) and MSB Investments, Inc.
(Ga.)
|23.1    |  | Consent of Independent Auditor, Ernst & Young LLP concerning the consolidated financial statements of Main Street Banks, Inc.                                                                                                          
|23.2    |  | Consent of Mauldin & Jenkins, LLC concerning the financial statements of Walton Bank & Trust Co. and First Sterling Banks, Inc. Registration Statement No. 333-65188 on Form S-8, dated July 16, 2001 and related
Prospectus           

38

---



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

MAIN STREET BANKS, INC.(Registrant)

|By: | /s/ Edward C. MilliganEdward C. Milligan, President and Chief Executive Officer |  | Date: | March 29, 2002
|--- | ------------------------------------------------------------------------------- |  | ----- | --------------
|By: | /s/ Robert D. McDermottRobert D. McDermott, Chief Financial Officer             |  | Date: | March 29, 2002

In
accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

|By: | /s/ Eugene L. ArgoEugene L. Argo, Director                       |  | Date: | March 29, 2002
|--- | ---------------------------------------------------------------- |  | ----- | --------------
|By: | /s/ Robert R. FowlerRobert R. Fowler, III, Chairman and Director |  | Date: | March 29, 2002
|By: | /s/ Samuel B. Hay, IIISamuel B. Hay, III, Director               |  | Date: | March 29, 2002
|By: | /s/ P. Harris HinesP. Harris Hines, Director                     |  | Date: | March 29, 2002
|By: | /s/ Harry L. Hudson, Jr.Harry L. Hudson, Jr., Director           |  | Date: | March 29, 2002
|By: | /s/ C. Candler HuntC. Candler Hunt, Director                     |  | Date: | March 29, 2002
|By: | /s/ Frank B. TurnerFrank B. Turner, Director                     |  | Date: | March 29, 2002

39

---

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED  PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.

The registrant will furnish proxy materials to security holders subsequent to the filing of this Form 10-K and will submit four copies of such materials to the
Securities and Exchange Commission when they are provided to the security holders.

40

---

Main Street Banks, Inc. and Subsidiaries

Consolidated Financial Statements

Years ended December 31, 2001 and 2000

Contents

|Report of Independent Auditors                  |  | F-1
|----------------------------------------------- |  | ---
|Consolidated Financial Statements               |  |    
|Consolidated Balance Sheets                     |  | F-2
|Consolidated Statements of Income               |  | F-3
|Consolidated Statements of Shareholders' Equity |  | F-4
|Consolidated Statements of Cash Flows           |  | F-5
|Notes to Consolidated Financial Statements      |  | F-6

---

Report of Independent Auditors

Board of Directors
Main Street Banks, Inc.

We
have audited the accompanying consolidated balance sheets of Main Street Banks, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of First Sterling Banks, Inc. and Subsidiaries, prior to their
restatement for the 2000 pooling of interests or the financial statements of Walton Bank and Trust Company prior to their 2001 pooling of interests with Main Street Banks, Inc. as described in Note
16, which statements reflect total assets constituting 6% in 2000, and net interest income constituting 6% in 2000 and 44% in 1999 of the related consolidated financial statement totals. Those
statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for First Sterling Banks, Inc. and Subsidiaries, prior to
their restatement for the 2000 pooling of interests and Walton Bank and Trust Company, prior to their 2001 pooling of interests, as described in Note 16, are based solely on the reports of the other
auditors.

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

In
our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Main Street Banks, Inc. and Subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.



Atlanta,
Georgia
January 30, 2002

F-1

---

Main Street Banks, Inc. and Subsidiaries

Consolidated Balance Sheets

|                                                                                                                                                                           |                                          | December 31 |              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------- | -------------
|
|Assets                                                                                                                                                                     |                                          |             |              
|Cash and due from banks                                                                                                                                                    |                                          | $           | 36,002,196   
|Interest-bearing deposits in banks                                                                                                                                         |                                          |             | 14,509,315   
|Federal funds sold and securities purchased under agreements to resell                                                                                                     |                                          |             | 60,431,897   
|Investment securities available for sale                                                                                                                                   |                                          |             | 118,329,273  
|Investment securities held to maturity (fair value of $729,102 and $18,682,140 at December 31, 2001 and 2000, respectively)                                                |                                          |             | 686,966      
|Other investments                                                                                                                                                          |                                          |             | 4,118,600    
|Mortgage loans held for sale                                                                                                                                               |                                          |             | 9,193,983    
|Loans, net of unearned income                                                                                                                                              |                                          |             | 811,446,346  
|Allowance for loan losses                                                                                                                                                  |                                          |             | (12,017,448  
|                                                                                                                                                                           |                                          |             |              
|Loans, net                                                                                                                                                                 |                                          |             | 799,428,898  
|Premises and equipment, net                                                                                                                                                |                                          |             | 26,692,404   
|Other real estate                                                                                                                                                          |                                          |             | 1,266,650    
|Accrued interest receivable                                                                                                                                                |                                          |             | 5,643,803    
|Goodwill and other intangible assets                                                                                                                                       |                                          |             | 705,867      
|Other assets                                                                                                                                                               |                                          |             | 33,158,039   
|                                                                                                                                                                           |                                          |             |              
|Total assets                                                                                                                                                               |                                          | $           | 1,110,167,891
|                                                                                                                                                                           |                                          |             |              
|Liabilities and shareholders' equity                                                                                                                                       |                                          |             |              
|Liabilities:                                                                                                                                                               |                                          |             |              
|Deposits:                                                                                                                                                                  |                                          |             |              
|                                                                                                                                                                           | Noninterest-bearing demand               |             | $            
|                                                                                                                                                                           | Interest-bearing demand and money market |             |              
|                                                                                                                                                                           | Savings                                  |             |              
|                                                                                                                                                                           | Time deposits of $100,000 or more        |             |              
|                                                                                                                                                                           | Other time deposits                      |             |              
|                                                                                                                                                                           |                                          |             |              
|Total deposits                                                                                                                                                             |                                          |             | 908,180,801  
|Accrued interest payable                                                                                                                                                   |                                          |             | 4,570,179    
|Federal Home Loan Bank advances                                                                                                                                            |                                          |             | 75,121,250   
|Federal funds purchased and securities sold under repurchase agreements                                                                                                    |                                          |             | 15,504,355   
|Other liabilities                                                                                                                                                          |                                          |             | 1,669,954    
|                                                                                                                                                                           |                                          |             |              
|Total liabilities                                                                                                                                                          |                                          |             | 1,005,046,539
|Shareholders' equity                                                                                                                                                       |                                          |             |              
|Common stockno par value per share; 50,000,000 shares authorized; issued and outstanding shares of 15,699,201 and 15,5344,159 at December 31, 2001 and 2000, respectively |                                          |             | 32,407,424   
|Retained earnings                                                                                                                                                          |                                          |             | 72,018,255   
|Accumulated other comprehensive income (loss)                                                                                                                              |                                          |             | 1,729,548    
|Treasury stock, 169,082 shares in 2001 and 2000                                                                                                                            |                                          |             | (1,033,875   
|                                                                                                                                                                           |                                          |             |              
|Total shareholders' equity                                                                                                                                                 |                                          |             | 105,121,352  
|                                                                                                                                                                           |                                          |             |              
|Total liabilities and shareholders' equity                                                                                                                                 |                                          | $           | 1,110,167,891
|                                                                                                                                                                           |                                          |             |              

See
accompanying notes.

F-2

---

Main Street Banks, Inc. and Subsidiaries

Consolidated Statements of Income

|                                                    |                                          | Year ended December 31
|--------------------------------------------------- | ---------------------------------------- | ----------------------
|
|Interest income:                                    |                                          |                       
|                                                    | Loans, including fees                    |                       
|                                                    | Interest on investment securities:       |                       
|                                                    |                                          | Taxable               
|                                                    |                                          | Non-taxable           
|                                                    | Federal funds sold                       |                       
|                                                    | Interest-bearing deposits in banks       |                       
|                                                    |                                          |                       
|Total interest income                               |                                          |                       
|Interest expense:                                   |                                          |                       
|                                                    | Interest-bearing demand and money market |                       
|                                                    | Savings                                  |                       
|                                                    | Time deposits of $100,000 or more        |                       
|                                                    | Other time deposits                      |                       
|                                                    | Federal funds purchased                  |                       
|                                                    | Federal Home Loan Bank advances          |                       
|                                                    | Other                                    |                       
|                                                    |                                          |                       
|Total interest expense                              |                                          |                       
|Net interest income                                 |                                          |                       
|Provision for loan losses                           |                                          |                       
|                                                    |                                          |                       
|Net interest income after provision for loan losses |                                          |                       
|Noninterest income:                                 |                                          |                       
|                                                    | Service charges on deposit accounts      |                       
|                                                    | Investment securities gains (losses)     |                       
|                                                    | Gain on sales of premises and equipment  |                       
|                                                    | Gain on sales of SBA and mortgage loans  |                       
|                                                    | Mortgage origination fees                |                       
|                                                    | Insurance agency commissions             |                       
|                                                    | Other income                             |                       
|                                                    |                                          |                       
|Total noninterest income                            |                                          |                       
|Noninterest expense:                                |                                          |                       
|                                                    | Salaries and other compensation          |                       
|                                                    | Employee benefits                        |                       
|                                                    | Net occupancy and equipment expense      |                       
|                                                    | Professional services                    |                       
|                                                    | Regulatory agency assessments            |                       
|                                                    | Amortization of intangible assets        |                       
|                                                    | Merger expense                           |                       
|                                                    | Other expense                            |                       
|                                                    |                                          |                       
|Total noninterest expense                           |                                          |                       
|Income before income taxes                          |                                          |                       
|Income tax expense                                  |                                          |                       
|                                                    |                                          |                       
|Net income                                          |                                          | $                     
|                                                    |                                          |                       
|Earnings per share:                                 |                                          |                       
|                                                    | Basic                                    |                       
|                                                    |                                          |                       
|                                                    | Diluted                                  |                       
|                                                    |                                          |                       
|Weighted average common shares outstanding:         |                                          |                       
|                                                    | Basic                                    |                       
|                                                    |                                          |                       
|                                                    | Diluted                                  |                       
|                                                    |                                          |                       

See accompanying notes.

F-3

---

Main Street Banks, Inc. and Subsidiaries

Consolidated Statements of Shareholders' Equity

|                             |                                                   | Common Stock                           |                                                                                                                        | Treasury Stock |            |         |         |   |        |            |  
|---------------------------- | ------------------------------------------------- | -------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | -------------- | ---------- | ------- | ------- | - | ------ | ---------- | -
|
|
|Balance at December 31, 1998 |                                                   | 14,620,665                             |                                                                                                                        | $              | 30,919,273 |         | 131,500 |   | $      | (1,033,875 | )
|                             | Comprehensive income, net of tax:                 |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Net income                             |                                                                                                                        |               |            |         |        |   |       |            |  
|                             |                                                   | Other comprehensive income:            |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   |                                        | Net unrealized losses on investment securities available for sale arising in the current year                          |                |           |         |         |  |        |           |  
|                             |                                                   |                                        | Less reclassification adjustment for net gains included in net income                                                  |                |           |         |         |  |        |           |  
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Comprehensive income                              |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Cash dividends declared$.16 per share            |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             | Cash dividends declared by pooled companies:      |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Main Street Banks, Inc.$.27 per share |                                                                                                                        |               |            |         |        |   |       |            |  
|                             |                                                   | Other pooled companies                 |                                                                                                                        |               |            |         |        |   |       |            |  
|                             | Common stock issued pursuant to:                  |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Restricted stock award plan            |                                                                                                                        | 4,000          |            |         | 20,000  |   |       |            |  
|                             |                                                   | Stock dividend                         |                                                                                                                        | 790,269        |            |         |        |   | 37,582 |            |  
|                             |                                                   | Exercise of stock options              |                                                                                                                        | 32,886         |            |         | 173,428 |   |       |            |  
|                             | Stock forfeited under restricted stock award plan |                                        | (2,600                                                                                                                 | )              |            | (11,000 | )       |  |        |            | 
|                             | Tax benefit from exercise of stock options        |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|Balance at December 31, 1999 |                                                   | 15,445,220                             |                                                                                                                        |                | 31,101,701 |         | 169,082 |   |        | (1,033,875 | )
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Comprehensive income, net of tax:                 |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Net income                             |                                                                                                                        |               |            |         |        |   |       |            |  
|                             |                                                   | Other comprehensive income:            |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   |                                        | Net unrealized gains on investment securities available for sale arising in the current year                           |                |           |         |         |  |        |           |  
|                             |                                                   |                                        | Less reclassification adjustment for net gains included in net income                                                  |                |           |         |         |  |        |           |  
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Comprehensive income                              |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Cash dividends declared$.24 per share            |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             | Cash dividends declared by pooled companies:      |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Main Street Banks, Inc.$.08 per share |                                                                                                                        |               |            |         |        |   |       |            |  
|                             |                                                   | Other pooled companies                 |                                                                                                                        |               |            |         |        |   |       |            |  
|                             | Common stock issued pursuant to:                  |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Exercise of stock options              |                                                                                                                        | 69,955         |            |         | 301,485 |   |       |            |  
|                             |                                                   | Restricted stock award plan            |                                                                                                                        | 22,500         |            |         | 135,000 |   |       |            |  
|                             | Stock forfeited under restricted stock award plan |                                        | (3,516                                                                                                                 | )              |            | (15,400 | )       |  |        |            | 
|                             | Tax benefit from exercise of stock options        |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|Balance at December 31, 2000 |                                                   | 15,534,159                             |                                                                                                                        |                | 31,522,786 |         | 169,082 |   |        | (1,033,875 | )
|                             | Comprehensive income, net of tax:                 |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Net income                             |                                                                                                                        |               |            |         |        |   |       |            |  
|                             |                                                   | Other comprehensive income:            |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   |                                        | Net unrealized gains on investment securities available for sale arising in the current year, net of tax of $1,030,023 |                |           |         |         |  |        |           |  
|                             |                                                   |                                        | Less reclassification adjustment for net gains included in net income                                                  |                |           |         |         |  |        |           |  
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Comprehensive income                              |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             | Cash dividends declared$.36 per share            |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             | Common stock issued pursuant to:                  |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|                             |                                                   | Exercise of stock options              |                                                                                                                        | 126,595        |            |         | 580,629 |   |       |            |  
|                             |                                                   | Restricted stock award plan            |                                                                                                                        | 43,780         |            |         | 328,350 |   |       |            |  
|                             | Stock forfeited under restricted stock award plan |                                        | (5,333                                                                                                                 | )              |            | (24,341 | )       |  |        |            | 
|                             | Tax benefit from exercise of stock options        |                                        |                                                                                                                       |                |            |        |         |  |        |            | 
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  
|Balance at December 31, 2001 |                                                   | 15,699,201                             |                                                                                                                        | $              | 32,407,424 |         | 169,082 |   | $      | (1,033,875 | )
|                             |                                                   |                                        |                                                                                                                        |                |            |         |         |   |        |            |  

See accompanying notes.

F-4

---



Main Street Banks, Inc. and Subsidiaries        Consolidated Statements of Cash Flows

|                                                                                  |                                                         | Year ended December 31                             |            
|--------------------------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------------- | -----------
|
|Operating activities                                                              |                                                         |                                                    |            
|Net income                                                                        |                                                         | $                                                  | 14,347,176 
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                         |                                                    |            
|                                                                                  | Provision for loan losses                               |                                                    |            
|                                                                                  | Depreciation and amortization of premises and equipment |                                                    |            
|                                                                                  | Amortization of intangible assets                       |                                                    |            
|                                                                                  | Loss (gain) on sales of other real estate               |                                                    |            
|                                                                                  | Investment securities (gains) losses                    |                                                    |            
|                                                                                  | Net accretion of investment securities                  |                                                    |            
|                                                                                  | Net accretion of loans purchased                        |                                                    |            
|                                                                                  | Gain on sales of premises and equipment                 |                                                    |            
|                                                                                  | Net (increase) decrease in mortgage loans held for sale |                                                    |            
|                                                                                  | Gains on sales of mortgage loans                        |                                                    |            
|                                                                                  | Gains on sales of other loans                           |                                                    |            
|                                                                                  | Deferred income tax benefit                             |                                                    |            
|                                                                                  | Deferred net loan fees                                  |                                                    |            
|                                                                                  | Vesting in restricted stock award plan                  |                                                    |            
|                                                                                  | Changes in operating assets and liabilities:            |                                                    |            
|                                                                                  |                                                         | Decrease (increase) in accrued interest receivable |            
|                                                                                  |                                                         | (Decrease) increase in accrued interest payable    |            
|                                                                                  |                                                         | Other                                              |            
|                                                                                  |                                                         |                                                    |            
|Net cash provided by operating activities                                         |                                                         |                                                    | 12,549,505 
|Investing activities                                                              |                                                         |                                                    |            
|Purchases of investment securities held to maturity                               |                                                         |                                                    |           
|Purchases of investment securities available for sale                             |                                                         |                                                    | (40,187,121
|Purchases of other investments                                                    |                                                         |                                                    | (308,500   
|Maturities of investment securities held to maturity                              |                                                         |                                                    |           
|Maturities and calls of investment securities available for sale                  |                                                         |                                                    | 84,878,886 
|Proceeds from sales of investment securities available for sale                   |                                                         |                                                    | 6,655,982  
|Net increase in loans funded                                                      |                                                         |                                                    | (75,483,275
|Purchase of Bank Owned Life Insurance                                             |                                                         |                                                    | (29,000,000
|Purchases of premises and equipment                                               |                                                         |                                                    | (2,822,793 
|Proceeds from sales of premises and equipment                                     |                                                         |                                                    | 90,239     
|Proceeds from sales of other real estate                                          |                                                         |                                                    | 2,246,745  
|                                                                                  |                                                         |                                                    |            
|Net cash used in investing activities                                             |                                                         |                                                    | (53,929,837
|Financing activities                                                              |                                                         |                                                    |            
|Net increase in demand and savings accounts                                       |                                                         |                                                    | 76,582,030 
|Increase in time deposits                                                         |                                                         |                                                    | (54,310,739
|Increase in federal funds purchased                                               |                                                         |                                                    | (17,111,304
|Net increase in Federal Home Loan Bank advances                                   |                                                         |                                                    | 22,993,750 
|Dividends paid                                                                    |                                                         |                                                    | (5,808,235 
|Proceeds from the issuance of common stock                                        |                                                         |                                                    | 580,629    
|                                                                                  |                                                         |                                                    |            
|Net cash provided by financing activities                                         |                                                         |                                                    | 22,926,131 
|                                                                                  |                                                         |                                                    |            
|Net (decrease) increase in cash and cash equivalents                              |                                                         |                                                    | (18,454,201
|Cash and cash equivalents at beginning of year                                    |                                                         |                                                    | 129,397,609
|                                                                                  |                                                         |                                                    |            
|Cash and cash equivalents at end of year                                          |                                                         | $                                                  | 110,943,408
|                                                                                  |                                                         |                                                    |            
|Supplemental disclosures of cash flow information                                 |                                                         |                                                    |            
|Cash paid during the year for:                                                    |                                                         |                                                    |            
|                                                                                  | Interest                                                |                                                    | $          
|                                                                                  |                                                         |                                                    |            
|                                                                                  | Income taxes, net                                       |                                                    | $          
|                                                                                  |                                                         |                                                    |            
|Supplemental disclosures of noncash transactions                                  |                                                         |                                                    |            
|Loans transferred to real estate acquired through foreclosure                     |                                                         | $                                                  | 1,521,898  
|                                                                                  |                                                         |                                                    |            
|Sales of other real estate financed                                               |                                                         | $                                                  |           
|                                                                                  |                                                         |                                                    |            

See accompanying notes.

F-5

---

Main Street Banks, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2001 and 2000

1. Summary of Significant Accounting Policies

Description of Business

Main Street Banks, Inc. (the "Parent" or the "Company") is a bank holding company which conducts business primarily in Barrow, Clarke, Cobb, DeKalb,
Gwinnett, Newton, Rockdale and Walton counties in Georgia through its wholly owned subsidiaries, Main Street Bank ("Main Street" or the "Bank"), and Williamson, Musselwhite & Main Street
Insurance, Inc. ("Williamson"). Prior to January 2, 2001, the Parent was known as First Sterling Banks, Inc. On December 29, 2000, former bank subsidiaries, The Westside
Bank & Trust Company ("Westside"), The Eastside Bank & Trust Company ("Eastside"), and Community Bank of Georgia ("Community") were merged into Main Street Bank. The Bank provides a full range
of traditional banking, mortgage banking, investment services and insurance services to individual and corporate customers in its primary market areas and surrounding counties.

The
consolidated financial statements of Main Street Banks, Inc. and Subsidiaries are prepared in accordance with accounting principles generally accepted in the United States, and
practices within the financial services industry, which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. 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
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 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. The Company's results of operations are significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies and actions of regulatory agencies.

Basis of Presentation

The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiaries, the Bank and Williamson. All significant intercompany
transactions and balances have been eliminated in consolidation.

As
described more fully in Note 16, the accompanying financial statements have been restated to account for the pooling of interests between the Company (formerly) First Sterling Banks,
Inc. and Main Street Banks, Incorporated, which occurred on May 24, 2000, the pooling of interests between the former First Sterling Banks, Inc. and Georgia Bancshares Inc., which occurred on April
23, 1999, the pooling of interests between the Company and Williamson, which occurred on December 28, 2000, and the pooling of interests between the Company and Walton Bank and Trust Company, which
occurred on January 25, 2001. In business combinations accounted for as poolings-of-interests, the financial position, results of operations and cash flows of the respective companies are restated as
though the companies were combined for all periods presented.

Investment Securities

Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each balance sheet
date. Investment securities are

F-6

---

classified as held to maturity when the Company has the positive intent and the ability to hold the securities to maturity. Held to maturity securities are stated at amortized cost. Under the
provisions of Statement No. 138, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 138"), a company can elect to make a one-time transfer of investment securities from held to
maturity to available for sale without tainting the held to maturity category. On January 1, 2001, upon adoption of Statement 138, the Company transferred $17,851,829 of investment securities to the
available for sale category from the held to maturity category.

Investment
securities not classified as held to maturity are classified as available for sale. Available for sale securities are stated at fair value with the unrealized gains and
losses, net of tax, reported as a separate component of comprehensive income. Other investments are stated at amortized cost.

Realized
gains and losses, and declines in value determined to be other than temporary are included in investment securities gains (losses). The cost of securities sold is based on the
specific identification method.

The
cost of investment securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts to expected maturity, or in the
case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion is included in interest income from investments.

Securities Purchased Under Resell Agreements

Securities purchased under resell agreements are recorded at the amounts at which the securities are acquired plus accrued interest. The Company enters into
purchases of U. S. Government and agency securities under resell agreements to resell substantially identical securities.

The
amounts advanced under resell agreements represent short-term loans and are combined with Federal funds sold in the balance sheets. The securities underlying the resell agreements
are delivered by appropriate entry into a third-party custodian's account designated by the Company under a written custodial agreement that explicitly recognizes the Company's interest in the
securities.

Loans

Loans are stated at the principal amounts outstanding reduced by purchase discounts, deferred net loan fees and costs, and unearned income. Interest income on
loans is generally 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. When accrual of interest is discontinued, all unpaid interest is reversed. Interest income on such loans is subsequently recognized only to the extent cash payments are received, the
full recovery of principal is anticipated, or after full principal has been recovered when collection of principal is in question.

Gains
on sales of loans are recognized at the time of sale, as determined by the difference between the net sales proceeds and the net book value of the loans sold.

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.

F-7

---

Mortgage Loans Held for Sale

The Company originates first mortgage loans for sale in the secondary market. Mortgage loans held for sale are recorded at the lower of cost or market on an
individual loan basis. Market value is determined based on outstanding commitments from investors and prevailing market conditions. Gains and losses on sales of loans are recognized at settlement date
and are determined as the difference between the net sales proceeds and carrying value of the loans sold. The Company limits its interest rate risk on such loans originated by selling individual loans
immediately after the customers lock into their rate.

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 inherent losses on the existing loan portfolio. Management's judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of
loans taking 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.

Premises and Equipment

Premises and equipment are reported at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using primarily accelerated
methods over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or the term of the related lease.

Other Real Estate

Other real estate represents property acquired through foreclosure or in settlement of loans and is recorded at the lower of cost or fair value, based on current
market appraisals, 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 writedowns of other real estate are
charged to current operations.

Goodwill and Other Intangible Assets

Substantially all costs in excess of net assets of entities acquired are being amortized using the straight-line method over periods ranging from 10 to 15 years.
Other intangibles related to entities acquired are being amortized over periods ranging from 5 to 10 years using the straight-line method. Intangible assets related to capital lease rights are being
amortized over the term of the related lease using the straight-line method. Accumulated amortization was $1,977,133 and $1,737,466 at December 31, 2001 and 2000, respectively. Amortization
expense totaled $239,667, $438,767 and $438,767 for the years ended December 31, 2001, 2000 and 1999, respectively.

F-8

---

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements which are classified as secured borrowing, generally mature within one to four days from the transaction date.
Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The Company monitors the fair value of the underlying securities on a daily
basis.

Income Taxes

The Company accounts for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.

Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized.

Earnings Per Share

The Company accounts for earnings per share in accordance with Financial Accounting Standards Board Statement No. 128, "Earnings Per Share"
("Statement 128").

The
computation of diluted earnings per share is as follows:

|                           |                                  | Year ended December 31
|-------------------------- | -------------------------------- | ----------------------
|
|Numerator:                 |                                  |                       
|                           | Basic and diluted net income     |                       
|                           |                                  |                       
|Denominator:               |                                  |                       
|                           | Basic weighted average shares    |                       
|                           | Effect of employee stock options |                       
|                           |                                  |                       
|                           | Diluted weighted average shares  |                       
|                           |                                  |                       
|Diluted earnings per share |                                  | $                     
|                           |                                  |                       

Advertising Costs

In accordance with SOP 93-7, the Company expenses advertising costs as incurred. Advertising costs expensed in the years ended December 31, 2001, 2000, and 1999
were not significant.

Financial Instruments

In the ordinary course of business, the Company enters 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 when related fees are incurred or received.

F-9

---

Comprehensive Income

Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income", describes comprehensive income as the total of all components of
comprehensive income, including net income. Other comprehensive income refers to revenues, expenses, gains and losses that under accounting principles generally accepted in the United States are
included in comprehensive income but excluded from net income. Currently, the Company's other comprehensive income consists of unrealized gains and losses on available for sale securities.

Cash and Cash Equivalents

For purposes of presentation in the statement of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits in
banks and Federal funds sold. Generally, Federal funds are purchased and sold for one-day periods.

Risk Management Instruments

Interest rate floors are used periodically as part of the Company's overall interest rate risk management and are designated as hedges of interest-bearing assets
and anticipated transactions. These derivatives modify the interest rate characteristics of specified financial instruments. Amounts receivable or
payable under interest rate floors are recognized in net interest income. Derivative instruments not qualifying as end-user positions are treated as trading positions and marked-to-market. To qualify
as a hedge, the floor must be designated and documented as a hedge and be effective in reducing the market risk associated with the existing asset or anticipated transaction which is probable to
occur. Effectiveness of the hedge is evaluated on an initial and ongoing basis using statistical calculations of correlation. Gains and losses on risk management derivatives that are terminated early
are deferred and amortized to net interest income over the remaining period originally covered by the instrument. If the underlying designated item is no longer held, or if an anticipated transaction
is no longer likely to occur, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is subsequently accounted for at fair value.

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued Statement No. 138, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 138") which
amended certain provisions of Statement 133. Statement 138 requires all derivatives to be recorded at their fair value in the balance sheets. Accounting for the changes in fair value of a derivative
depends on the intended use of the derivative and the resulting designation. Statement 138 was effective for the Company on January 1, 2001. The adoption of the standard did not result in a material
financial impact based on the Company's limited use of derivatives.

In
July 2001, the FASB issued Statement No. 141, "Business Combinations" ("Statement 141"), effective for business combinations initiated after June 30, 2001. Under Statement 141, the
pooling of interests method of accounting for business combinations is eliminated. The adoption of this statement did not have a material financial impact on the Company's results of operations or
financial position.

F-10

---



1. Summary of Significant Accounting Policies (Continued)

In July 2001, the FASB issued Statement No. 142, "Goodwill and Other Intangible Assets" ("Statement 142"). Under Statement No. 142, goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives. The adoption
of this statement is not expected to have a material financial impact on the Company's results of operations or financial position.

In
October 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"), effective for fiscal years beginning after
December 15, 2001 and applied prospectively. Statement 144 will supercede Statement 121 and APB 30. Statement 144 retains the fundamental provisions of Statement 121 related to the recognition and
measurement of long-lived assets. Statement 144 provides more guidance on estimating cash flows when performing a recoverability test. Furthermore, Statement 144 requires that operating losses from a
"component of an entity" would be recognized in the period in which they occur rather than as of the measurement date as presently required by APB 30.

2. Cash and Due From Banks

The Company is required to maintain average reserve balances with the Federal Reserve Bank, on deposit with national banks, or in cash. The average reserve
requirements at December 31, 2001 and 2000 were approximately $173,000 and $12,843,000 respectively. The change in the reserve requirement between 2001 and 2000 was a result of the Company's
implementation of Regulation D. The Company maintained cash balances and reserves which were adequate to meet these requirements.

3. Investment Securities

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

|                                          |  | December 31, 2001
|----------------------------------------- |  | -----------------
|
|Held to maturity securities               |  |                  
|States and political subdivisions         |  | $                
|                                          |  |                  
|Available for sale securities             |  |                  
|U.S. Treasury securities                  |  | $                
|U.S. Government agencies and corporations |  |                  
|States and political subdivisions         |  |                  
|Mortgage-backed securities                |  |                  
|                                          |  |                  
|Total                                     |  | $                
|                                          |  |                  

F-11

---

|                                          |  | December 31, 2000
|----------------------------------------- |  | -----------------
|
|Held to maturity securities               |  |                  
|States and political subdivisions         |  | $                
|Available for sale securities             |  |                  
|U.S. Treasury securities                  |  | $                
|U.S. Government agencies and corporations |  |                  
|States and political subdivisions         |  |                  
|Mortgage-backed securities                |  |                  
|                                          |  |                  
|Total                                     |  | $                
|                                          |  |                  

Other
investments are recorded at cost, which approximates market value, and are composed of the following:

December 312001

2000Federal Home Loan Bank stock

$
3,756,100

$
3,447,600Southeast Bankcard Association stock


40,000


40,000North Georgia Bank stock


150,000


150,000Banker's Bank stock


172,500


172,500$
4,118,600

$
3,810,100


The
amortized cost and estimated fair value of investment securities held to maturity and available for sale at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may have the right to call or repay obligations without call or prepayment penalties.

|                                       |  | Investment Securities
Held to Maturity |         | Investment Securities
Available for Sale
|-------------------------------------- |  | -------------------------------------- | ------- | ----------------------------------------
|
|Due in one year or less                |  | $                                      |        |                                         
|Due after one year through five years  |  |                                        | 160,938 |                                         
|Due after five years through ten years |  |                                        | 301,028 |                                         
|Due after ten years                    |  |                                        | 225,000 |                                         
|                                       |  |                                        |         |                                         
|                                       |  | $                                      | 686,966 |                                         
|                                       |  |                                        |         |                                         

During
2001, 2000 and 1999, proceeds from sales of investment securities available for sale were $6,655,982, $15,036,570 and $4,420,285, respectively, with gross realized gains and
losses of $22,191, $(512,568) and $9,037, respectively.

F-12

---

Securities
with a carrying value of $100,864,688 and $98,728,723 and estimated fair value of $100,864,688 and $98,941,135 at December 31, 2001 and 2000, respectively, were pledged
to secure public deposits.

4. Loans

Loans are summarized as follows:

December 312001

2000Consumer

$
53,074,956

$
63,856,727Residential mortgage


152,226,068


162,706,271Construction


173,464,129


150,107,092Commercial


68,320,271


97,572,147Real estateother


366,002,884


263,499,971Total loans


813,088,308


737,742,208Less:Purchase discount


(164,732
)

(228,712
)Deferred net loan fees


(1,342,428
)

(1,203,758
)Unearned income


(134,802
)

(346,667
)Allowance for loan losses


(12,017,448
)

(10,907,424
)Loans, net

$
799,428,898

$
725,055,647


Nonaccrual
loans were $1,414,926 and $1,123,260 at December 31, 2001 and 2000, respectively. The allowance for loan losses related to these impaired loans was
$212,239 and $137,282 at December 31, 2001 and 2000, respectively. The average recorded investment in impaired loans was $1,269,093, $1,242,984 and $1,698,435 for the years ended
December 31, 2001, 2000 and 1999, respectively. If such loans had been on an accrual basis, interest income would have been approximately $63,421, $109,997 and $172,402, higher for the years
ended December 31, 2001, 2000 and 1999, respectively.

An
analysis of activity in the allowance for loan losses is as follows:

Year ended December 312001

2000

1999Balance at beginning of year

$
10,907,424

$
9,743,922

$
8,587,565Provision for loan losses


2,452,000


2,184,000


1,795,000Loans charged off


(1,685,070
)

(1,374,110
)

(1,013,783
)Recoveries of loans previously charged off


343,094


353,612


375,140Balance at end of year

$
12,017,448

$
10,907,424

$
9,743,922


A
substantial portion of the Company's loans are secured by real estate in northeast Georgia communities, primarily in Barrow, Clarke, Cobb, DeKalb, Gwinnett, Newton,
Rockdale, and Walton counties. In addition, a substantial portion of real estate acquired through foreclosure consists of single-

F-13

---

family residential properties and land located in these same markets. The ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of
the carrying amount of real estate are susceptible to changes in market conditions in northeast Georgia.

5. Premises and Equipment

Premises and equipment are composed of the following:

December 312001

2000Land

$
6,854,839

$
7,223,625Buildings and leasehold improvements


17,875,532


18,094,542Furniture, fixtures and equipment


13,697,120


13,546,501Construction in process


1,020,328


524,405Less accumulated depreciation and amortization


(12,755,415
)

(12,354,925
)$
26,692,404

$
27,034,148


Depreciation
and amortization expense totaled $2,187,811, $2,242,473 and $1,967,348 for the periods ended December 31, 2001, 2000 and 1999, respectively.

The
Company leases certain buildings and various equipment under operating leases. Minimum payments, by year and in the aggregate, under noncancelable operating leases with initial or
remaining terms in excess of one year as of December 31, 2001 are as follows:

2002

$
399,2542003


408,2192004


382,3572005


389,6252006


353,179Thereafter


3,288,665Total minimum lease payments

$
5,221,299


Rental
expense for all operating leases was $407,424, $415,299 and $211,942 in 2001, 2000 and 1999, respectively.

6. Interest Bearing Deposits

A summary of time deposits by year of maturity at December 31, 2001 is as follows:

2002

$
404,749,3062003


24,218,0172004


7,178,9602005


7,701,6042006


2,306,604Thereafter


113,009Total time deposits

$
446,267,500


F-14

---

The
Company had $152,749,296 and $157,782,734 in time deposits over $100,000 at December 31, 2001 and 2000, respectively. Interest expense on these deposits was
$9,062,793, $7,177,496, and $4,779,139 for the years ended December 31, 2001, 2000 and 1999, respectively.

7. Borrowings

At December 31, 2001 and 2000 the Company had advances from the Federal Home Loan Bank totaling $75,121,250 and $52,127,500, respectively. The Company has
pledged all of its eligible residential mortgage loans secured by first mortgages on one-to-four family dwellings as collateral. The Company is allowed to borrow up to 75% of the balance of the
eligible loans pledged as collateral. At December 31, 2001 and 2000 the available balance under the Company's line with the Federal Home Loan Bank was approximately $9,850,750 and $25,372,500,
respectively. The Company has three advances totaling $62,121,250, which utilize a daily rate credit and have no maturity dates. In addition, the Company has an advance totaling $13,000,000 with a
fixed rate of 2.04%, which matures in 2002.

8. Income Taxes

Income tax expense is summarized as follows:

|                            |  | Year ended December 31 |          
|--------------------------- |  | ---------------------- | ---------
|
|Current income tax expense  |  | $                      | 7,838,254
|Deferred income tax benefit |  |                        | (338,124 
|                            |  |                        |          
|                            |  | $                      | 7,500,130
|                            |  |                        |          

State
income tax expense for the year ended December 31, 2001 was comprised of $562,140 of current tax expense and $(20,000) of deferred tax benefit. A reconciliation of
income tax computed at statutory rates to total income tax expense is as follows:

|                                      |                                                  | Year ended December 31 |           
|------------------------------------- | ------------------------------------------------ | ---------------------- | ----------
|
|Pretax income                         |                                                  | $                      | 21,847,306
|                                      |                                                  |                        |           
|Income tax computed at statutory rate |                                                  | $                      | 7,646,557 
|Increase (decrease) resulting from:   |                                                  |                        |           
|                                      | Tax-exempt interest                              |                        |           
|                                      | Nondeductible interest on tax-exempt investments |                        |           
|                                      | Nondeductible merger expenses                    |                        |           
|                                      | Amortization of goodwill                         |                        |           
|                                      | Other, net                                       |                        |           
|                                      |                                                  |                        |           
|                                      |                                                  | $                      | 7,500,130 
|                                      |                                                  |                        |           

F-15

---



8. Income Taxes (Continued)

The
following summarizes the significant components of the Company's deferred tax assets and (liabilities):

December 312001

2000Reserve for loan losses

$
4,471,693

$
3,339,453Depreciation on premises and equipment


(1,006,721
)

(603,121
)Core deposit intangible


123,259


122,142Deferred net loan fees


540,917


417,833Net unrealized (gains) losses on investment securities available for sale


(998,637
)

31,386Other, net


(1,097,778
)

(583,061
)Net deferred tax asset

$
2,032,733

$
2,724,632


9. Employee Benefits

The Company sponsors a 401(k) Employee Savings Plan that permits employees to defer annual cash compensation as specified under the plan. The Board of Directors
determines the annual Company contribution, which was $236,465, $255,826 and $278,800, in 2001, 2000 and 1999, respectively.

The
Company has a Management Incentive Bonus Plan for key executives that provides annual cash awards, if approved, based on eligible compensation and achieving earnings goals. The
Company also has a General Bonus Plan that provides for annual cash awards to eligible employees as established by the Board of Directors. The total expense under these plans was $1,096,566,
$1,185,623 and $1,057,961 in 2001, 2000 and 1999, respectively.

10. Related Party Transactions

Directors, executive officers, and their related interests were customers of the Company and had other transactions with the Company in the ordinary course of
business. Loans outstanding to certain directors, executive officers, and their related interests at December 31, 2001 and 2000 were $644,124 and $7,210,600, respectively. For the periods ended
December 31, 2001 and 2000, $0 and $1,153,862, respectively of such loans were made and loan repayments totaled $14,386 and $6,731,401 for the respective periods. It is the policy of the Company that
such transactions be made on substantially the same terms as those prevailing at the time for comparable loans to other persons and do not involve more than normal risks of collectibility or present
other unfavorable features. These individuals and their related interests also maintain customary demand and time deposit accounts with the Company.

The
Company has operating leases for bank premises that are owned by related parties. These related parties consist of an individual who is a primary shareholder, member of the Board of
Directors, and an Executive Officer of the Company, and also members of this individual's family. Terms for these related party leases are substantially the same as those that would be expected to
prevail in the marketplace. During 2001, 2000 and 1999, total lease payments under these related party leases totaled approximately $270,000, $250,000 and $220,000, respectively.

F-16

---

11. Stock Options and Long-Term Compensation Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement 123") requires
the use of option valuation models that were not developed for use in valuing employee stock options.

The
Company has a nonqualified Restricted Stock Award Plan and a Long-term Incentive Plan, which grant restricted stock and other stock based compensation to key executives and officers
of the Company. In the case of restricted stock, Company executives and officers designated as an "eligible executive" will vest in the number of shares of common stock awarded under the plan based on
service over a five-year period. A total of 960,000 shares were authorized to be issued under the plans, with 761,742 shares of restricted stock issued as of December 31, 2001 and 2000. A total of
704,616 and 649,955 shares were vested with 57,126 and 111,787 shares issued and unvested as of December 31, 2001 and 2000. As of December 31, 2000, no additional restricted stock was issued under
these plans.

In
2000, the Board of Directors approved the Omnibus Stock Ownership and Long-Term Incentive Plan ("Omnibus Plan") under which incentive stock options and non-qualified stock options to
acquire shares of common stock, restricted stock, stock appreciation rights or units may be granted to eligible employees. During 2001, the Company issued 43,780 shares of restricted stock under the
Omnibus Plan.

At
December 31, 2001 and 2000, the Company had 293,362 and 451,670 shares, respectively, of its authorized but unissued common stock reserved for future grants under the Omnibus Plan.
During 2001, 158,308 options were granted under the Omnibus Plan. Option prices under all stock option plans are equal to the fair value of the Company's common stock on the date of the grant. The
options vest over time periods determined by the Compensation Committee of the Board of Directors and expire ten years from date of grant. A summary of the Company's stock option activity and related
information is as follows:

|                                |            | Year ended December 31
|------------------------------- | ---------- | ----------------------
|
|
|Under option, beginning of year |            | 1,141,096             
|                                | Granted    |                       
|                                | Exercised  |                       
|                                | Terminated |                       
|                                |            |                       
|Under option, end of year       |            | 1,152,353             
|                                |            |                       
|Exercisable, end of year        |            | 760,405               
|                                |            |                       

F-17

---

Following
is a summary of the status of options outstanding at December 31, 2001:

Under Option

Options ExercisableRange of
Exercise Prices

Number

Weighted-Average Exercise Price

Weighted-
Average
Remaining
Contractual
Life

Number
Exercisable

Weighted-Average
Exercise Price$
2.42 - $4.81

231,222

3.77

4

231,222

3.77$
4.82 - $7.19

183,848

6.71

6

183,848

6.71$
7.40 - $9.72

31,019

9.54

7

31,019

9.54$
11.08 - $13.20

552,956

12.17

9

314,316

12.14$
13.21 - $18.00

153,308

16.61

10



1,152,353





760,405


Pro
forma information regarding net income and net income per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2001, 2000 and 1999: risk-free interest of 5.09%, 5.28% and 6.47%, respectively; dividend yield of 2.47%, 2.29% and 1.27%, respectively; volatility factor of the expected market price
of the Company's common stock of .288, .448 and .356, respectively; and a weighted-average expected life of the options of 8 years in 2001 and 8 years in 2000 and 7 years in 1999. Because the
Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted-average fair value of options
granted during 2001, 2000 and 1999 was $5.21, $5.23 and $4.27, respectively.

For
purposes of pro forma disclosures, the estimated fair value of the options granted in 2001, 2000 and 1999 is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

|                                |         | Year ended December 31
|------------------------------- | ------- | ----------------------
|
|Pro forma net income            |         | $                     
|Pro forma net income per share: |         |                       
|                                | Basic   |                       
|                                | Diluted |                       

F-18

---



12. Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state 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 Company's financial
statements. The regulations require the Company and the Bank to meet specific capital adequacy guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and 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 Banks to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as
defined) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). To be considered adequately capitalized (as defined)
under the regulatory framework for prompt corrective action, the Company and the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios as set forth in the
following tables. As of its most recent regulatory notification, the Company and the Bank were considered well capitalized under current regulatory guidelines. There are no conditions or events since
that notification that management believes have changed the category.

The
following is a summary of the Company's and the Bank's capital ratios at December 31, 2001 and 2000.

|         |                         | Actual
Amount                            |  | Ratio |             | For Capital
Adequacy
Purposes |       | Ratio |   | To Be Well
Capitalized
Under Prompt
Corrective
Action
Provisions |  | Ratio |  
|-------- | ----------------------- | ---------------------------------------- |  | ----- | ----------- | ----------------------------- | ----- | ----- | - | ---------------------------------------------------------------- |  | ----- | -
|Company: |                         |                                          |  |       |             |                               |       |       |   |                                                                  |  |       |  
|         | As of December 31, 2001 |                                          |  |       |             |                               |       |       |   |                                                                  |  |       |  
|         |                         | Total Capital (to Risk Weighted Assets)  |  | $     | 113,164,000 |                               | 12.83 | %     | $ | 70,556,000                                                       |  | 8     | %
|         |                         | Tier 1 Capital (to Risk Weighted Assets) |  |       | 102,250,000 |                               | 11.59 | %     |   | 35,278,000                                                       |  | 4     | %
|         |                         | Tier 1 Capital (to Average Assets)       |  |       | 102,250,000 |                               | 9.24  | %     |   | 44,287,000                                                       |  | 4     | %
|         | As of December 31, 2000 |                                          |  |       |             |                               |       |       |   |                                                                  |  |       |  
|         |                         | Total Capital (to Risk Weighted Assets)  |  | $     | 102,816,000 |                               | 12.95 | %     | $ | 63,505,000                                                       |  | 8     | %
|         |                         | Tier 1 Capital (to Risk Weighted Assets) |  |       | 92,891,000  |                               | 11.70 | %     |   | 31,752,000                                                       |  | 4     | %
|         |                         | Tier 1 Capital (to Average Assets)       |  |       | 92,891,000  |                               | 8.71  | %     |   | 42,664,000                                                       |  | 4     | %
|         | As of December 31, 2001 |                                          |  |       |             |                               |       |       |   |                                                                  |  |       |  
|         | Main Street:            |                                          |  |       |             |                               |       |       |   |                                                                  |  |       |  
|         |                         | Total Capital (to Risk Weighted Assets)  |  | $     | 111,481,000 |                               | 12.58 | %     | $ | 70,918,000                                                       |  | 8     | %
|         |                         | Tier 1 Capital (to Risk Weighted Assets) |  |       | 100,519,000 |                               | 11.34 | %     |   | 35,459,000                                                       |  | 4     | %
|         |                         | Tier 1 Capital (to Average Assets)       |  |       | 100,519,000 |                               | 9.09  | %     |   | 44,236,000                                                       |  | 4     | %

F-19

---

| | As of December 31, 2000 |                                          |  |   |            |  |       |   |   |            |  |   |   |   |            |  |   
| | ----------------------- | ---------------------------------------- |  | - | ---------- |  | ----- | - | - | ---------- |  | - | - | - | ---------- |  | --
| | Main Street:            |                                          |  |   |            |  |       |   |   |            |  |   |   |   |            |  |   
| |                         | Total Capital (to Risk Weighted Assets)  |  | $ | 93,455,000 |  | 11.95 | % | $ | 62,582,240 |  | 8 | % | $ | 78,227,800 |  | 10
| |                         | Tier 1 Capital (to Risk Weighted Assets) |  |   | 83,669,000 |  | 10.70 | % |   | 31,291,120 |  | 4 | % |   | 46,936,680 |  | 6 
| |                         | Tier 1 Capital (to Average Assets)       |  |   | 83,669,000 |  | 8.32  | % |   | 40,230,000 |  | 4 | % |   | 50,287,500 |  | 5 
| | Walton:                 |                                          |  |   |            |  |       |   |   |            |  |   |   |   |            |  |   
| |                         | Total Capital (to Risk Weighted Assets)  |  |   | 7,852,000  |  | 18.99 | % |   | 3,308,000  |  | 8 | % |   | 4,135,000  |  | 10
| |                         | Tier 1 Capital (to Risk Weighted Assets) |  |   | 7,345,000  |  | 17.77 | % |   | 1,654,000  |  | 4 | % |   | 2,481,000  |  | 6 
| |                         | Tier 1 Capital (to Average Assets)       |  |   | 7,345,000  |  | 11.95 | % |   | 2,458,000  |  | 4 | % |   | 3,073,000  |  | 5 

Banking regulations limit the amount of dividends that may be paid to the Parent without prior approval of the applicable regulatory agency. Under
current state banking laws, the approval of the Georgia Department of Banking and Finance is required if the total of all dividends declared by the Banks in the calendar year exceeds 50 percent of the
net profits for the previous calendar year and the ratio of equity capital to adjusted total assets is less than 6 percent.

13. Off-Balance Sheet Financial Instruments

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

The
contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Total commitments to extend credit at December 31, 2001 and 2000 include
$47,998,000 and $39,880,188, respectively, in undisbursed credit lines and $93,282,000 and $78,413,000, respectively, in unfunded construction and development loans. The Company's experience has been
that approximately 80 percent of loan commitments are ultimately drawn upon by customers.

The
Company issues standby letters of credit, which are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially

F-20

---

the same as that involved in extending loan facilities to customers. The Company had $2,451,008 and $2,439,760 in irrevocable standby letters of credit outstanding at December 31, 2001 and 2000,
respectively.

The
Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company 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.

The
Company purchases interest rate floors to enable it to transfer, modify or reduce interest rate risk. In a floor contract, the Company pays a premium at the initiation of the
contract for the right to receive payments if market interest rates are less than the strike price of the floor. Payments received under floor contracts are accrued based on contractual terms and are
reported as other operating income.

14. Litigation

The Company, in the normal course of business, is subject to various pending or threatened lawsuits in which claims for monetary damages are asserted. Although it
is not possible for the Company to predict the outcome of these lawsuits or the range of any possible loss, management, after consultation with legal counsel, does not anticipate that the ultimate
aggregate liability, if any, arising from these lawsuits will have a material adverse effect on the Company's financial position or operating results.

15. Fair Values of Financial Instruments

The Company uses the following methods and assumptions in estimating fair values of financial instruments:



F-21

---



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

|                               |                                             | December 31
|------------------------------ | ------------------------------------------- | -----------
|
|
|Financial assets:              |                                             |            
|                               | Cash and due from banks                     |            
|                               | Interest-bearing deposits                   |            
|                               | Investment securities held to maturity      |            
|                               | Investment securities available for sale    |            
|                               | Other investments                           |            
|                               | Loans (net of unearned income)              |            
|                               | Mortgage loans held for sale                |            
|                               | Accrued interest receivable                 |            
|Financial liabilities:         |                                             |            
|                               | Noncontractual deposits                     |            
|                               | Contractual deposits                        |            
|                               | Securities sold under repurchase agreements |            
|                               | Federal Home Loan Advances                  |            
|                               | Accrued interest payable                    |            
|Off-balance-sheet instruments: |                                             |            
|                               | Undisbursed credit lines                    |            
|                               | Unfunded construction and development loans |            
|                               | Standby letters of credit                   |            

16. Business Combinations

On January 25, 2001, the Company effected a business combination and merger with Walton Bank and Trust. Under the terms of the transactions, Walton Bank and Trust
shareholders received 2.752 shares of Main Street Banks, Inc. common stock for each share of Walton Bank and Trust stock owned

F-22

---

prior to the merger. The combination was accounted for as a pooling of interest and, accordingly, all prior financial statements have been restated to include the financial results of Walton Bank and
Trust.

On
December 28, 2000, the Company effected a business combination and merger with Williamsom Insurance Agency, Inc. and Williamson & Musselwhite Insurance Agency, Inc. Under the terms of
the transaction, the outstanding shares of the capital stock of the two insurance agencies were converted into shares of the common stock of the Company. The combination was accounted for as a pooling
of interests and, accordingly, all prior financial statements have been restated to include the financial results of Williamson Insurance Agency, Inc. and Williamson & Musselwhite Insurance Agency,
Inc.

On
May 24, 2000, the Company effected a business combination and merger with the former Main Street Banks, Incorporated (the former parent of Main Street Bank). Under the terms of the
transaction, Main Street Banks, Incorporated shareholders received 1.01 shares of First Sterling Banks, Incorporated common stock for each share of Main Street Banks, Incorporated stock owned prior to
the merger. The combination was accounted for as a pooling of interests and, accordingly, all prior financial statements have been restated to include the financial results of Main Street Banks,
Incorporated.

On
April 23, 1999, the Company effected a business combination and merger with Georgia Bancshares, Inc. by exchanging 1,461,632 shares of its common stock for all of the common stock of
Georgia Bancshares, Inc. The combination was accounted for as a pooling of interests and, accordingly, all prior financial statements have been restated to include the financial results of Georgia
Bancshares, Inc.

F-23

---

The
results of operations of the separate companies for periods prior to the combination are summarized as follows:

Year ended December 312001

2000

1999Net interest income:Main Street Banks, Inc., exclusive of pre-acquisition amounts

$


$
36,364,900

$
13,868,247Georgia Bancshares, Inc.(1)








1,220,175The former Main Street Banks, Incorporated(2)





8,880,630


24,438,403Walton Bank and Trust


136,472


2,973,896


2,495,958Williamson Insurance Agency





14,245


14,259Williamson & Musselwhite Insurance Agency





2,576


715Total

$
136,472

$
48,236,247

$
42,037,757Net income:Main Street Banks, Inc., exclusive of pre-acquisition amounts

$


$
9,062,895

$
3,536,180Georgia Bancshares, Inc.(1)








313,921The former Main Street Banks, Incorporated(2)





3,544,112


7,233,666Walton Bank and Trust


85,032


1,092,434


860,393Williamson Insurance Agency





38,386


40,808Williamson & Musselwhite Insurance Agency





187,407


107,782Total

$
85,032

$
13,925,234

$
12,092,750


---

F-24

---



17. Parent Company Financial Information

The following information presents the condensed balance sheet of the Parent at December 31, 2001 and 2000, and the statements of income and cash flows for the
years ended December 31, 2001, 2000 and 1999:

Condensed Balance Sheets

December 312001

2000AssetsCash and cash equivalents

$
508,506

$
1,052,645Investment in subsidiaries


104,249,285


92,370,799Other assets


444,908


460,993Total assets

$
105,202,699

$
93,884,437Liabilities and shareholders' equityLiabilities

$
81,347

$
110,175Shareholders' equity


105,121,352


93,774,262Total liabilities and shareholders' equity

$
105,202,699

$
93,884,437


Condensed Statements of Income

Year ended December 312001

2000

1999Income:Dividends from subsidiaries

$
6,116,403

$
5,841,908

$
4,031,767Expenses:Salaries and employee benefits





150,115


93,367Merger expense


1,412,362


1,085,774


308,908Other expense


643,804


660,191


336,078Total expense


2,056,166


1,896,080


738,353Income before income tax benefit and equity in undistributed income of subsidiaries


4,060,237


3,945,828


3,293,414Income tax benefit


366,985


421,342


174,777Income before equity in undistributed income of subsidiaries


4,427,222


4,367,170


3,468,191Equity in undistributed income of subsidiaries


9,919,954


9,558,064


8,624,559Net income

$
14,347,176

$
13,925,234

$
12,092,750


F-25

---

Condensed Statements of Cash Flows

Year ended December 312001

2000

1999Operating activitiesNet income

$
14,347,176

$
13,925,234

$
12,092,750Adjustments to reconcile net income to net cash provided by operating activities:Undistributed income of subsidiaries


(9,919,954
)

(9,558,064
)

(8,624,559
)Other


256,245


(1,345,719
)

60,415Net cash provided by operating activities


4,683,467


3,021,451


3,528,606Financing activitiesDividends paid


(5,808,235
)

(4,382,624
)

(3,883,852
)Proceeds from issuance of common stock options


580,629


301,485


173,428Net cash used in financing activities


(5,227,606
)

(4,081,139
)

(3,710,424
)Net decrease in cash


(544,139
)

(1,059,688
)

(181,818
)Cash at beginning of year


1,052,645


2,112,333


2,294,151Cash at end of year

$
508,506

$
1,052,645

$
2,112,333


F-26

---

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