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

                                   FORM 10-KSB

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

For the fiscal year                                      Commission file number
ended December 31, 1998                                        000-25128

                           FIRST STERLING BANKS, INC.
                 (Name of small business issuer in its Charter)

Georgia                                                              58-2104977
(State of Incorporation)                                       (I.R.S. Employer
                                                            Identification No.)

1200 Barrett Parkway, Kennesaw, GA                                        30144
(Address of principal executive offices)                             (Zip Code)

                                  770-499-2265
                           (Issuer'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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

State issuer's revenues for the most recent fiscal year. $16,239,225

As of March 1, 1999, registrant had outstanding 2,635,144 shares of common
stock. The aggregate market value of the voting stock held by nonaffiliates of
the registrant is approximately $37,550,802.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

      First Sterling Banks, Inc. (the "Company") is a two-bank holding company
which engages through its subsidiaries, The Westside Bank & Trust Company and
The Eastside Bank and Trust Company (the "Banks"), in providing full banking
services to customers of the Banks. The Company's executive offices are located
at 1200 Barrett Parkway, Kennesaw, Georgia 30144, and its telephone number is
770-499-2265.

      The Company was incorporated on March 16, 1994 as a Georgia business
corporation. On August 31, 1994, the Company purchased all of the shares of
common stock of The Westside Bank & Trust Company.

      On December 21, 1995, the Boards of Directors of Eastside Holding
Corporation, the only shareholder of The Eastside Bank & Trust Company, and
Westside Financial Corporation, the only shareholder of The Westside Bank &
Trust Company, executed a definitive agreement to merge the two holding
companies, with Westside Financial Corporation surviving. The merger was
consummated on July 31, 1996, at which time Westside Financial Corporation
changed its name to First Sterling Banks, Inc. Each bank retained its Board of
Directors, management and trade name. The merger was accounted for as a pooling
of interests and was subject to approval by federal and state bank holding
company regulators and a majority of the shareholders of Eastside Holding
Corporation. The merger was approved by Eastside shareholders on July 16, 1996.
Eastside Financial Services Inc. (EFS), commenced operations in 1994 as a wholly
owned subsidiary of Eastside Bank. The purpose and business of EFS is to provide
assistance to the Bank and other community banks in the closing, sale on the
secondary market, and servicing of loans guaranteed by the Small Business
Administration.

      Because of its ownership of all of the issued and outstanding shares of
the capital stock of The Westside Bank & Trust Company and The Eastside Bank and
Trust Company, the Company is a "Bank Holding Company" as that term is defined
under Federal law in the Bank Holding Company Act of 1956 (the "Act"), as
amended, and under the Bank Holding Company laws of the State of Georgia (the
"Georgia Act"). As a "Bank Holding Company", the Company is subject to the
applicable provisions of the Act and the Georgia Act, as well as to supervision
by the Board of Governors of the Federal Reserve System (the "Federal Reserve")
and the State of Georgia Department of Banking and Finance (the "Department").
The Company's subsidiary banks provide a full range of commercial banking
services to its customers, except for trust services. The Banks are organized
under the laws of the State of Georgia.

Market Area and Competition

      The Banks encounter vigorous competition from other commercial banks,
savings and loan associations and other financial institutions and
intermediaries in the Bank's primary service area - North Cobb County, Georgia
and South Gwinnett County, Georgia.

      The Banks compete 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

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Banks also compete with savings and loan associations and credit unions for
savings and transaction deposits, certificates of deposit and various types of
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 out-of-state banks,
bank holding companies, and other financial institutions and intermediaries have
established, or announced plans to establish, loan production offices, small
loan companies, and other offices and affiliates in the State of Georgia. Many
of these out-of-state financial organizations that compete in the Georgia market
engage in regional, national or international operations and have greater assets
and personnel than the Banks.

      Since July 1, 1985, 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 area, management does not feel that such changes have had or will have a
significant impact upon its operations or the results therefrom.

      Each Bank'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.

Properties

      The Company and Westside Bank's main office are located at 1200 Barrett
Parkway, Kennesaw, Georgia. In 1989, Westside Bank purchased an approximate
1.156 acre tract of land in North Cobb County, Georgia (the "Property"). The
purchase price of the property was approximately $485,000. Improvements consist
of a one-story brick building of approximately 6,000 square feet. The total cost
of the offices, including all furnishings, site preparation, landscaping,
paving, security equipment and automatic teller machine, was approximately
$2,103,895.

      In January 1996, Westside purchased a parcel of land and branch office in
Marietta, Georgia from another financial institution for $325,000. The building
was constructed in 1974 and contains approximately 2,600 square feet.
Improvements including, a new roof, new furnishings, landscaping, paving,
security equipment and automatic teller machine totaled approximately $550,000.

      In December 1997, Westside Bank signed a contract to purchase a tract of
land containing approximately 1.3542 acres at the intersection of Chastain Road
and Town Green Boulevard in North Cobb County. The bank will construct a two
story facility containing approximately 12,000 square feet to

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accommodate a branch facility and the company's corporate headquarters. It is
anticipated that only half of the space will be built out initially, with the
remaining space to be used for future growth.

      Eastside Bank is located at 2019 Scenic Highway, Snellville, Georgia,
30278. In 1989, Eastside purchased an approximately 1.76 acre tract of land in
Snellville, Georgia. The purchase price of the property was approximately
$800,000. Eastside's principal offices are located in a building of
approximately 17,200 square feet. The total cost of the facility, including all
furnishings, site preparation, landscaping, paving, security equipment and
automatic teller machine, was approximately $2,700,000.

      In February 1999 Eastside Bank made application to open a branch office in
Lawrenceville, Georgia. The branch will be located at 185 Gwinnett Drive in the
Heritage Center Office Complex. The building, which has been a branch bank for
several previous institutions will be leased for an initial period of five
years, with several renewal options. The facility contains approximately 2,800
square feet of space, will offer drive-up service and an ATM. Pending final
regulatory approval the branch is expected to open in mid-April.

Patents, trademarks, etc.

      Westside Bank holds a registration for a service mark issued by the State
of Georgia on September 4, 1990 for the mark "Westside Bank" (and its design
logo). Eastside Bank holds a registration for a service mark issued by the State
of Georgia on September 4, 1990 for the mark "Eastside Bank" (and its design
logo). Both service marks are good for an initial period of ten years and
application may be made for a renewal period of ten years. The Banks do not hold
a federal registration for its service mark. Other than their Georgia service
mark, the banks hold no patents, trademarks, licenses (other than licenses
required to be obtained from appropriate banking regulatory agencies),
franchises, or concessions.

Employees

      As of March 15, 1999 the Westside Bank had a total of 25 full-time and 14
part-time employees. Eastside Bank had a total of 30 full-time and 15 part-time
employees. These employees are provided with fringe benefits in varying
combinations, including health, accident, disability and life insurance plans.
In the opinion of management, the Banks enjoy excellent relations with their
employees.

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                           Supervision and Regulation

The Company

      As a bank holding company, the Company is required to file with the
Federal Reserve an annual report and such additional information as the Federal
Reserve may require pursuant to the Federal Bank Holding Company Act. The
Federal Reserve may also conduct examinations of the Company and each of its
subsidiaries.

      The Georgia Financial Institutions Code requires annual registration with
the Georgia Department of Banking and Finance by all Georgia bank holding
companies. Such registration includes information with respect to the financial
condition, operations, management of intercompany relationships of the bank and
such other information as is necessary to keep itself informed as to whether the
institution is in compliance with the provisions of Georgia law and the
regulations and orders issued thereunder by The Department.

The Banks

      The Banks operate as banks organized under the laws of the State of
Georgia subject to examination by The Department. The Department regulates all
areas of each Bank's commercial banking operations including reserves, loans,
mergers, payment of dividends, interest rates, establishment of branches and
other aspects of operations.

      The Banks are also insured and regulated by the FDIC. The major functions
of the FDIC with respect to insured banks include paying depositors to the
extent provided by law in the event an insured bank is closed without adequately
providing for payment of the claims of depositors, acting as a receiver of state
banks placed in receivership when so appointed by state authorities, and
preventing the continuance or development of unsound and unsafe banking
practices. In addition, the FDIC is authorized to examine insured banks which
are not members of the Federal Reserve to determine the condition of such banks
for insurance purposes. The FDIC also approves conversions, mergers,
consolidations and assumption of deposit liability transactions between insured
banks and noninsured banks or institutions to prevent capital or surplus
diminution in such transactions where the resulting, continued or assumed bank
is an insured nonmember state bank.

      Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension of
credit to the bank holding company or any of its subsidiaries, on investment in
the stock or other securities thereof and on the taking of such stock or
securities as collateral for loans to any borrower. In addition, a bank holding
company and its subsidiaries are prohibited from engaging in certain
tie-in-arrangements in connection with any extension of credit or provision of
any property or services.

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Capital Requirements

      Regulatory agencies measure capital adequacy with a framework that makes
capital requirements sensitive to the risk profile of the individual banking
institutions. The guidelines define capital as either Tier 1 (primarily
shareholder equity) or Tier 2 (certain debt instruments and a portion of the
allowance for loan losses). There are two measures of capital adequacy for bank
holding companies and their subsidiary banks, the leverage ratio and the
risk-based capital requirements. Although the stated minimum ratio is 3%, all
but the most highly rated bank holding companies and their subsidiary banks must
maintain a minimum Tier 1 leverage ratio of 4% to 5%. The Department requires a
minimum Tier I capital to adjusted total assets ratio of 4%. In addition, Tier 1
capital must equal 4% of risk-weighted assets and total capital (Tier 1 plus
Tier 2) must equal 8% of risk-weighted assets. These are minimum requirements,
however, and institutions experiencing internal growth or making acquisitions as
well as institutions with supervisory or operational weakness will be expected
to maintain capital positions well above these minimum levels.

      Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business.

      The following table reflects the Company and the banks' compliance with
regulatory capital requirements at December 31, 1998:

<TABLE>
<CAPTION>
                                   Actual              Required                Excess
                            Amount        %        Amount       %         Amount       %
                            ------        -        ------       -         ------       -
<S>                       <C>           <C>       <C>          <C>      <C>          <C>  
Leverage capital
  Consolidated            18,037,000    11.18%    6,454,000    4.00%    11,583,000   6.42%
  Westside Bank            9,911,000    12.34     3,214,000    4.00      6,697,000   6.76
  Eastside Bank            7,858,000     9.69     3,244,000    4.00      4,112,000   5.87

Risk-based core capital:
  Consolidated            18,037,000     9.01%    8,012,000    4.00%    10,025,000   5.56%
  Westside Bank            9,911,000     8.75     4,529,000    4.00      5,382,000   5.43
  Eastside Bank            7,858,000     9.02     3,483,000    4.00      4,375,000   5.57

Risk-based total capital:
  Consolidated            19,663,000    12.19%   12,908,000    8.00%     6,755,000   3.44%
  Westside Bank           10,727,000    13.35     6,428,000    8.00      4,299,000   4.08
  Eastside Bank            8,668,000    10.69     6,488,000    8.00      2,180,000   2.52
</TABLE>


                                       6
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Prompt Corrective Action

      The Federal Deposit Insurance Act ("FDIA"), among other things, requires
the federal regulatory agencies to take "prompt corrective action" if a
depository institution does not meet minimum capital requirements. The FDIA
establishes five capital tiers: "well capitalized;" "adequately capitalized;"
"undercapitalized;" "significantly undercapitalized;" and "critically
undercapitalized." A depository institution's capital tier will depend upon how
its capital levels compare to various relevant capital measures and certain
other factors, as established by regulation.

      The federal bank regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to FDIC-insured
banks. The relevant capital measures are the total capital ratio, tier I capital
ratio and the leverage ratio. Under the regulations, a FDIC-insured bank will
be:

      o     "well capitalized" if it has a total capital ratio of ten percent or
            greater, a tier I capital ratio of six percent or greater and a
            leverage ratio of five percent or greater and is not subject to any
            order or written directive by the appropriate regulatory authority
            to meet and maintain a specific capital level for any capital
            measure;

      o     "adequately capitalized" if it has a total capital ratio of eight
            percent or greater, a tier I capital ratio of four percent or
            greater and a leverage ratio of four percent or greater (three
            percent in certain circumstances) and is not "well capitalized;"

      o     "under capitalized" if it has a total capital ratio of less than
            eight percent, a tier I capital ratio of less than four percent or a
            leverage ratio of less than four percent (three percent in certain
            circumstances);

      o     "significantly undercapitalized" if it has a total capital ratio of
            less than six percent, a tier I capital ratio of less than three
            percent or a leverage ratio of less than three percent; and

      o     "critically undercapitalized' if its tangible equity is equal to or
            less than two percent of average quarterly tangible assets.

      An institution may be downgraded to, or deemed to be in, a capital
category that is lower than is indicated by its capital ratios if it is
determined to be in an unsafe or unsound condition or if it receives an
unsatisfactory examination rating with respect to certain matters. As of
December 31, 1998, the Company and the Banks each had capital levels that
qualify each as being "well capitalized" under such regulations.

      The FDIA generally prohibits a FDIC-insured bank from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the bank would thereafter be "undercapitalized."
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. The federal regulators may not accept a
capital plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the bank's capital.
In addition, for a capital restoration plan to be acceptable, the bank's parent
holding company must guarantee that the institution will comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of: (i) an amount equal to five percent of the bank's
total


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assets at the time it became "undercapitalized;" and (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a bank fails to
submit an acceptable plan, it is treated as if it is "significantly
undercapitalized."

      "Significantly undercapitalized" insured banks may be subject to a number
of requirements and restrictions, including orders to sell sufficient voting
stock to become "adequately capitalized," requirements to reduce total assets,
and cessation of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions are subject to the appointment of a receiver or
conservator. A bank that is not "well capitalized" is subject to certain
limitations relating to so-called "brokered" deposits.

Monetary Policy

      Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rates paid by the Banks on its
deposits and other borrowings and the interest rate received on loans extended
to customers and on securities held in its portfolio comprises the major portion
of the Bank's earnings.

      The earnings and growth of the Banks and the Company are affected not only
by general economic conditions, both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve can and does implement national
monetary policy, such as seeking to curb inflation or combat recession, by its
open market operations in United States government securities, limitations upon
savings and time deposit interest rates, adjustment in the amount of industry
reserves that banks and other financial institutions are required to maintain
and adjustments to the discount rates applicable to borrowings by banks from the
Federal Reserve System. The actions of the Federal Reserve in these areas
influence the growth of bank loans, investments and deposits and also affect
interest rates charged and paid on deposits. The nature and impact of any future
changes in monetary policies cannot be predicted with certainty.

FDIC Insurance Assessments

      Deposits of the Bank are insured by the FDIC to a maximum of $100,000 for
each insured depositor through the Bank Insurance Fund ("BIF"). 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 system assigns an institution to one of three
capital categories: (a) well capitalized; (b) adequately capitalized; and (c)
undercapitalized. 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.

      Depending upon a BIF member's risk classification and subgroup, applicable
regulations provide that its deposit insurance premium may be as low as 0% of
insured deposits or as high as .27 % of insured


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deposits. The Bank has been notified that, based on its risk classification and
supervisory subgroup, its BIF assessment rate is 0 percent of insured deposits
for the period from January 1, to June 30, 1999. This is the most favorable
assessment rate applicable to any insured institution. However, the Deposit
Insurance Funds Act of 1996 (DIFA) requires that a Financing Corporation (FICO)
assessment be paid by the Bank in 1999. The annual FICO assessment rate for
banks is not tied to the FDIC risk classification and is determined quarterly.
The annual rate for the period ending December 31, 1998 was 1.176% of deposits.
The Bank paid $17,733 in assessments, which was the minimum set by the FDIC for
the period ending December 31, 1998.

      Under the 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.

Other Legislation

      In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The Interstate
Banking Act has two major provisions regarding the merger, acquisition and
operation of banks across state lines. First it provides that effective
September 29, 1995, adequately capitalized and managed bank holding companies
will be permitted to acquire banks in any state. In addition, the Interstate
Banking Act provides that as of June 1, 1997, adequately capitalized and managed
banks will be able to engage in interstate branching by merging banks in
different states. The State of Georgia has enacted legislation in connection
with the Interstate Banking Act which requires that a bank located within the
State must be in existence for a period of five (5) years before it may be
acquired by an out-of-state institution. This State legislation also requires
out-of-state institutions to purchase an existing bank or branch in the State
rather than starting a de novo bank.

      The Interstate Banking Act was amended on July 3, 1997, for the purpose of
ensuring that state banks are competitive with national banks under the new
interstate banking laws. The amendment provides that state law of the host state
applies to an out-of-state, state-chartered bank that branches in the host state
to the same extent that it applies to a national bank operating a branch in the
host state. The law also provides that bank branches operating in the host state
and chartered in another state may exercise powers they have under their
home-state charters if host state-chartered banks or national banks may exercise
those powers.

      The Georgia legislature enacted legislation which, effective July 1, 1996,
allowed Georgia-based banks to branch into up to three counties in addition to
the county in which their main office is located. This same legislation
eliminated all branching restrictions, thereby permitting unrestricted
state-wide branching, effective July 1, 1998.

      Bills are regularly introduced in the United States Congress that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed legislation will be adopted or the extent to
which the business of the Company and the Bank may be affected thereby.


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Year 2000 Project

      The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Major system failures
or miscalculations could result from programs having time sensitive software
that recognize a date using "00" as the year 1900 rather than the year 2000.
First Sterling and its subsidiaries rely heavily upon computers for the daily
conduct of their business. First Sterling will commit all resources necessary to
achieve a satisfactory and timely solution to computer based problems related to
the year 2000 and beyond. Year 2000 committees consisting of both management and
staff personnel have been established and the project is receiving full support
and attention from senior management of both Eastside Bank and Westside Bank. A
comprehensive plan which addresses all aspects of the project is in place and
work on the project is well underway.

      Under the direction and supervision of senior management the banks have
completed their assessment and awareness phase, having reviewed all computer
hardware, computer software, third party providers and vendors for year 2000
readiness.

      Once the assessment and renovation phase was complete management began the
task of replacing or upgrading those systems that were found to be
non-compliant. Management believes that all mission critical hardware, operating
systems and third party providers found to be non-compliant have been upgraded
or replaced.

      Testing of all internal mission critical systems is performed in the banks
in a test environment that has been established to mirror the banks internal
operating systems. Testing of mission critical third party provides is
accomplished through the use of proxy testing. All proxy testing from mission
critical third party providers is reviewed by bank personnel to determine tests
have been performed using the appropriate dates and environment. The testing
phase of the project is nearly completed.

      Contingency and business resumption plans are being developed to ensure
any interruption in daily operations caused by uncontrollable events will be
minimal. The banks are developing plans that will allow them to perform all
mission critical functions using alternative equipment or manually. Contingency
and business resumption plans will also be fully tested to ensure successful
operations.

      The company has contacted all major borrowers to determine their potential
risk to Y2K problems and assigned a risk code to each borrower, based on risk
and underlying collateral. Having completed this process the adequacy of the
loss reserve was reviewed and found to be adequate at this time. New borrowers
are evaluated, as appropriate, for Y2K risk during the initial credit review
process. Management will continue to monitor those borrowers considered high
risk and the adequacy of the loss reserve.

      The company is in the process of determining the potential liquidity risk
with its deposit customers and reviewing the adequacy of available facilities to
cover short-term liquidity needs. Additional facilities will be established to
cover possible short-term liquidity needs, as appropriate.

      The Company has budgeted approximately $250,000 for Year 2000
expenditures, including computer system replacements and upgrades. To date, the
Company has spent approximately $100,000


                                       10
<PAGE>

      The Year 2000 Project will continue to receive the full support and
attention from senior management of both Eastside Bank and Westside Bank. The
project is on schedule and the timetable will allow for an adequate period of
thorough testing well in advance of the year change.

Forward-Looking Statements

      This review contains certain forward-looking statements including
statements relating to present or future trends or factors generally affecting
the banking industry and specifically affecting First Sterling's 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 First Sterling'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 First
Sterling (v) greater competitive pressures among financial institutions in First
Sterling's market (vi) Delay and or increase in costs in achieving year 2000
compliance and (vii) greater than expected loan losses. Additional information
and other factors that could affect future financial results are included in
First Sterling's filings with the Securities and Exchange Commission, including
the Annual Report on Form 10-KSB for 1998.

Officers

      The following table sets forth certain information with respect to the
officers of the Registrant:

      Name                                                        Officer
      (Age)                     Position with the Registrant       Since
      -----                     ----------------------------       -----
      Edward C. Milligan        Chairman, President & CEO           1994
        (54)

      Barbara J. Bond           Secretary                           1994
        (50)

ITEM 2. DESCRIPTION OF PROPERTY

      The principal properties of the Registrant consist of the properties of
the Banks. For a description of the properties , see "Item 1 - Description of
Business" included elsewhere in this Annual Report.

ITEM 3. LEGAL PROCEEDINGS

      Neither the registrant nor its subsidiary banks 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 Banks, nor
to the knowledge of the management of the registrant are any such proceedings
contemplated or threatened against it or its subsidiaries.


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

      No matters were submitted to a vote of the registrant's shareholders
during the fourth quarter of 1998.

                                     PART II

ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      (a) Prior to August 1995, there was no public market for the registrants
common stock.

      In 1995, the Board of Directors voted to allow J. C. Bradford & Company to
be the principal market maker for the Company's common stock. Morgan Keegan &
Company and Sterne, Agee & Leach are also market makers for the Company's common
stock. The Company's common stock is traded on the Nasdaq National Market under
the symbol FSLB.


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      The following table lists the high and low stock price for each quarter in
1998 and 1997:

                           Fiscal year 1998           Fiscal year 1997
                          High          Low           High          Low
--------------------------------------------------------------------------------
      First quarter     $16.375      $12.00          $9.00        $8.125
      Second quarter     16.50        14.625          9.00         7.75
      Third quarter      15.00        13.00           9.625        8.50
      Fourth quarter     14.50        12.875         12.50         9.3125
--------------------------------------------------------------------------------

      (b) As of March 15, 1999, there were approximately 778 shareholders of
record of the registrant's common stock.

      (c) During 1998 dividends of $ 0.045 per share were paid in the first
fiscal quarter and dividends of $ 0.05 per share were paid in the second, third
and fourth fiscal quarters. The Company currently intends to continue paying
regular cash dividends on a quarterly basis.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

                                            For the Year Ended December 31
                                   -------------------------------------------
Selected Income Statement Data     1998      1997       1996     1995     1994
                                   ----      ----       ----     ----     ----
                                      (In thousands, except per share data)

Total interest income             $15,188   $13,307   $10,432  $ 9,705  $ 7,491

Total interest expense              6,574     5,562     4,393    4,087    2,916
Net interest income                 8,614     7,745     6,039    5,618    4,575
Provision for loan losses             298       444       137      256      257
Net interest income after
  rovision for loan losses          8,316     7,301     5,902    5,362    4,318
Other operating income              1,051     1,040       760      571      513
Net income                          2,471     2,167     1,509    1,616    1,209
Net income per share (basic)          .94       .83       .57      .59      .50
Dividends per share                  .195       .17       .13     .075      .05

      All share and per share data have been adjusted to reflect a two for one
stock split on March 30, 1998.


                                       13
<PAGE>

                                         For the Year Ended December 31
                                 ----------------------------------------------
Selected Balance Sheet Data      1998       1997      1996      1995       1994
                                 ----       ----      ----      ----       ----
                                     (In thousands, except per share data)

Total loans                    $135,625   $106,730  $ 83,726  $ 73,148  $ 63,897
Total assets                    201,127    169,041   136,706   121,172   100,860
Total deposits                  181,428    151,323   120,540   106,466    88,172
Shareholders' equity             18,177     16,120    14,742    13,591    12,160

General

      On December 21, 1995, the Boards of Directors of Eastside Holding
Corporation, the only shareholder of The Eastside Bank & Trust Company, and
Westside Financial Corporation, the only shareholder of The Westside Bank &
Trust Company, executed a definitive agreement to merge the two holding
companies, with Westside Financial Corporation surviving. The merger was
consummated on July 31, 1996, at which time Westside Financial Corporation
changed its name to First Sterling Banks, Inc. Each bank retained its Board of
Directors, management and trade name. The proposed merger was approved by
federal and state bank holding company regulators and a majority of the
shareholders of Eastside Holding Corporation. Eastside Bank began operations on
January 22, 1990, Westside Bank began operations on May 14, 1990.

      On September 29, 1998, following several discussions, the boards of
directors of First Sterling and Georgia Bancshares executed a non-binding letter
of intent to merge the two bank holding companies. After negotiations and due
diligence investigations, the First Sterling board of directors and the Georgia
Bancshares board of directors unanimously approved the Merger Agreement in
December 1998 The merger was unanimously approved by the shareholders of First
Sterling and Georgia Bancshares at separate meetings on March 16, 1999. All
regulatory approvals have been received and the merger is expected to be
consummated in late April.

Results of Operations

      The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and securities
losses, to generate non-interest income and to control non-interest expense.
Interest rates are determined by general economic conditions and competition.
Net interest income is determined by the Bank's ability to obtain an adequate
spread between the rate earned on earning assets and the rate paid on
interest-bearing liabilities.

      The major component of consolidated earnings is net interest income, or
the difference between interest income on earning assets and interest paid on
interest bearing liabilities. The key performance measure for net interest
income is the net interest margin. Net interest margin is net interest income
expressed as a percentage of average earning assets.

      Net interest income for the year ended December 31, 1998 was $8,614,106 an
increase of $869,123 or 11.22% compared to December 31, 1997. The increase in
net interest income is primarily attributable to an increase in average earning
assets over 1997. Average earning assets increased $20,463,596 or 13.47% over 
1997. Average loans increased $23,731,450 or 25.08% over 1997. The yield on 
earning assets was 8.81% up slightly from 1997. Average interest bearing 
liabilities increased $14,153,255 or 10.87% over 1997. The bank's average 
cost of funds was 4.55% in 1998 as compared to 4.27% in 1997. The increase in 
the cost of funds is the result of a lower level of seasonal deposits, as 
compared to 1997 and the highly competitive nature of the metro Atlanta 
market. Average non-interest bearing deposits increased $5,274,351 or 26.54% 
over 1997. The banks are located in thriving markets and continue to enjoy 
excellent growth in loans and deposits. Total assets increased $32,085,899 or 
18.98% over December 31, 1997.


                                       14
<PAGE>


      The allowance for loan losses represents a reserve for potential losses 
in the loan portfolio. The provision for loan losses is a charge to earnings 
in the current period to maintain the allowance at a level management has 
determined to be adequate based upon the growth of the loan portfolio and 
management's desire to provide adequately for inherent risk in the loan 
portfolio.

      The provision for loan losses charged to earnings amounted to $298,000 in
1998 a decrease from 1997. The banks continue to experience only minimal losses,
net chargeoffs in 1998 were of .04% of average loans compared to .17% in 1997.
The allowance for loan losses as a percentage of total loans outstanding at
December 31, 1998 and 1997 amounted to 1.20% and 1.29%, respectively.

      Bank management closely monitors the loan portfolio and the underwriting
of loans and considers the allowance for loan losses to be conservative yet
reasonable given the nature of each Bank's loan portfolio. An independent third
party performs periodic reviews of the loan portfolio, at least semi-annually.
Management intends to continue maintaining an adequate allowance for loan losses
in relation to loans outstanding in the future based on management's evaluation
of the loan portfolio under prevailing economic conditions, underlying
collateral value securing loans, Year 2000 risk and such other factors as
management deems appropriate.

      Following is a comparison of non-interest income for 1998 and 1997:

                                                  1998               1997
                                                  ----               ----

Service charges on deposit accounts          $  434,282           $ 389,948
Gain on sale of loans                           159,448             279,002
Other income                                    457,040             371,157
Net realized losses on securities                   --                 (600)
                                             ----------           ---------
                                             $1,050,770           $1,039,507
                                             ==========           ==========

      Non-interest income consists primarily of service charges on deposit
accounts, gains on the sale of SBA (Small Business Administration) loans into
the secondary market, fees on participation loans, mortgage origination fees,
customer service fees, gains (losses) on investment securities transactions and
miscellaneous other income. Total other income is up $11,263 over 1997. Gains on
the sale of SBA loans is down $119,554 or 42.85% from 1997. The reduction in
gains on the sale of SBA loans is a direct result


                                       15
<PAGE>

of the increased focus on growth in the banks core loan portfolio rather than
SBA loans to be sold in the secondary market.

      Following is an analysis of non-interest expense for 1998 and 1997:

                                                       1998               1997
                                                       ----               ----

Salaries and employee benefits                     $3,241,764         $2,993,762
Occupancy and equipment expense                       560,334            628,523
Data processing fees                                  254,754            212,179
Directors fees                                        253,450            182,400
Supplies                                              115,156            101,779
Deposit insurance premiums                             17,733             13,909
Security losses                                            --                600
Merger expenses                                        27,697                 --
Other expense                                       1,196,018            920,135
                                                   ----------         ----------
                                                   $5,666,906         $5,053,287
                                                   ==========         ==========

      Non-interest expense increased $613,619 or 12.14% over 1997. Non-interest
expense consists primarily of salaries and other employee benefits, occupancy
expense, and other operating costs. Directors fees increased $71,050 or 38.95%
over 1997. Fees were increased in 1998 based on a competitive market survey of
other community banks. Directors of Eastside and Westside are paid for each
board meeting attended and outside directors are paid for each committee meeting
attended. Directors on the First Sterling board are paid a quarterly fee for all
services. Personnel expense increased $248,002 or 8.28% over 1997. The increase
is primarily the result of salary increases and the rising costs associated with
employee benefit plans. At December 31, 1998, the company employed 49 full-time
employees and 29 part-time employees. It is the intention of management and the
boards to attract and maintain quality people by offering salaries and other
benefits competitive in the marketplace, and to reward individuals based on the
performance of the Bank. Increases in data processing, audit, postage and
delivery, supplies, stationary and business development are directly related to
growth and the increased cost of doing business in a highly competitive market.

      Pre-tax income for the twelve months ending December 31, 1998 increased
$413,109 or 12.57% over the same period in 1997. Net income for the period
ending December 31, 1998 increased $304,527 or 14.06%. The following tables set
forth the amount of the Company's average earning assets and interest-bearing
liabilities, together with related interest income and expense and average rates
for 1998 and 1997:


                                       16
<PAGE>

      Average Balances and Net Income Analysis

The condensed average balance sheets for the period indicated are presented
below:

                                                 For the year ended December 31,
                                                       1998             1997
                                                       ----             ----
ASSETS
Cash and due from banks                          $   8,681,083    $   7,648,021
Interest-bearing deposits in banks                      53,699          100,000
Taxable securities                                  20,984,997       19,097,717
Nontaxable securities                                4,801,873        4,138,479
Federal funds sold                                  18,566,324       12,403,296
Securities purchased under agreement to resell       9,643,562       21,578,817
Loans (1)                                          118,359,137       94,627,687
Reserve for loan losses                             (1,480,684)      (1,147,135)
Other assets                                         8,183,450        7,912,821
                                                 -------------    -------------
Total Assets                                     $ 187,793,441    $ 166,359,703
                                                 =============    =============
Total earning assets                             $ 172,409,592    $ 151,945,996
                                                 =============    =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand                       $  25,144,916    $  19,870,565
Interest-bearing demand and savings                 65,024,714       64,243,825
Time deposits                                       78,847,990       65,623,174
                                                 -------------    -------------
Total deposits                                     169,017,620      149,737,564
Federal funds purchased and securities
  sold under agreement to repurchase                   507,700          360,150
Other liabilities                                    1,073,716        1,107,970
                                                 -------------    -------------
Total liabilities                                $ 170,599,036    $ 151,205,684
                                                 -------------    -------------
Stockholders' equity                             $  17,194,405    $  15,154,019
                                                 -------------    -------------
Total Liabilities and
  Stockholders' equity                           $ 187,793,441    $ 166,359,703
                                                 =============    =============
Total interest-bearing liabilities               $ 144,380,404    $ 130,227,149
                                                 =============    =============

(1) Average loans include non-accrual loans, if any.


                                       17
<PAGE>

Interest Income and Interest Expense

                                        For the year ended December 31,
                                            1998                 1997
                                      ------------------------------------ 
                                                Average             Average
                                      Interest   Rate     Interest   Rate
                                                (Dollars in thousands)
INTEREST INCOME:
  Interest and fees on loans (1)      $12,215    10.32%    $10,027   10.60%
  Interest on investment securities:
  Taxable Securities                    1,277     6.09       1,234    6.46
  Nontaxable Securities                   224     4.66         184    4.45
  Interest on Federal funds sold          992     5.34         676    5.45
Interest on securities purchased
  under agreement to resell               477     4.95       1,180    5.46
  Interest on deposits in banks             3     5.56           6    5.90
                                      -------    -----     -------   ----- 
Total interest income                 $15,188     8.81%    $13,307    8.76
                                      -------    -----     -------   ----- 
INTEREST EXPENSE:
  Interest on savings and interest-
  bearing demand deposits             $ 1,931     2.97%    $ 1,734    2.70%
  Interest on time deposits             4,618     5.86       3,810    5.80
  Interest on Federal funds purchased
  and securities sold under
  agreement to repurchase                  25     4.92          18    5.00
                                      -------    -----     -------   ----- 
Total interest expense                $ 6,574     4.55     $ 5,562    4.27
                                      -------    -----     -------   ----- 

NET INTEREST INCOME                   $ 8,614              $ 7,745
                                      =======              =======
  Net interest spread                             4.26%               4.49%
                                                 =====               =====
  Net yield on average interest 
    earning assets                                5.00%               5.10%
                                                 =====               =====

(1)   In computing yields on earning assets, the average balances of
      non-accruing loans are included in the average balances, and loan fees of
      $939,560 and $749,210 for the years ended December 31, 1998 and 1997,
      respectively, are included in interest income.

      Rate and Volume Analysis

      The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. The change
in interest attributable to rate has been determined by applying the change in
rate between years to average balances outstanding in the later year. The change
in interest due to volume has been determined by applying the rate from the
earlier year to the change in average balances outstanding between years. Thus,
changes that are not solely due to volume have been consistently attributable to
rate. Changes reflected herein may differ slightly from actual changes due to
rounding.


                                       18
<PAGE>

                                                     Year ended December 31,
                                                    1998         Vs.      1997
                                                --------------------------------
                                                 Increase       Changes Due to
                                                (Decrease)     Rate     Volume
                                                      (Dollars in Thousands)
Increase (decrease) in:
Income from earning assets:
  Interest and fees on loans                      $ 2,188    $  (331)   $ 2,519
  Interest on investment securities:
   Taxable                                             43        (78)       121
   Nontaxable                                          40         10         30
  Interest on Federal funds sold                      316        (20)       336
  Interest on securities purchased
   under agreement to resell                         (703)       (49)      (654)
  Interest on deposits in other banks                  (3)        --         (3)
                                                  -------    -------    -------
Total interest income                             $ 1,881    $  (468)   $ 2,349
                                                  -------    -------    -------
Expense from interest-bearing liabilities
  Interest on interest-bearing
   demand and savings deposits                    $   197    $  (176)   $    21
  Interest on time deposits                           808        (47)       761
  Interest on Federal funds purchased
   and securities sold under agreement
     to repurchase                                      7         --          7
                                                  -------    -------    -------
Total interest expense                            $ 1,012    $  (223)   $   789

Net interest income                               $   869    $  (690)   $ 1,560
                                                  =======    =======    =======

                                                     Year ended December 31,
                                                    1997         Vs.      1996
                                                --------------------------------
                                                 Increase       Changes Due to
                                                (Decrease)     Rate     Volume
                                                      (Dollars in Thousands)
Increase (decrease) in:
Income from earning assets:
  Interest and fees on loans                      $ 1,588    $   (65)   $ 1,653
  Interest on investment securities:
   Taxable                                             76        (16)        92
   Nontaxable                                           5         53        (48)
  Interest on federal funds sold                      138         22        116
  Interest on securities purchased
   under agreement to resell                        1,065        114        951
  Interest on deposits in other banks                   3         --          3
                                                  -------    -------    -------
Total interest income                             $ 2,875    $   108    $ 2,767
                                                  -------    -------    -------
Expense from interest-bearing liabilities
  Interest on interest-bearing
   demand and savings deposits                    $   703    $  (121)   $   824
  Interest on time deposits                           458        (22)       480
  Interest on Federal funds purchased
   and securities sold under agreement
     to repurchase                                      8          1          7
                                                  -------    -------    -------
Total interest expense                            $ 1,169    $  (142)   $ 1,311
                                                  -------    -------    -------
Net interest income                               $ 1,706    $   250    $ 1,456
                                                  =======    =======    =======


                                       19
<PAGE>

Liquidity and Capital Resources

      Liquidity is the ability of the company to meet the cash flow requirements
of customers and fund its commitments. The Company's primary sources of funds
are increases in deposits, loan repayments, sales and maturities of investments
and net income. The Company actively manages its liquidity position by matching
maturities and interest rate sensitivity in asset and liability portfolios.
Further, the Banks maintain relationships with correspondent banks which could
provide funds to them on short notice, if needed. The Banks have joined the
Federal Home Loan Bank of Atlanta which will also provide an alternative source
of funding.

      The liquidity and capital resources of the Company and the Bank are
monitored on a periodic basis by state and federal regulatory authorities. As
determined under guidelines established by those regulatory authorities, the
Bank's liquidity ratios at December 31, 1998 were considered satisfactory. At
December 31, 1998, investment securities with a book value of $1,201,232 were
scheduled to mature within one year. These investments, along with federal funds
sold and securities purchased under agreement to resell of $17,563,000 as of
December 31, 1998, will provide a ready source of funds. At December 31, 1998,
the Company's and the Bank's capital asset ratios were considered adequate based
on guidelines established by the regulatory authorities. During 1998, the
Company increased its capital by retaining net earnings of $1,958,456 after
dividend payments of $512,738. At December 31, 1998, total capital of the
Company amounted to $18,177,379.

      On September 20, 1995, the Board of Directors of Westside Financial
unanimously approved a stock redemption plan to redeem up to 120,000 shares of
its common stock. A total of 50,000 shares were repurchased for $415,000 prior
to the termination of the repurchase plan which occurred before the execution of
a letter of intent in regard to the proposed merger with Eastside Holding
Corporation. On February 26, 1997 the Board of Directors of First Sterling
Banks, Inc. approved a stock redemption plan to redeem up to 70,000 shares of
its common stock at a price not to exceed $9.00 per share. A total of 70,000
shares were repurchased for $618,875, an average price of $8.84 per share.

      On February 25, 1998, the Board of Directors unanimously approved a two
for one stock split, payable March 30, 1998 to shareholders of record March 16,
1998.

      Management is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources or operations.


                                       20
<PAGE>

Maturities

      The following table sets forth the maturity distribution by amortized
cost, of securities according to type of security and contractual maturity:

                       MATURITY DISTRIBUTION OF SECURITIES
                                DECEMBER 31, 1998

                                         Available for sale          Weighted
                                        Amortized     Fair           Average
                                           Cost       Value           Yield
                                       (Dollars in Thousands)

Due in one year or less                  $ 1,201    $ 1,205           5.842%
Due from one year to five years            7,706      7,763           5.648
Due from five to ten years                 8,958      9,068           5.758
Due after ten years                        2,856      2,862           5.606
Mortgage-backed securities                13,166     13,202           5.946
Equity securities                            579        579           7.500
                                         -------    -------         -------
                                         $34,466    $34,679           5.825%
                                         =======    =======         =======
                                                              
      Securities with a carrying value of $26,731,000 and $15,437,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public deposits
and for other purposes.

      The following table represents the composition of the Bank's loan
portfolio according to the purpose of the loan and/or repayment terms:

                                                   December 31,     December 31,
                                                      1998             1997
                                                 -------------------------------
Commercial, financial and agricultural           $  28,124,000    $  24,768,799
Real estate - construction and land             
  development                                       33,576,000       35,840,760
Real estate - mortgage                              66,740,000       39,560,475
Installment and other consumer                       7,478,169        6,946,810
                                                 -------------    -------------
                                                   135,918,169      107,116,844
                                                 -------------    -------------
Net deferred loan fees                                (293,160)        (387,074)
                                                   135,625,009      106,729,770
                                                 -------------    -------------
Less reserve for possible loan losses               (1,626,699)      (1,379,678)
                                                 -------------    -------------
                                                
Net loans                                        $ 133,998,310    $ 105,350,092
                                                 =============    =============


                                       21
<PAGE>

                     SUPPLEMENTAL MATURITY SCHEDULE OF LOANS
                                DECEMBER 31, 1998

                                         Over One
                           One Year       Through       Over
                           or Less      Five Years    Five Years       Total
                           -------      ----------    ----------       -----
Commercial and
  industrial             $10,890,207   $11,750,921   $ 5,482,872   $28,124,000
Real estate -
  construction and
   land development       36,249,540    11,531,766    18,958,694    66,740,000
Real estate - mortgage    13,080,576    11,169,656     9,325,768    33,576,000
Installment and other
  Consumer                 3,879,338     3,479,013       119,818     7,478,169

Non-performing Loans

      There were $39,971 in non-accrual loans at December 31, 1998 and $41,501
at December 31, 1997. Accrual of interest is discontinued when management
believes after considering economic and business conditions and collection
efforts, that the ultimate collection of interest is doubtful.

DEPOSITS

      The following table represents the composition of the Bank's deposit
accounts, for the periods indicated:

                                             Year Ended December 31,
                                        1998                      1997
                                ------------------------------------------------
                                 Average      Average       Average     Average
                                 Amount         Rate        Amount       Rate
                                               (Dollars in Thousands)

Noninterest-bearing deposits    $25,145        --  %       $19,871        -- %
Interest-bearing demand and
  savings deposits               65,025        2.97         64,244        2.70
Time deposits                    78,848        5.86         65,623        5.80

                MATURITY SCHEDULE OF TIME DEPOSITS OVER $100,000
                                December 31, 1998

                 Three months or less                    $10,119,219
                 Three months to six months                3,998,446
                 Six months to twelve months               7,499,258
                 Over twelve months                        3,277,656
                                                         -----------
                 Total                                   $24,894,579
                                                         ===========


                                       22
<PAGE>

SUMMARY OF LOAN LOSS EXPERIENCE

      The provision for possible loan losses is based upon the growth of the
loan portfolio and management's desire to provide adequately for inherent risk
in the loan portfolio.

      Both banks have an internal rating system used for calculating the
required reserve based on the type of loan and the assigned risk code. For loans
which are classified "sub-standard" or lower, a portion of the Allowance for
Loan Losses is allocated to them dependent upon the amount of estimated
exposure.

      The provision for loan losses charged to operations was $298,000 during
the year ended December 31, 1998, compared to $444,342 in 1997. During 1998, the
Bank had net charge-offs of $50,979. There were net charge-offs of $159,285 in
1997. An analysis of the allowance for loan losses follows:

                                                   Year Ended December 31,
                                                    1998            1997
                                                ----------------------------

Average amount of loans outstanding             $118,359,137    $ 94,627,687
                                                ============    ============
Balance of reserve for possible loan
  losses at beginning of period                 $  1,379,678    $  1,094,621
Provision charged to operating expense               298,000         444,342

Recoveries:
  Commercial, financial and agricultural               1,480            --
  Real estate - construction and
   land development                                     --             9,817
  Real estate - mortgage                              13,445            --
  Installment and other consumer                       2,763          19,018
                                                ------------    ------------
     Total recoveries                           $     17,688    $     28,835
                                                ------------    ------------
Less chargeoffs:
  Commercial, financial and agricultural              50,100          16,296
  Real estate - construction and
   land development                                     --            52,130
Real estate - mortgage                                14,628            --
Installment and other consumer                         3,939         119,694
                                                ------------    ------------
      Total chargeoffs                          $     68,667    $    118,120
                                                ------------    ------------
Net chargeoffs                                  $     50,979    $    159,285
                                                ------------    ------------
Balance of reserve for possible loan losses
  at end of period                              $  1,626,699    $  1,379,678
                                                ============    ============
Ratio of net loan chargeoffs to average loans            .04%            .17%
                                                ============    ============


                                       23
<PAGE>

Commitments and Lines of Credit

      In the ordinary course of business, the Bank has granted commitments to
extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by the Bank's Board of Directors. The Bank
has also granted commitments to approved customers for standby letters of
credit. These commitments are recorded in the financial statements when funds
are disbursed or the financial instruments become payable. The Bank adheres to
the same credit and collateral policies for these off balance sheet commitments
as they do for financial instruments that are recorded in the financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.

      The Banks had outstanding unfunded commitments at December 31, 1998, as
follows:

      Commercial, financial and agricultural          $11,977,421
      Real estate - construction and land
        development                                    20,086,228
      Real estate - mortgage                            7,753,700
      Installment and other consumer                    1,134,384
      Standby letters of credit                           436,139
                                                      -----------
                                                      $43,387,872
                                                      ===========

Asset/Liability Management

      The following table sets forth the distribution of the repricing of the
Banks' earning assets and interest-bearing liabilities as of December 31, 1998,
the interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), the cumulative interest rate sensitivity
gap, the interest rate sensitivity gap ratio (i.e., interest rate sensitive
assets divided by interest rate sensitive liabilities) and the cumulative
sensitivity gap ratio. The table also sets forth the time periods in which
earning assets and liabilities will mature or may reprice in accordance with
their contractual terms. However, the table does not necessarily indicate the
impact of general interest rate movements on the net interest margin since the
repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Banks' customers. In addition,
various assets and liabilities indicated as repricing within the same period may
in fact reprice at different times within such period and at different rates.

      The objective of interest rate sensitivity management is to minimize the
effect of interest rate changes on net interest margins while maintaining net
interest income at acceptable levels. The major factors that are used to manage
interest rate risk include the mix of fixed and floating interest rates, pricing
and maturity patterns for all asset and liability accounts.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                    After Three   After One
                                                     Months But    Year But
                                         Within        Within       Within      After
                                      Three Months    One Year    Five Years  Five Years     Total
                                      ------------    --------    ----------  ----------     -----
<S>                                      <C>          <C>          <C>         <C>         <C>     
Earning assets:
Interest-bearing deposits
  in banks                               $     31     $   --       $   --      $   --      $     31
Federal funds sold                         17,563         --           --          --        17,563
Securities                                    868        6,767        9,288      17,756      34,679
Loans                                    $ 70,013       12,905       37,057      15,650     135,625
                                         --------     --------     --------    --------    --------
Total rate sensitive assets              $ 88,475     $ 19,672     $ 46,345    $ 33,406    $187,898
                                         --------     --------     --------    --------    --------
Interest-bearing liabilities:
Interest-bearing demand deposits         $ 50,639     $   --       $   --      $   --      $ 50,639
Savings accounts                           10,030         --           --          --        10,030
Time deposits                              28,764       44,432       19,823        --        93,019
Other interest bearing
  liabilities                                 594         --           --          --      $    594
                                         --------     --------     --------    --------    --------
Total rate sensitive liabilities         $ 90,027     $ 44,432     $ 19,823    $   --      $154,282
                                         --------     --------     --------    --------    --------
Interest rate sensitivity
      GAP                                $ (1,552)    $(24,760)    $ 26,522    $ 33,406
                                         ========     ========     ========    ========
Cumulative interest rate
      sensitivity GAP                    $ (1,552)    $(26,312)    $    210    $ 33,616
                                         ========     ========     ========    ========
GAP as % of assets                           (.77)%     (12.31%)     13.19%      16.61%

Cumulative GAP as a % of assets              (.77)%     (13.08%)       .10%      16.71%

Interest rate sensitivity
     GAP ratio                              98.28%       44.27%     233.79%       --

Cumulative interest rate
     sensitivity GAP ratio                  98.28%       80.43%     100.14%     121.79%
</TABLE>


                                       25
<PAGE>

                    RETURN ON ASSETS AND SHAREHOLDERS' EQUITY

      The following rate of return information for the periods indicated is
presented below:

                                         Year Ended December 31,
                                         1998              1997
                                        -----------------------

            Return on assets (1)         1.32%            1.30%
            Return on equity (2)        14.37%           14.30%
            Dividend payout ratio (3)   20.74%           20.48%
            Equity to assets ratio (4)   9.16%            9.11%

      (1)   Net income divided by average total assets.
      (2)   Net income divided by average equity.
      (3)   Dividends declared per share divided by net income per share
            (basic).
      (4)   Average equity divided by average total assets.

ITEM 7. FINANCIAL STATEMENTS

      The following consolidated financial statements of the Company and its
subsidiary are included on page F-1 through F-35 of this Annual Report on Form
10-KSB.

      Consolidated Balance Sheets - December 31, 1998 and 1997

      Consolidated Statements of Income - Years Ended December 31, 1998 and 1997

      Consolidated Statements of Comprehensive Income - Years Ended December 31,
          1998 and 1997

      Consolidated Statements of Stockholders' Equity - Years Ended December 31,
          1998 and 1997

      Consolidated Statements of Cash Flows - Years Ended December 31, 1998 and
          1997

      Notes to Consolidated Financial Statements


                                       26
<PAGE>

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

      During 1998, 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.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

      The following table sets forth the respective names, ages and positions
with the Company and the Bank, other directorships and principal occupations of
the members of the Board of Directors and the executive officers of the Company
and the Banks.

<TABLE>
<CAPTION>
                                 Position(s)
                                 with the Com-     Principal Occupation
Name                     Age     pany and Bank     During the Past Five Years
----                     ---     -------------     --------------------------
<S>                      <C>     <C>               <C>
Barbara J. Bond          50      Executive V.P.    Ms. Bond serves as
                                 Westside Bank     Executive Vice President
                                 Secretary of      and Senior Operations Officer of Westside
                                 Company and       Bank and has served in such capacities since
                                 Westside Bank     the organization of Westside.  Ms. Bond has
                                                   served as Secretary of Westside Bank and the
                                                   Company since September 1991 and March
                                                   1994, respectively.

Harry L. Hudson, Jr.     55      Director of       Mr. Hudson is currently serving as Chairman
                                 Company and       of the Board of Directors of Eastside Bank, an
                                 Chairman of       office he has held since February 1993.  Mr.
                                 Eastside Bank     Hudson has been employed by State Farm
                                                   Insurance since January 1, 1970.  He has served
                                                   as Agent, Agency Manager, and Agency Field
                                                   Executive.

The Honorable            55      Director of       Justice Hines has served as chairman of the Board
P. Harris Hines                  Company and       of Directors of Westside Bank since April 1992.
                                 Chairman of       From January 1, 1983 until July 26, 1995, Justice
                                 Westside Bank     Hines served as a Judge of the Superior Court of
                                                   Cobb County. Since July 26, 1995, Justice Hines
                                                   has served as a Justice of the Supreme Court of the
                                                   State of Georgia.  Justice Hines is a Trustee of the
                                                   Kennesaw State College Foundation and is a past
                                                   member of the Judicial Council of Georgia.
</TABLE>


                                       27
<PAGE>

<TABLE>
<S>                      <C>     <C>               <C>
Edward C. Milligan       54      Chairman,         Mr. Milligan has served as President and
                                 President and     Chief Executive Officer of Westside since
                                 CEO of Company;   its organization.  Mr. Milligan has served
                                 President, CEO    as President, Chairman and CEO of the
                                 and Director of   Company since its organization in March
                                 Westside Bank;    1994.  Mr. Milligan has served as a Director
                                 Director of       of Eastside Bank since August 1996.
                                 Eastside Bank

John S. Thibadeau, Jr.   51      Director of       Since 1973, Mr. Thibadeau has been
                                 Company and       president of Deauton Corporation, a
                                 Eastside Bank     real estate construction and development
                                                   firm.  As a licensed real estate broker,
                                                   Mr. Thibadeau is an officer and principal
                                                   in Thibadeau Burton Realty and serves as
                                                   Vice President of University Inn Operating
                                                   Co., a hotel motel management firm.

Benjamin Wofford,M.D.    60      Director of       Dr. Wofford served as Chairman of the
                                 Company and       Board of Directors of Westside Bank
                                 Westside Bank     from its organization until April, 1991.
                                                   From 1970 until his retirement in 1997
                                                   Dr. Wofford was a physician specializing
                                                   in plastic and cosmetic surgery in Marietta,
                                                   Georgia. Dr.Wofford is a member of the
                                                   Medical Association of Georgia, Georgia
                                                   Society of Plastic Surgeons, Southeastern
                                                   Society of Plastic & Reconstructive Surgeons,
                                                   and American Society of Plastic and
                                                   Reconstructive Surgeons.
</TABLE>

      No director of the Company or the Bank is related to any other director or
executive officer. No director of the Company or the Bank is an active director
or executive officer of another bank, savings and loan association, credit union
or bank or savings and loan holding company.

ITEM 10. EXECUTIVE COMPENSATION

      In August 1995, the Company and Westside Bank jointly entered into an
employment agreement with Edward C. Milligan. The term of the Agreement is a
continuing term of two years which is automatically extended each day for an
additional day so that the remaining term shall continue to be two years. In the
event Mr. Milligan's employment is involuntarily terminated prior to a "Change
in Control," Mr. Milligan shall be paid a lump sum equal to one (1) times the
annual base salary paid to him over the previous twelve month period, plus a
lump sum amount equal to one (1) times the annual incentive cash bonus paid to
him over the previous twelve (12) month period. In the event Mr. Milligan is
terminated without cause after a Change in Control or voluntarily terminates his
employment for good reason, he shall


                                       28
<PAGE>

be paid the following amounts: a lump sum equal to two (2) times the annual base
salary and the annual incentive cash bonus paid to him over the previous twelve
(12) month period. In addition, Mr. Milligan shall be entitled to participate
for the shorter of a period of twelve (12) months or twenty-four (24) months
respectively, from the date of such termination or until such time as the
officer is employed by another employer in all welfare benefit plans practices,
policies and programs at least as favorable as the most favorable of such plan,
practices, policies and programs in effect at any time during the ninety (90)
day period preceding his termination.

      In January 1998 Eastside Bank entered into an employment agreement with
Christopher H. Burnett, president and chief executive officer of Eastside Bank.
The term of the agreement is a continuing term of one year which is
automatically extended each day for an additional day so that the remaining term
shall continue to be one year. In the event that Mr. Burnett's employment is
involuntarily terminated prior to a "change in control," of the Company Mr.
Burnett shall be paid his base salary and fringe benefits up through the date of
termination. In addition, he shall be paid at least the following amounts: a
lump sum amount equal to fifty percent (50%) of the annual base salary paid to
him over the previous twelve (12) month period, plus a lump sum amount equal to
fifty percent (50%) of the annual incentive cash bonus paid to him over the
previous twelve (12) month period. In the event Mr. Burnett is terminated
without cause after a change in control he shall be paid his base salary and
fringe benefits up through the date of termination. In addition he shall be paid
the following amounts, a lump sum equal to his annual base salary paid to him
over the previous twelve (12) month period, plus a lump sum amount equal to his
annual incentive cash bonus paid to him over the twelve (12) month period. In
addition, in both cases Mr. Burnett shall be entitled to participate for the
shorter of a period of six (6) months or twelve (12) months respectively, from
the date of such termination or until such time as the officer is employed by
another employer in all welfare benefit plans, practices, policies and programs
at least as favorable as the most favorable of such plan, practices, policies
and programs in effect at any time during the ninety (90) day period preceding
his termination.

      During 1998, the Directors received $253,450 for their service as
Directors of the Company and the banks.


                                       29
<PAGE>

      The following information is furnished with respect to the Chief Executive
Officer and each executive officer of the Company and the Banks who had cash and
cash equivalent forms of remuneration from the Bank which exceeded $100,000 for
the year ended December 31, 1998, and all executive officers of the Company and
the Banks as a group.

<TABLE>
<CAPTION>
                                                                                   Long-Term
                                                                                 Compensation
                                                                                 ------------
                                                                                  Securities
                                                                                  Underlying
                                                          Deferred       Other      Options/
Position                    Year    Salary      Bonus   Compensation  Compensation   SAR(#)
---------------------------------------------------------------------------------------------
<S>                         <C>    <C>        <C>        <C>           <C>         <C>  
Edward C. Milligan          1998   $142,922   $ 56,000   $ 17,213      $ 21,200    $  --
President & CEO             1997    131,672     46,200     48,383        19,325     34,000
Westside Bank               1996    122,136     42,000       --           7,882       --

Barbara J. Bond             1998     86,000     21,500      3,521         4,078       --
Executive V P               1997     77,750     18,565      9,893         4,281       --
Westside Bank               1996     73,583     17,390       --           2,637       --

Michael J. Henderson        1998     92,500     23,125      3,266         9,607       --
Executive V P               1997     88,095     20,093      9,180         9,808       --
Westside Bank               1996     81,500     19,270       --           8,445       --

Christopher H. Burnett      1998    109,601     38,000       --          15,600     22,200
President & CEO
Eastside Bank
</TABLE>

<TABLE>
<CAPTION>
                                                                                  Long-Term
                                                                                 Compensation
                                                                                 ------------
                                                                                  Securities
                                                                                  Underlying
                                                          Deferred       Other      Options/
Position                    Year    Salary      Bonus   Compensation  Compensation   SAR(#)
---------------------------------------------------------------------------------------------
<S>                         <C>    <C>        <C>        <C>           <C>          <C>   
All Executive               1998   $475,417   $145,647   $ 24,000  (1) $ 52,285     22,200
  Officers as               1997    361,781     94,498     67,456  (2)   33,414     34,000
  a Group                   1996    338,424     86,660       --    (3)   18,963       --
</TABLE>

(1)   Includes Bank's contribution to the 401(k) Plan, directors fees ($14,700)
      paid to Mr. Milligan, directors fees ($8,400) and an auto allowance
      ($7,200) paid to Mr. Burnett, and an auto allowance ($6,000) paid to Mr.
      Henderson.

(2)   Includes Bank's contribution to the 401(k) Plan, directors fees ($12,200)
      paid to Mr. Milligan, and an auto allowance ($6,000) paid to Mr.
      Henderson.

(3)   Includes Bank's contribution to the 401(k) Plan and directors fees
      ($5,500) paid to Mr. Milligan, an auto allowance ($6,000) paid to Mr.
      Henderson.


                                       30
<PAGE>

Stock Option Plan

      In September 1997 by unanimous written consent of the Board of Directors
of First Sterling Banks, Inc. the 1997 First Sterling Banks, Inc. Incentive
Stock Option Plan was adopted, subject to approval of the Company's shareholders
at the 1998 Annual Shareholders Meeting. Under the plan 200,000 shares of Common
Stock may be granted by the Company to key employees of the Company or a
subsidiary.

      The following table reflects options currently outstanding under the above
described plan:

                          Price Per
   Date        Granted      Share     Exercised   Terminated       Outstanding
   ----        -------      -----     ---------   ----------       -----------
09-24-1997     44,900      $ 9.25       1,850         --            43,050  (1)
01-04-1998     22,200       12.50         --          --            22,200  (2)
04-30-1998     10,000       16.50         --          --            10,000  (3)
06-11-1998      6,250       15.00         --          --             6,250  (4)

      *     Unless otherwise noted all outstanding shares are immediately
            exercisable.

      (1)   10,800 shares exercisable immediately
            14,400 shares exercisable 1st anniversary of 09-24-1997
            16,250 shares exercisable 2nd anniversary of 09-24-1997
            1,600 shares exercisable 3rd anniversary of 09-24-1997

      (2)   4,440 shares exercisable per year for five years beginning on
            January 5, 1999

      (3)   2,000 shares exercisable per year for five years beginning on April
            30, 1999.

      (4)   1,250 shares exercisable per year for five years beginning on June
            11, 1999

      In September 1996 by unanimous written consent of the Board of Directors
of First Sterling Banks, Inc. in accordance with the Company's 1994 Substitute
Incentive Stock Option Plan (the "1994 Plan") and the 1995 Directors Stock
Option Plan , as a result of the merger agreement and a stock dividend to
shareholders of record immediately prior to the merger, the number of shares
under option and the exercise price were adjusted so that there would be no
change in the aggregate purchase price payable upon the exercise of any such
options. In addition, the plans were amended to change the name to "First
Sterling Banks, Inc. 1994 Incentive Stock Option Plan" and "First Sterling
Banks, Inc. 1995 Directors Stock Option Plan".

      Under the 1994 Incentive Stock Option Plan 123,000 shares of Common Stock
may be granted by the Company to key employees of the Company and its
subsidiary, The Westside Bank & Trust Company.

      Under the 1995 Directors Stock Option Plan 147,600 shares of Common Stock
may be granted by the Company to all directors who are not employees of the
Company or Westside Bank; and any Emeritus


                                       31
<PAGE>

Director who was a voting member of the Board of Directors within the 12 months
preceding the date of any grant of options to such Emeritus Director.

      The following table reflects options currently outstanding under the above
described plans:

                              Price Per
      Date        Granted       Share     Exercised   Terminated     Outstanding
      ----        -------       -----     ---------   ----------     -----------
   02-20-1991     61,500      $ 4.065        --          --            61,500
   04-19-1995     86,830        4.56       1,500         --            85,330
   08-16-1995     51,660        5.285        --          --            51,660
   09-20-1995     54,120        6.20         --          --            54,120
   11-15-1995      4,920        6.91         --          --             4,920

      *     Unless otherwise noted all outstanding shares are immediately
            exercisable.

      During 1996 the Company adopted the 1996 Substitute Incentive Stock Option
Plan replacing the former plan as amended February 17, 1993. Under the plan
100,000 shares of Common Stock may be granted by the Company to key employees of
the Company and its subsidiary, The Eastside Bank & Trust Company.

      In 1997 the Company adopted the 1997 Directors Stock Option Plan. Under
the plan 90,000 shares of Common Stock may be granted by the Company to voting
members of the Board of Directors of either the Eastside Bank & Trust Company or
First Sterling Banks, Inc.

      The following table reflects options currently outstanding under the above
described plans:

                              Price Per

      Date        Granted       Share     Exercised   Terminated  Outstanding
      ----        -------       -----     ---------   ----------  -----------
   02-15-1993     10,000      $ 4.09       10,000          --            --
   02-17-1993     35,000        3.95       20,000          --         15,000
   01-19-1994      4,000        4.20        4,000          --            --
   12-14-1994     17,000        4.515      12,000          --          5,000
   02-21-1996     34,000        6.50        7,668       11,666         6,868 (1)
   03-27-1997     90,000        9.00          --           --         90,000

      Unless otherwise noted all outstanding shares are immediately exercisable.

      (1) 2,866 shares exercisable; remaining 4,002 shares exercisable 02-21-99

      The price at which a stock option is exercisable cannot be less than the
fair market value of the Common Stock on the date of the grant as determined by
the Board of Directors.


                                       32
<PAGE>

      Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values

                                                     Number of
                                                     Securities      Value of
                                                     Underlying    Unexercised
                                                     Unexercised   In-the-Money
                                                     Options/SARs   Options/SAR
                           Shares                    at FY-End(#)   at FY-End(S)
                         Acquired on    Value        Exercisable/  Exercisable/
    Name                 Exercise #    Realized($)   Unexercisable Unexercisable
--------------------------------------------------------------------------------
Christopher H.Burnett        -0-          -0-          0/22,200     $-0-/$33,300

Retirement Plan

      The Banks participate in a 401(k) Retirement Plan ("Retirement Plan")
which is a defined contribution plan designed to meet the requirements of
Section 401(k) of the Internal Revenue Code of 1986, as amended ("Code") and the
Employee Retirement Income Security Act of 1974, as amended. All employees of
the Banks who have attained the age of 21 years and have completed one year of
service are eligible to participate in the Retirement Plan. Pursuant to the
Retirement Plan, the Bank may, in its discretion, contribute for each Plan Year
an amount equal to a matching percentage, as determined annually by the Board of
Directors of the Bank, of the employee's contributions for the Plan Year, up to
the maximum limit established by the Code. The matching contributions are
subject to limits established by the Code and a vesting schedule which provides
that matching contributions become 20% vested after more than 2 years and less
than 3 years of service, and vested in increments of 20% for each year of
service thereafter, becoming 100% vested after 6 years of service. The matching
contributions also become 100% vested upon death or disability. Each participant
under the Retirement Plan is always vested 100% in his or her 401(k)
contributions. The trustee of the Retirement Plan is Regions Bank of
Gainesville, Georgia. Westside Bank contributed a total of $37,902.12 during the
1998 fiscal year pursuant to the Retirement Plan, including the following
amounts to the accounts of persons named: Edward C. Milligan - $6,500.00;
Michael J. Henderson - $3,607.50; Barbara J. Bond - $4,078.04; and all executive
officers as a group - $14,185.54. Eastside Bank contributed a total of $15,049
during the 1998 fiscal year.

      In December 1997 the directors of Westside Bank unanimously approved a
Deferred Compensation Plan for the benefit of key executives of the bank who
could be added to the Plan from time to time. Initial participants in the plan
are: Edward C. Milligan, Barbara J. Bond and Michael J. Henderson. The Plan
shall adopt certain retirement goals for each participant, which goals shall be
adjusted from time to time and the Bank shall make regular annual contributions
to the Plan in amounts needed to reach the retirement goal for each executive,
but any such contributions shall be at the discretion of the Board of Directors.
The following contributions totaling $ 24,000, were made for 1998; Edward C.
Milligan - $17,212.80, Barbara J. Bond - $ 3,520.80, and Michael J.Henderson - $
3,266.40.


                                       33
<PAGE>

ITEM 11. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information, as of March 1, 1999,
with respect to: (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of the Company's common stock; (ii) the
beneficial ownership of Common Stock by each of the directors and executive
officer; and (iii) the beneficial ownership by all directors and executive
officers as a group. Except as noted below, all shares are owned directly, and
the owner has sole voting and investment power with respect to such shares:

      Name                       Number of Shares           % of Class (l)
      ----                       ----------------           --------------
      Barbara J. Bond            35,020.     (2)                1.25%
      P. Harris Hines            17,977.2605 (3)                 .65
      Harry L. Hudson, Jr.       44,006.0329 (4)                1.58
      Edward C. Milligan        114,840.9932 (5)                4.04
      John S. Thibadeau, Jr.     20,000.     (6)                 .72
      Benjamin H. Wofford, Jr.   66,534.9927 (7)                2.39
                                ------------
                                298,379.2793 (8)
                                ============

(1)   Based on total outstanding shares of 2,766,644 if no options are held by
      the named owner, or based on a pro forma calculation of the total
      outstanding shares including shares issued upon exercise of options held
      by the named owner or by member of the named group.

(2)   Includes 29,520 shares of Common Stock obtainable upon the exercise of
      options.

(3)   Includes 12,300 shares of Common Stock obtainable upon the exercise of
      options

(4)   Includes 10,000 shares of Common Stock obtainable upon the exercise of
      options and 20,000 shares held as joint tenant with spouse.

(5)   Includes 73,360 shares of Common Stock obtainable upon the exercise of
      options and 1,230 shares held by Mr. Milligan's minor children.

(6)   Includes 10,000 shares of Common Stock obtainable upon the exercise of
      options.

(7)   Includes 12,300 shares of Common Stock obtainable upon the exercise of
      options and 12,300 shares held as joint tenant with spouse.

(8)   Includes 147,480 shares of Common Stock obtainable upon the exercise of
      options.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Company and the Bank have had and expect to have banking transactions
in the ordinary course of business with organizers, directors and officers of
the Company and Bank and their affiliates, including members of their families
or corporations, partnerships or other organizations in which such officers or
directors have a controlling interest, on substantially the same terms
(including price, or interest rates and


                                       34
<PAGE>

collateral) as those prevailing at the time for comparable transactions with
unrelated parties. Such banking transactions are not expected to involve more
that the normal risk of collectibility nor present other unfavorable features to
the Company and the Bank.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

      Item 13(a) 1., 2. and 3. and Item 13(b).

            (a) The following documents are filed as part of this report:

                  1. Financial statements:

                        (a) First Sterling Banks, Inc. and subsidiaries:

                              (i) Consolidated Balance Sheets - December 31,
                                   1998 and 1997

                              (ii) Consolidated Statements of Income - Years
                                   ended December 31, 1998 and 1997

                              (iii) Consolidated Statements of Comprehensive 
                                    Income - Years ended December 31, 1998 
                                    and 1997

                              (iv) Consolidated Statements of Stockholders'
                                   Equity Years ended December 31, 1998 and 1997

                              (v)  Consolidated Statements of Cash Flows - Years
                                   ended December 31, 1998 and 1997

                              (vi) Notes to Consolidated Financial Statements

            (b) First Sterling Banks, Inc. (Parent Company Only):

      Parent Company only financial information has been included in Note 16 of
Notes to Consolidated financial statements.

      2. Financial statement schedules:

      All schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.


                                       35
<PAGE>

      3. Exhibits required by Item 601 of Regulation S-K:

      Number                   Description
      ------                   -----------

      Exhibit 3.1       Articles of Incorporation of First Sterling Banks, 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, 10K-SB)

      Exhibit 3.2       Bylaws of First Sterling Banks, Inc. (incorporated by
                        reference to Exhibit 3.2 to Registration Statement
                        No.33-78046 on Form S-4)

      Exhibit 4.1       The rights of security holders are defined in the
                        articles of Incorporation and Bylaws of First Sterling
                        Banks, Inc., provided in Exhibits 3.1 and 3.2
                        respectively.

      Exhibit 10.1      First Sterling Banks, Inc. 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)

      Exhibit 10.2      Form of First Sterling Banks, Inc. 1994 Incentive Stock
                        Option Agreement filed as Exhibit 4.5 to Form S-8 (File
                        No. 33-97300)

      Exhibit 10.3      First Sterling Banks, Inc. 1995 Director Stock Option
                        Plan filed as Exhibit 4.4 to Form S-8 (File No.
                        33-81053)

      Exhibit 10.4      Form of First Sterling Banks, Inc. 1995 Directors Stock
                        Option Agreement filed as Exhibit 4.5 to Form S-8(File
                        No. 33-81053)

      Exhibit 10.5      First Sterling Banks, Inc. 1996 Substitute Incentive
                        Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File
                        No. 333-15069)

      Exhibit 10.6      Form of First Sterling Banks, Inc. 1996 Substitute
                        Incentive Stock Option Plan Incentive Stock Option
                        Agreement for options granted by Eastside Holding
                        Corporation prior to February 21, 1996 filed as Exhibit
                        4.2 to Form S-8 (File No.333-15069)

      Exhibit 10.7      Form of First Sterling Banks, Inc. 1996 Substitute
                        Incentive Stock Option Plan Incentive Stock Option
                        Agreement for options granted by Eastside Holding
                        Corporation on February 21, 1996 filed as Exhibit 4.3 to
                        Form S-8 (File No. 333-15069)

      Exhibit 10.8      Employment Agreement dated August 16, 1995, between
                        Westside Financial Corporation, The Westside Bank &
                        Trust Company and 


                                       36
<PAGE>

                        Edward C. Milligan filed as Exhibit 10.5 to Form S-4
                        (File No. 333-3116)

      Exhibit 10.9      First Sterling Banks, Inc. 1997 Directors Stock Option
                        Plan, filed as Exhibit 10.9 to Form 10-KSB (File No.
                        000-25128)

      Exhibit 10.10     Form of First Sterling Banks, Inc. 1997 Directors Stock
                        Option Plan, Stock Option Agreement, filed as Exhibit
                        10.10 to Form 10-KSB (File No. 000-25128)

      Exhibit 10.11     First Sterling Banks, Inc. 1997 Incentive Stock Option
                        Plan, filed as Exhibit 10.11 to Form 10-KSB (File No.
                        000-25128)

      Exhibit 10.12     Form of First Sterling Banks, Inc. 1997 Incentive Stock
                        Option Plan, Incentive Stock Option Agreement, filed as
                        Exhibit 10.12 to Form 10-KSB (File No. 000-25128)

      Exhibit 10.13     Merger Agreement between First Sterling Banks, Inc. and
                        Georgia Bancshares, Inc., dated December 30, 1998,
                        (incorporated by reference to Appendix A to the Joint
                        Proxy Statement/Prospectus filed as part of Registration
                        Statement on Form S-4 (File No. 333-70623)

      Exhibit 10.14     Employment Agreement dated January 5, 1998, between The
                        Eastside Bank & Trust Company and Christopher H.
                        Burnett, attached as Exhibit 10.14

      Exhibit 22.1      Subsidiaries of First Sterling Banks, Inc., include: The
                        Westside Bank & Trust Company, Kennesaw, Georgia, and
                        The Eastside Bank & Trust Company, Snellville, Georgia

      (b)      Reports on Form 8-K

               The Company filed a Form 8-K, on October 6, 1998 announcing the
               signing of a non-binding letter of intent to merge Georgia
               Bancshares into First Sterling Banks, Inc.


                                       37
<PAGE>

      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.

                           FIRST STERLING BANKS, INC.
                                  (Registrant)


      By: /s/ Edward C. Milligan                Date:         March 30, 1999
      -----------------------------------            -----------------------
      Edward C. Milligan, President
      Chief Executive Officer and Chairman

      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/ Barbara J. Bond                   Date:         March 30, 1999
      -----------------------------------            -----------------------
      Barbara J. Bond, Secretary/Treasurer,
      Principal Financial and Accounting Officer


      By: /s/ P. Harris Hines                   Date:         March 30, 1999
      -----------------------------------            -----------------------
      P. Harris Hines, Director


      By: /s/ Harry L. Hudson, Jr.              Date:         March 30, 1999
      -----------------------------------            -----------------------
      Harry L. Hudson, Jr., Director


      By: /s/ John S. Thibadeau, Jr.            Date:         March 30, 1999
      -----------------------------------            -----------------------
      John S. Thibadeau, Jr., Director


      By: /s/ Benjamin H. Wofford               Date:         March 30, 1999
      -----------------------------------            -----------------------
      Benjamin H. Wofford, Director

      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 material to security holders subsequent
to the filing of this Form 10-KSB and will submit four copies of such materials
to the Securities and Exchange Commission when they are provided to the security
holders.


                                       38
<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT

                                DECEMBER 31, 1998

<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED FINANCIAL REPORT
                                DECEMBER 31, 1998

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

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----

INDEPENDENT AUDITOR'S REPORT ....................................           F-2

FINANCIAL STATEMENTS

   Consolidated balance sheets ..................................           F-3
   Consolidated statements of income ............................           F-4
   Consolidated statements of comprehensive income ..............           F-5
   Consolidated statements of stockholders' equity ..............   F-6 and F-7
   Consolidated statements of cash flows ........................   F-8 and F-9
   Notes to consolidated financial statements ...................   F-10 - F-35



                                      F-1


<PAGE>

                        [LETTERHEAD OF MAULDIN & JENKINS]

                          INDEPENDENT AUDITOR'S REPORT
--------------------------------------------------------------------------------

To the Board of Directors
First Sterling Banks, Inc. and Subsidiaries
Kennesaw, Georgia

            We have audited the accompanying consolidated balance sheets of
First Sterling Banks, Inc. and Subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for the years then ended. 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 conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

            In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
Sterling Banks, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

                                                /s/ MAULDIN & JENKINS, LLC


Atlanta, Georgia
February 4, 1999


                                      F-2

<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                      Assets                                1998              1997
                                                       -------------    -------------
<S>                                                    <C>              <C>          
Cash and due from banks                                $   6,996,921    $   7,651,995
Interest-bearing deposits in banks                            31,283          130,815
Federal funds sold and securities purchased
    under resell agreements                               17,563,000       27,485,000
Securities available-for-sale                             34,679,055       18,963,075
Securities held-to-maturity, fair value
    of $-- and $2,238,285                                         --        2,248,974

Loans                                                    135,625,009      106,729,770
Less allowance for loan losses                             1,626,699        1,379,678
                                                       -------------    -------------
          Loans, net                                     133,998,310      105,350,092
                                                       -------------    -------------
Premises and equipment                                     5,838,761        5,106,983
Other assets                                               2,019,804        2,104,301
                                                       -------------    -------------

          Total assets                                 $ 201,127,134    $ 169,041,235
                                                       =============    =============
       Liabilities and Stockholders' Equity

Deposits
    Noninterest-bearing demand                         $  27,740,577    $  21,028,926
    Interest-bearing demand                               50,639,152       49,227,141
    Savings                                               10,030,091        7,320,138
    Time, $100,000 and over                               24,894,579       21,521,500
    Other time                                            68,123,529       52,224,917
                                                       -------------    -------------
          Total deposits                                 181,427,928      151,322,622
Securities sold under repurchase agreements                  593,962          354,061
Other liabilities                                            927,865        1,244,142
                                                       -------------    -------------
          Total liabilities                              182,949,755      152,920,825
                                                       -------------    -------------
Commitments and contingent liabilities

Stockholders' equity
    Common stock, no par value; 10,000,000 shares
        authorized; 2,766,644 and 2,757,330 issued
        at amount paid in, respectively                   12,416,033       12,350,404
    Retained earnings                                      6,655,054        4,696,598
    Accumulated other comprehensive income                   140,167          107,283
    Treasury stock, 131,500 shares                        (1,033,875)      (1,033,875)
                                                       -------------    -------------
          Total stockholders' equity                      18,177,379       16,120,410
                                                       -------------    -------------

          Total liabilities and stockholders' equity   $ 201,127,134    $ 169,041,235
                                                       =============    =============
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             1998             1997
                                                       -------------    -------------
<S>                                                    <C>              <C>          
Interest income
    Loans                                              $  12,215,217    $  10,026,825
    Taxable securities                                     1,277,044        1,234,173
    Nontaxable securities                                    224,366          184,001
    Deposits in banks                                          2,963            5,900
    Federal funds sold and securities purchased
        under resell agreements                            1,468,865        1,855,646
                                                       -------------    -------------
          Total interest income                           15,188,455       13,306,545
                                                       -------------    -------------
Interest expense
    Deposits                                               6,548,954        5,543,230
    Federal funds purchased and securities sold
        under repurchase agreements                           25,395           18,332
                                                       -------------    -------------
          Total interest expense                           6,574,349        5,561,562
                                                       -------------    -------------
          Net interest income                              8,614,106        7,744,983
Provision for loan losses                                    298,000          444,342
                                                       -------------    -------------
          Net interest income after provision
             for loan losses                               8,316,106        7,300,641
                                                       -------------    -------------
Other income
    Service charges on deposit accounts                      434,282          389,948
    Net realized losses on sales of securities
      available-for-sale                                          --             (600)
    Gains on sale of loans                                   159,448          279,002
    Other operating income                                   457,040          371,157
                                                       -------------    -------------
          Total other income                               1,050,770        1,039,507
                                                       -------------    -------------
Other expense
    Salaries and employee benefits                         3,241,764        2,993,762
    Equipment expenses                                       290,785          316,728
    Occupancy expenses                                       269,549          311,795
    Other operating expenses                               1,864,808        1,431,002
                                                       -------------    -------------
          Total other expenses                             5,666,906        5,053,287
                                                       -------------    -------------
          Income before income taxes                       3,699,970        3,286,861

Income tax expense                                         1,228,776        1,120,194
                                                       -------------    -------------
          Net income                                   $   2,471,194    $   2,166,667
                                                       =============    =============
Basic earnings per common share                        $        0.94    $        0.83
                                                       =============    =============
Diluted earnings per common share                      $        0.86    $        0.78
                                                       =============    =============
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          1998         1997
                                                                      ----------   ----------
<S>                                                                   <C>          <C>       
Net income                                                            $2,471,194   $2,166,667
                                                                      ----------   ----------
Other comprehensive income :

    Unrealized gains on securities available-for-sale:

        Unrealized holding gains arising during period,
            net of tax of $16,473 and $33,882, respectively               32,884       69,576

         Reclassification adjustment for losses realized
            in net income, net of tax (benefits) of $-- and $(204),
            respectively                                                    --            396
                                                                      ----------   ----------
Other comprehensive income                                                32,884       69,972
                                                                      ----------   ----------

Comprehensive income                                                  $2,504,078   $2,236,639
                                                                      ==========   ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-5

<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                          COMMON STOCK
                                                   -----------------------------
                                                                      AMOUNT
                                                      SHARES          PAID IN
                                                   ------------    -------------
<S>                                                  <C>            <C>
BALANCE, DECEMBER 31, 1996                            1,355,331     $ 12,142,205
   Net income                                                --               --
   Cash dividends declared, $.17 per share                   --               --
   Exercise of stock options                             23,334          208,199
   Purchase of treasury stock                                --               --
   Other comprehensive income                                --               --
                                                   ------------    -------------
BALANCE, DECEMBER 31, 1997                            1,378,665       12,350,404
   Net income                                                --               --
   Cash dividends declared, $.195 per share                  --               --
   Stock split                                        1,378,665               --
   Exercise of stock options                              9,314           65,629
   Other comprehensive income                                --               --
                                                   ------------    -------------
BALANCE, DECEMBER 31, 1998                            2,766,644     $ 12,416,033
                                                   ------------    -------------
                                                   ------------    -------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                  F-6


<PAGE>

<TABLE>
<CAPTION>
                  Accumulated
                     Other               Treasury Stock              Total
     Retained     Comprehensive   -----------------------------  Stockholders'
     Earnings        Income         Shares           Cost            Equity
---------------   -------------   -----------   ---------------  ---------------
<S>               <C>                 <C>       <C>              <C>           
$    2,977,853    $     37,311        30,750    $     (415,000)  $   14,742,369
     2,166,667              --            --                --        2,166,667
      (447,922)             --            --                --         (447,922)
            --              --            --                --          208,199
            --              --        35,000          (618,875)        (618,875)
            --          69,972            --                --           69,972
---------------   -------------   -----------   ---------------  ---------------
     4,696,598         107,283        65,750        (1,033,875)      16,120,410
     2,471,194              --            --                --        2,471,194
      (512,738)             --            --                --         (512,738)
            --              --        65,750                --               --
            --              --            --                --           65,629
            --          32,884            --                --           32,884
---------------   -------------   -----------   ---------------  ---------------
$    6,655,054    $    140,167       131,500    $   (1,033,875)  $   18,177,379
===============   =============   ===========   ===============  ===============
</TABLE>


                                      F-7
<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        1998            1997
                                                                ------------    ------------
<S>                                                             <C>             <C>         
OPERATING ACTIVITIES
    Net income                                                  $  2,471,194    $  2,166,667
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Depreciation                                                 289,399         352,364
        Provision for loan losses                                    298,000         444,342
        Deferred income taxes                                        (41,072)        (67,390)
        Net realized losses on sales of securities
            available-for-sale                                            --             600
        Gains on sale of loans                                      (159,448)       (279,002)
        Proceeds from sale of loans                                1,245,743       2,655,972
        Loans originated for sale                                 (1,132,494)     (4,070,000)
        Increase in interest receivable                             (132,458)        (73,628)
        Increase (decrease) in interest payable                      (24,646)        220,843
        Other operating activities                                   (51,156)        136,866
                                                                ------------    ------------

              Net cash provided by operating activities            2,763,062       1,487,634
                                                                ------------    ------------
INVESTING ACTIVITIES
    Purchases of securities available-for-sale                   (25,116,544)    (10,050,881)
    Proceeds from sales of securities available-for-sale                  --         119,400
    Proceeds from maturities of securities available-for-sale      9,451,000      10,212,584
    Proceeds from maturities of securities held-to-maturity        2,248,974       1,249,365
    Net (increase) decrease in Federal funds sold and
        securities purchased under resell agreements               9,922,000      (8,705,000)
    Net (increase) decrease in interest-bearing
        deposits in banks                                             99,532         (17,538)
    Net increase in loans                                        (28,900,019)    (21,797,756)
    Purchase of premises and equipment                            (1,021,177)        (92,154)
                                                                ------------    ------------

              Net cash used in investing activities              (33,316,234)    (29,081,980)
                                                                ------------    ------------
FINANCING ACTIVITIES
    Net increase in deposits                                      30,105,306      30,782,205
    Net increase (decrease) in securities sold under
              repurchase agreements                                  239,901        (251,834)
    Dividends paid                                                  (512,738)       (447,922)
    Proceeds from exercise of stock options                           65,629         208,199
    Purchase of treasury stock                                            --        (618,875)
                                                                ------------    ------------

              Net cash provided by financing activities           29,898,098      29,671,773
                                                                ------------    ------------

Net increase (decrease) in cash and due from banks                  (655,074)      2,077,427

Cash and due from banks at beginning of year                       7,651,995       5,574,568
                                                                ------------    ------------

Cash and due from banks at end of year                          $  6,996,921    $  7,651,995
                                                                ============    ============
</TABLE>


                                  F-8
<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

                                                          1998            1997
                                                        -----------  -----------

SUPPLEMENTAL DISCLOSURES 
    Cash paid for:
        Interest                                        $6,598,995   $5,340,719

        Income taxes                                    $1,464,454   $1,257,059

NONCASH TRANSACTION
    Unrealized gains on securities available-for-sale   $  (50,436)  $ (104,059)

See Notes to Consolidated Financial Statements.


                                  F-9

<PAGE>

                           FIRST STERLING BANKS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Nature of Business

                  First Sterling Banks, Inc. (the "Company") is a multi-bank
                  holding company whose business is conducted by its
                  wholly-owned subsidiaries, The Westside Bank & Trust Company
                  and The Eastside Bank & Trust Company, (the "Banks"). The
                  Banks are commercial banks located in Cobb and Gwinnett
                  Counties, Georgia, respectively. The Banks provide a full
                  range of banking services in their primary market areas of
                  Cobb, Gwinnett and surrounding counties. The Eastside Bank &
                  Trust Company has a wholly-owned subsidiary, Eastside
                  Financial Services, Inc., which originates, sells and services
                  loans made under the Small Business Administration (SBA)
                  Program.

            Basis of Presentation

                  The consolidated financial statements include the accounts of
                  the Company and its subsidiaries. Significant intercompany
                  transactions and accounts are eliminated in consolidation.

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles requires management
                  to make estimates and assumptions that affect the reported
                  amounts of assets and liabilities and disclosures of
                  contingent assets and liabilities at the date of the
                  consolidated financial statements and the reported amounts of
                  revenues and expenses during the reporting period. Actual
                  results could differ from those estimates.

            Cash and Due From Banks

                  Cash on hand, cash items in process of collection, and amounts
                  due from banks are included in cash and due from banks.

                  The Company maintains amounts due from banks which, at times,
                  may exceed Federally insured limits. The Company has not
                  experienced any losses in such accounts.


                                  F-10

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            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 sheet. 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. Securities purchased
                  under resell agreements averaged approximately $9,644,000 and
                  $21,759,000 during 1998 and 1997, respectively, and the
                  maximum amounts outstanding at any month-end during 1998 and
                  1997 was $86,500,000 and $232,000,000, respectively.

            Securities

                  Securities are classified based on management's intention on
                  the date of purchase. Securities which management has the
                  intent and ability to hold to maturity would be classified as
                  held-to-maturity and reported at amortized cost. All other
                  debt securities are classified as available-for-sale and
                  carried at fair value with net unrealized gains and losses
                  included in stockholders' equity, net of tax. Equity
                  securities without a readily determinable fair value are
                  included in securities available-for-sale and carried at cost.

                  Interest and dividends on securities, including amortization
                  of premiums and accretion of discounts, are included in
                  interest income. Realized gains and losses from the sale of
                  securities are determined using the specific identification
                  method.

            Loans

                  Loans are carried at their principal amounts outstanding less
                  net deferred loan fees and costs and the allowance for loan
                  losses. Interest income on loans is credited to income based
                  on the principal amount outstanding.

                  Nonrefundable loan fees and certain direct loan origination
                  costs are deferred with the net amount recognized into income
                  over the life of the loans as a yield adjustment.


                                  F-11
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Loans (Continued)

                  The allowance for loan losses is maintained at a level that
                  management believes to be adequate to absorb potential losses
                  in the loan portfolio. Management's determination of the
                  adequacy of the allowance is based on an evaluation of the
                  portfolio, past loan loss experience, current economic
                  conditions, volume, growth, composition of the loan portfolio,
                  and other risks inherent in the portfolio. This evaluation is
                  inherently subjective as it requires material estimates that
                  are susceptible to significant change including the amounts
                  and timing of future cash flows expected to be received on
                  impaired loans. In addition, regulatory agencies, as an
                  integral part of their examination process, periodically
                  review the Company's allowance for loan losses, and may
                  require the Company to record additions to the allowance based
                  on their judgment about information available to them at the
                  time of their examinations.

                  The accrual of interest on loans is discontinued when, in
                  management's opinion, the borrower may be unable to meet
                  payments as they become due. Interest income is subsequently
                  recognized only to the extent cash payments are received.

                  A loan is considered to be impaired when it is probable the
                  Company will be unable to collect all principal and interest
                  payments due in accordance with the terms of the loan
                  agreement. Individually identified impaired loans are measured
                  based on the present value of payments expected to be
                  received, using the contractual loan rate as the discount
                  rate. Alternatively, measurement may be based on observable
                  market prices or, for loans that are solely dependent on the
                  collateral for repayment, measurement may be based on the fair
                  value of the collateral. If the recorded investment in the
                  impaired loan exceeds the measure of fair value, a valuation
                  allowance is established as a component of the allowance for
                  loan losses. Changes to the valuation allowance are recorded
                  as a component of the provision for loan losses.

            Sale of Loans

                  The Company originates and sells participations in certain
                  loans. Gains are recognized at the time the sale is
                  consummated. The amount of gain recognized on the sale of a
                  specific loan is equal to the percentage resulting from
                  determining the fair value of the portion sold as compared to
                  the fair value of the entire loan. Losses are recognized at
                  the time the loan is identified as held for sale and the
                  loan's carrying value exceeds its fair value.


                                  F-12
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Premises and Equipment

                  Premises and equipment are stated at cost less accumulated
                  depreciation. Depreciation is computed principally by the
                  straight-line method over the estimated useful lives of the
                  assets.

            Other Real Estate Owned

                  Other real estate owned represents properties acquired through
                  foreclosure. Other real estate owned is held for sale and is
                  carried at the lower of the recorded amount of the loan or
                  fair value of the properties less estimated selling costs. Any
                  write-down to fair value at the time of transfer to other real
                  estate owned is charged to the allowance for loan losses.
                  Subsequent gains or losses on sale and any subsequent
                  adjustment to the value are recorded as other expenses.

            Income Taxes

                  Income tax expense consists of current and deferred taxes.
                  Current income tax provisions approximate taxes to be paid or
                  refunded for the applicable year. Deferred income tax assets
                  and liabilities are determined using the balance sheet method.
                  Under this method, the net deferred tax asset or liability is
                  determined based on the tax effects of the differences between
                  the book and tax bases of the various balance sheet assets and
                  liabilities and gives current recognition to changes in tax
                  rates and laws.

                  Recognition of deferred tax balance sheet amounts is based on
                  management's belief that it is more likely than not that the
                  tax benefit associated with certain temporary differences, tax
                  operating loss carryforwards and tax credits will be realized.
                  A valuation allowance would be recorded for those deferred tax
                  items for which it is more likely than not that realization
                  would not occur.

                  The Company and the Banks file a consolidated income tax
                  return. Each entity provides for income taxes based on its
                  contribution to income taxes (benefits) of the consolidated
                  group.

            Earnings Per Common Share

                  Basic earnings per common share are computed by dividing net
                  income by the weighted-average number of shares of common
                  stock outstanding. Diluted earnings per share are computed by
                  dividing net income by the sum of the weighted-average number
                  of shares of common stock outstanding and potential common
                  shares. Potential common shares consist of stock options.


                                    F-13
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

            Comprehensive Income

                  In 1998, the Company adopted Statement of Financial Standards
                  ("SFAS") No. 130, "Reporting Comprehensive Income". This
                  statement establishes standards for reporting and display of
                  comprehensive income and its components in the financial
                  statements. This statement requires that all items that are
                  required to be recognized under accounting standards as
                  components of comprehensive income be reported in a financial
                  statement that is displayed in equal prominence with the other
                  financial statements. The Company has elected to report
                  comprehensive income in a separate financial statement titled
                  "Consolidated Statements of Comprehensive Income". SFAS No.
                  130 describes comprehensive income as the total of all
                  components of comprehensive income including net income. This
                  statement uses other comprehensive income to refer to
                  revenues, expenses, gains and losses that under generally
                  accepted accounting principles are included in comprehensive
                  income but excluded from net income. Currently, the Company's
                  other comprehensive income consists of items previously
                  reported directly in equity under SFAS No. 115, "Accounting
                  for Certain Investments in Debt and Equity Securities". As
                  required by SFAS No. 130, the financial statements for the
                  prior year have been reclassified to reflect application of
                  the provisions of this statement. The adoption of this
                  statement did not affect the Company's financial position,
                  results of operations or cash flows.

            Recent Accounting Pronouncements

                  In June 1998, the Financial Accounting Standards Board issued
                  SFAS No. 133, "Accounting for Derivative Instruments and
                  Hedging Activities". This statement is required to be adopted
                  for fiscal years beginning after June 15, 1999. However, the
                  statement permits early adoption as of the beginning of any
                  fiscal quarter after its issuance. The Company expects to
                  adopt this statement effective January 1, 2000. SFAS No. 133
                  requires the Company to recognize all derivatives as either
                  assets or liabilities in the balance sheet at fair value. For
                  derivatives that are not designated as hedges, the gain or
                  loss must be recognized in earnings in the period of change.
                  For derivatives that are designated as hedges, changes in the
                  fair value of the hedged assets, liabilities, or firm
                  commitments must be recognized in earnings or recognized in
                  other comprehensive income until the hedged item is recognized
                  in earnings, depending on the nature of the hedge. The
                  ineffective portion of a derivative's change in fair value
                  must be recognized in earnings immediately. Management has not
                  yet determined what effect the adoption of SFAS No. 133 will
                  have on the Company's earnings or financial position.


                                    F-14
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2      SECURITIES

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

<TABLE>
<CAPTION>
                                                 Gross          Gross        
                                Amortized      Unrealized     Unrealized         Fair
                                  Cost           Gains          Losses           Value
                              ------------   ------------    ------------    ------------
<S>                           <C>            <C>             <C>             <C>         
Securities Available-for-Sale                                              
  December 31, 1998:
  U. S. Government and
    agency securities         $ 14,242,351   $     28,549    $    (50,343)   $ 14,220,557
  State and municipal
    securities                   6,479,273        203,134          (4,888)      6,677,519
  Mortgage-backed
    securities                  13,166,038         55,640         (19,299)      13,202,37
  Equity securities                578,600           --              --           578,600
                              ------------   ------------    ------------    ------------
                              $ 34,466,262   $    287,323    $    (74,530)   $ 34,679,055
                              ============   ============    ============    ============

  December 31, 1997:
  U. S. Government and
    agency securities         $  6,230,971   $     23,622    $     (3,050)   $  6,251,543
  State and municipal
    securities                   4,765,041        128,926          (1,101)      4,892,866
  Mortgage-backed
    securities                   7,491,706         27,781         (13,821)      7,505,666
  Equity securities                313,000           --              --           313,000
                              ------------   ------------    ------------    ------------
                              $ 18,800,718   $    180,329    $    (17,972)   $ 18,963,075
                              ============   ============    ============    ============

<CAPTION>
                                                 Gross          Gross        
                                Amortized      Unrealized     Unrealized         Fair
                                  Cost           Gains          Losses           Value
                              ------------   ------------    ------------    ------------
Securities Held-to-Maturity
  December 31, 1997:
  U. S. Government and
    agency securities         $  2,248,974   $       --      $    (10,689)   $  2,238,285
                              ============   ============    ============    ============
</TABLE>


                                    F-15
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2      SECURITIES (Continued)

            The amortized cost and fair value of securities as of December 31,
            1998 by contractual maturity are shown below. Maturities may differ
            from contractual maturities of mortgage-backed securities because
            the mortgages underlying the securities may be called or prepaid
            with or without penalty. Therefore, these securities and equity
            securities are not included in the maturity categories in the
            following summary.

                                                          Securities
                                                       Available-for-Sale
                                                   --------------------------
                                                    Amortized       Fair
                                                       Cost         Value
                                                   ------------- ------------

            Due in one year or less                $  1,201,232  $ 1,204,988
            Due from one year to five years           7,705,705    7,763,533
            Due from five to ten years                8,958,108    9,067,598
            Due after ten years                       2,856,579    2,861,957
            Mortgage-backed securities               13,166,038   13,202,379
            Equity securities                           578,600      578,600
                                                   ------------  -----------
                                                   $ 34,466,262  $34,679,055
                                                   ============  ===========

            Securities with a carrying value of $26,731,000 and $15,437,000 at
            December 31, 1998 and 1997, respectively, were pledged to secure
            public deposits and for other purposes.

            Gross gains and losses on sales of securities available-for-sale
            consist of the following:

                                                          December 31,
                                                   ------------------------
                                                        1998         1997
                                                   ------------  ----------

               Gross gains                         $       --    $       --
               Gross losses                                --          (600)
                                                   ------------  ----------
               Net realized losses                 $       --    $     (600)
                                                   ============  ==========


                                    F-16
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 3      LOANS AND ALLOWANCE FOR LOAN LOSSES

            The composition of loans is summarized as follows:

                                                         December 31,
                                                 ------------------------------
                                                      1998             1997
                                                 -------------    -------------
Commercial, financial, and agricultural          $  28,124,000    $  24,768,799
Real estate - construction                          33,576,000       35,840,760
Real estate - mortgage                              66,740,000       39,560,475
Consumer instalment and other                        7,478,169        6,946,810
                                                 -------------    -------------
                                                   135,918,169      107,116,844
Deferred loan fees and costs                          (293,160)        (387,074)
Allowance for loan losses                           (1,626,699)      (1,379,678)
                                                 -------------    -------------
Loans, net                                        $133,998,310     $105,350,092
                                                 =============    =============

   Changes in the allowance for loan losses are as follows:

                                                           December 31,
                                                  -----------------------------
                                                      1998              1997 
                                                  -----------       -----------
               Balance, beginning of year         $ 1,379,678       $ 1,094,621
                 Provision for loan losses            298,000           444,342
                 Loans charged off                    (68,566)         (188,120)
                 Recoveries of loans previously                    
                   charged off                         17,587            28,835
                                                  -----------       -----------
               Balance, end of year               $ 1,626,699       $ 1,379,678
                                                  ===========       ===========


                                    F-17
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 3      LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

            The total recorded investment in impaired loans was $39,971 and
            $41,501 at December 31, 1998 and 1997, respectively. There were no
            impaired loans that had related allowances for loan losses
            determined in accordance with SFAS No. 114 ("Accounting by Creditors
            for Impairment of a Loan") at December 31, 1998 and 1997. The
            average recorded investment in impaired loans for 1998 and 1997 was
            $97,177 and $191,133, respectively. Interest income recognized on
            impaired loans for cash payments received was not material for the
            years ended December 31, 1998 and 1997.

            The Company has granted loans to certain directors, executive
            officers, and their related entities. The interest rates on these
            loans were substantially the same as rates prevailing at the time of
            the transaction and repayment terms are customary for the type of
            loan involved. Changes in related party loans for the year ended
            December 31, 1998 are as follows:

               Balance, beginning of year                           $5,669,724
                 Advances                                            1,570,804
                 Repayments                                         (1,312,528)
                                                                    -----------
               Balance, end of year                                 $5,928,000
                                                                    ===========

NOTE 4      PREMISES AND EQUIPMENT

            Premises and equipment are summarized as follows:

                                                            December 31,
                                                     -------------------------
                                                          1998          1997
                                                     -----------   -----------

         Land                                        $ 2,184,995   $ 1,470,790
         Buildings                                     3,887,711     3,887,711
         Equipment                                     1,588,765     1,354,770
         Construction in progress, estimated
            cost to complete $1,500,000                   73,415            --
                                                     -----------   -----------
                                                       7,734,886     6,713,271

         Accumulated depreciation                     (1,896,125)   (1,606,288)
                                                     -----------   -----------
                                                     $ 5,838,761   $ 5,106,983
                                                     ===========   ===========


                                    F-18
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5      DEPOSITS

            At December 31, 1998, the scheduled maturities of time deposits are
            as follows:

                1999                                               $ 69,455,690
                2000                                                 14,586,483
                2001                                                  6,237,037
                2002                                                    765,535
                2003                                                  1,854,049
                Thereafter                                              119,314
                                                                   ------------
                                                                   $ 93,018,108
                                                                   ============

NOTE 6      EMPLOYEE BENEFIT PLANS

            The Company has a 401(k) retirement plan covering substantially all
            employees. Contributions to the plan charged to expense during 1998
            and 1997 amounted to $52,951 and $47,044, respectively.

            The Company implemented deferred compensation agreements in 1997 for
            certain of its key officers. Amounts charged to expense under these
            agreements totaled $24,000 and $67,456 for the years ended at
            December 31, 1998 and 1997, respectively.


                                    F-19

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7      STOCK OPTIONS

            The Company has two incentive stock option plans with 423,000 shares
            of common stock reserved for options to key employees. At December
            31, 1998, 140,690 common stock options were available to grant under
            these plans.

            The Company also reserved 237,370 shares of common stock for options
            to directors. At December 31, 1998, there were no options available
            to grant under this plan.

            Option prices under these plans are equal to the fair value of the
            Company's common stock on the date of the grant. The options expire
            in ten years from date of grant. Other pertinent information related
            to the options is as follows:

<TABLE>
<CAPTION>
                                                      December 31,
                                          ---------------------------------------
                                                 1998                1997
                                          -------------------  ------------------
                                                     Weighted-           Weighted-
                                                     Average              Average
                                                     Exercise             Exercise
                                           Number     Price     Number     Price
                                          --------  ---------  --------   -------
<S>                                        <C>        <C>       <C>        <C>   
Under option, beginning of year            452,096    $ 6.44    347,530    $ 4.96
   Granted                                  43,010     13.98    157,900      9.11
   Exercised                                (9,314)     7.05    (46,668)     4.46
   Terminated                              (29,894)     9.80     (6,666)     6.50
                                          --------             --------
Under option, end of year                  455,898      6.92    452,096      6.44
                                          ========             ========

Exercisable, end of year                   395,599      6.13    371,530      5.92
                                          ========             ========

Weighted-average fair value of
  options granted during the year             5.65                 5.02
                                          ========             ========
</TABLE>


                                     F-20
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7      STOCK OPTIONS (Continued)

                                   Under Option, End of Year
               -------------------------------------------------------------
                                                                  Weighted-
                                                                   Average
                                                    Weighted-     Remaining
                                                    Average      Contractual
                                 Range of           Exercise       Life in
                Number            Prices             Price          Years
               ----------     ----------------     ----------    -----------

                 218,490      $   3.95 - 5.29      $    4.55          6
                 198,958      $   6.20 - 9.25      $    8.15          8
                  38,450      $ 12.50 - 16.50      $   13.95         10
               ---------
                 455,898
               =========

                            Options Exercisable, End of Year
               -------------------------------------------------------------

                 218,490      $   3.95 - 5.29      $    4.55          6
                 177,109      $   6.20 - 9.25           8.08          8
               ---------
                 395,599
               =========

            As permitted by SFAS No. 123 ("Accounting for Stock-Based
            Compensation"), the Company recognizes compensation cost for
            stock-based employee compensation awards in accordance with APB
            Opinion No. 25, ("Accounting for Stock Issued to Employees"). The
            Company recognized no compensation cost for stock-based employee
            compensation awards for the years ended December 31, 1998 and 1997.
            If the Company had recognized compensation cost in accordance with
            SFAS No. 123, net income and earnings per share would have been
            reduced as follows:

                                                     December 31, 1998
                                            -----------------------------------
                                                           Basic      
                                                         Earnings     Diluted 
                                               Net          Per       Earnings
                                             Income        Share     Per Share
                                            ----------   ---------   ----------

           As reported                      $2,471,194   $    0.94   $     0.86
           Stock-based compensation,
              net of related tax effect        (28,846)      (0.01)       (0.01)
                                            ----------   ---------   ----------
           As adjusted                      $2,442,348   $    0.93   $     0.85
                                            ==========   =========   ==========


                                     F-21
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7      STOCK OPTIONS (Continued)

                                                    December 31, 1997
                                            -----------------------------------
                                                           Basic      
                                                         Earnings     Diluted 
                                               Net          Per       Earnings
                                             Income        Share     Per Share
                                            ----------   ---------   ----------

           As reported                      $2,166,667   $    0.83   $     0.78
           Stock-based compensation,
              net of related tax effect       (162,391)      (0.06)       (0.06)
                                            ----------   ---------   ----------
           As adjusted                      $2,004,276   $    0.77   $     0.72
                                            ==========   =========   ==========

            The fair value of the options granted during the year was based upon
            the discounted value of future cash flows of the options using the
            following weighted-average assumptions:

                                                                  December 31,
                                                               -----------------
                                                                1998      1997
                                                               --------  -------

                Risk-free interest rate                          5.12%    5.97%
                Expected life of the options                   7 years   7 years
                Expected dividends (as a percent of
                 the fair value of the stock)                    1.71%    1.98%
                Volatility                                      37.79%   18.50%


                                     F-22
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8      INCOME TAXES

            Income tax expense consists of the following:

                                                              December 31,
                                                       -------------------------
                                                           1998          1997
                                                       -----------   -----------

                Current                                $1,269,848    $1,187,584
                Deferred                                  (41,072)      (67,390)
                                                       -----------   -----------
                         Income tax expense            $1,228,776    $1,120,194
                                                       ===========   ===========

            The Company's income tax expense differs from the amounts computed
            by applying the Federal income tax statutory rates to income before
            income taxes. A reconciliation of the differences is as follows:

<TABLE>
<CAPTION>
                                                   December 31,
                            ---------------------------------------------------------
                                        1998                           1997
                            --------------------------     --------------------------
                               Amount        Percent          Amount         Percent
                            -----------    -----------     -----------    -----------
<S>                         <C>                     <C>    <C>                     <C>
Income taxes at statutory
 rate                       $ 1,257,990             34%    $ 1,117,531             34%
  Tax-exempt interest           (75,555)            (2)        (61,943)            (2)
  State income taxes             86,780              3          52,663              1
  Other items, net              (40,439)            (2)         11,943             --
                            -----------    -----------     -----------    -----------
Income tax expense          $ 1,228,776             33%    $ 1,120,194             33%
                            ===========    ===========     ===========    ===========
</TABLE>


                                     F-23
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8      INCOME TAXES (Continued)

            The components of deferred income taxes are as follows:

                                                            December 31,
                                                      ------------------------
                                                          1998          1997
                                                      ----------   -----------
         Deferred tax assets:
           Loan loss reserves                         $  396,103   $   359,239
           Deferred loan fees and costs                   90,770       127,776
                                                      ----------   -----------
                                                         486,873       487,015
                                                      ----------   -----------
         Deferred tax liabilities:
           Depreciation                                   60,558        78,260
           Securities available-for-sale                  71,547        55,074
           Other                                          35,316        58,828
                                                      ----------   -----------
                                                         167,421       192,162
                                                      ----------   -----------

         Net deferred tax assets                      $  319,452   $   294,853
                                                      ==========   ===========

NOTE 9      EARNINGS PER COMMON SHARE

            The following is a reconciliation of net income and weighted-average
            shares outstanding used in determining basic and diluted earnings
            per common share (EPS):

                                              Year Ended December 31, 1998
                                        ----------------------------------------
                                           Net      Weighted-Average  Per share
                                          Income         Shares         Amount
                                        -----------   -------------   ----------

             Basic EPS                  $ 2,471,194      2,628,868    $     0.94
                                                                      ==========
             Effect of Dilutive
               Securities
               Stock options                     -         247,016
                                        -----------   ------------
             Diluted EPS                $ 2,471,194      2,875,884    $     0.86
                                        ===========   ============    ==========


                                     F-24
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9      EARNINGS PER COMMON SHARE (Continued)

                                              Year Ended December 31, 1997
                                         ---------------------------------------
                                            Net      Weighted-Average  Per share
                                           Income         Shares        Amount
                                         -----------   -------------   ---------

             Basic EPS                   $ 2,166,667      2,608,212    $    0.83
                                                                       =========
             Effect of Dilutive 
               Securities Stock options           --        165,234
                                         -----------   ------------
             Diluted EPS                 $ 2,166,667      2,773,446    $    0.78
                                         ===========   ============    =========

NOTE 10      COMMITMENTS AND CONTINGENT LIABILITIES

            In the normal course of business, the Company has entered into
            off-balance sheet financial instruments which are not reflected in
            the financial statements. These financial instruments include
            commitments to extend credit and standby letters of credit. Such
            financial instruments are included in the financial statements when
            funds are disbursed or the instruments become payable. These
            instruments involve, to varying degrees, elements of credit risk in
            excess of the amount recognized in the balance sheet.

            The Company's exposure to credit loss in the event of nonperformance
            by the other party to the financial instrument for commitments to
            extend credit and standby letters of credit is represented by the
            contractual amount of those instruments. A summary of the Company's
            commitments is as follows:

                                                           December 31,
                                                     --------------------------
                                                         1998           1997
                                                     -----------   ------------

         Commitments to extend credit                $42,951,000   $ 35,017,000
         Standby letters of credit                       436,000        384,000
                                                     -----------   ------------
                                                     $43,387,000   $ 35,401,000
                                                     ===========   ============


                                     F-25
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 10     COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

            Commitments to extend credit 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. The credit risk involved in issuing these
            financial instruments is essentially the same as that involved in
            extending loans to customers. 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 customer.
            Collateral held varies but may include real estate and improvements,
            marketable securities, accounts receivable, inventory, equipment,
            and personal property.

            Standby letters of credit are conditional commitments issued by the
            Company 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 the same as that involved in extending
            loans to customers. Collateral held varies as specified above and is
            required in instances which the Company deems necessary.

            In the normal course of business, the Company is involved in various
            legal proceedings. In the opinion of management of the Company, any
            liability resulting from such proceedings would not have a material
            effect on the Company's financial statements.

            Year 2000 Disclosures

            The Year 2000 issue is the result of computer programs being written
            using two digits rather than four to define the applicable year.
            Systems that do not properly recognize the year "2000" could
            generate erroneous data or cause systems to fail. The Company is
            heavily dependent on computer processing and telecommunication
            systems in the daily conduct of business activities. In addition,
            the Company must rely on intermediaries, vendors and customers to
            appropriately modify their systems in order that all may continue
            normal operations and operate without significant disruptions. The
            Company has conducted a review of its computer systems to identify
            the systems that could be affected by the Year 2000 issue. The
            Company presently believes that, with modifications to its computer
            systems and conversions to new systems, the Year 2000 issue will not
            pose significant operational problems for the Company or have a
            material adverse effect on future operating results. However,
            absolute assurance cannot be given that; (1) the modifications and
            conversions will remedy all deficiencies, (2) failure of any of the
            Company's systems will not have a material impact on operations, or
            (3) failure of any other companies' systems with whom the Company
            conducts business will not have a material impact on operations.


                                     F-26
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 11.    CONCENTRATIONS OF CREDIT

            The Company originates primarily commercial, residential, and
            consumer loans to customers in Cobb and Gwinnett Counties and
            surrounding counties. The ability of the majority of the Company's
            customers to honor their contractual loan obligations is dependent
            on the economy in these areas.

            Seventy-four percent of the Company's loan portfolio is concentrated
            in loans secured by real estate, of which a substantial portion is
            secured by real estate in the Company's primary market areas.
            Accordingly, the ultimate collectibility of the loan portfolio is
            susceptible to changes in market conditions in the Company's primary
            market areas. The other significant concentrations of credit by type
            of loan are set forth in Note 3.

            The Banks, as a matter of policy, do not generally extend credit to
            any single borrower or group of related borrowers in excess of 25%
            of the Banks' statutory capital, which amounted to $2,000,000 for
            The Westside Bank & Trust Company and $1,700,000 for The Eastside
            Bank & Trust Company.

NOTE 12     REGULATORY MATTERS

            The Banks are subject to certain restrictions on the amount of
            dividends that may be declared without prior regulatory approval. At
            December 31, 1998, approximately $1,307,000 of retained earnings
            were available for dividend declaration without regulatory approval.

            The Company and the Banks are subject to various regulatory capital
            requirements administered by the federal banking agencies. Failure
            to meet minimum capital requirements can initiate certain mandatory,
            and possibly additional discretionary actions by regulators that, if
            undertaken, could have a direct material effect on the financial
            statements. Under capital adequacy guidelines and the regulatory
            framework for prompt corrective action, the Company and Banks must
            meet specific capital guidelines that involve quantitative measures
            of the assets, liabilities, and certain off-balance-sheet items as
            calculated under regulatory accounting practices. The Company and
            Banks' capital amounts and classification are 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 Company and the Banks to maintain minimum
            amounts and ratios of Total and Tier I capital to risk-weighted
            assets and of Tier I capital to average assets. Management believes,
            as of December 31, 1998, the Company and the Banks meet all capital
            adequacy requirements to which they are subject.


                                     F-27
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12     REGULATORY MATTERS (Continued)

            As of December 31, 1998, the most recent notification from the FDIC
            categorized the Banks as well capitalized under the regulatory
            framework for prompt corrective action. To be categorized as well
            capitalized, the Banks must maintain minimum total risk-based, Tier
            I risk-based, and Tier I leverage ratios as set forth in the
            following table. There are no conditions or events since that
            notification that management believes have changed the Banks'
            category.

            The Company and Banks' actual capital amounts and ratios are
            presented in the following table.

<TABLE>
<CAPTION>
                                                                         To Be Well
                                                                        Capitalized
                                                                           Under
                                                                           Prompt
                                                        For Capital      Corrective
                                                         Adequacy          Action
                                       Actual            Purposes        Provisions
                                  -----------------  ----------------- ---------------
                                  Amount    Ratio    Amount    Ratio   Amount   Ratio
                                  --------  -------  -------- -------- -------  ------
                                                (Dollars in Thousands)
                                  ----------------------------------------------------
<S>                               <C>       <C>      <C>        <C>    <C>       <C> 
             As of December 31,
              1998:
             Total Capital
               (to Risk Weighted
               Assets):
               Consolidated       $ 19,663  12.19%   $12,908    8.00%  $16,135   10.00%
               Westside           $ 10,727  13.35%   $ 6,428    8.00%  $ 8,035   10.00%
               Eastside           $ 8,668   10.69%   $ 6,488    8.00%  $ 8,110   10.00%
             Tier I Capital
               (to Risk Weighted
               Assets):
               Consolidated       $ 18,037  11.18%   $ 6,454    4.00%  $ 9,681   6.00%
               Westside           $ 9,911   12.34%   $ 3,214    4.00%  $ 4,821   6.00%
               Eastside           $ 7,858    9.69%   $ 3,244    4.00%  $ 4,866   6.00%
             Tier I Capital
               (to Average
               Assets):
               Consolidated       $ 18,037   9.01%   $ 8,012    4.00%  $10,015   5.00%
               Westside           $ 9,911    8.75%   $ 4,529    4.00%  $ 5,661   5.00%
               Eastside           $ 7,858    9.02%   $ 3,483    4.00%  $ 4,354   5.00%
</TABLE>


                                     F-28
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 12      REGULATORY MATTERS (Continued)

<TABLE>
<CAPTION>
                                                                        To Be Well
                                                                        Capitalized
                                                                          Under
                                                                          Prompt
                                                      For Capital       Corrective
                                                        Adequacy          Action
                                       Actual           Purposes        Provisions
                                  -----------------  ---------------- ----------------
                                  Amount    Ratio    Amount   Ratio   Amount   Ratio
                                  -------- --------  -------- ------- -------- -------
                                                (Dollars in Thousands)
                                  ----------------------------------------------------
<S>                               <C>       <C>      <C>       <C>     <C>       <C>   
             As of December 31,
              1997:
             Total Capital
               (to Risk Weighted
               Assets):
               Consolidated       $17,393   13.90%   $10,009   8.00%   $12,511  10.00%
               Westside           $ 9,501   13.92%   $ 5,460   8.00%   $ 6,825  10.00%
               Eastside           $ 7,596   13.37%   $ 4,546   8.00%   $ 5,683  10.00%
             Tier I Capital
               (to Risk Weighted
               Assets):
               Consolidated       $16,013   12.80%   $ 5,005   4.00%   $ 7,507   6.00%
               Westside           $ 8,684   12.73%   $ 2,730   4.00%   $ 4,095   6.00%
               Eastside           $ 7,033   12.38%   $ 2,273   4.00%   $ 3,410   6.00%
             Tier I Capital
               (to Average
               Assets):
               Consolidated       $16,013    6.52%   $ 9,824   4.00%  $ 12,280   5.00%
               Westside           $ 8,684    5.03%   $ 6,903   4.00%   $ 8,629   5.00%
               Eastside           $ 7,033    9.63%   $ 2,921   4.00%   $ 3,651   5.00%
</TABLE>


                                     F-29
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13     FAIR VALUE OF FINANCIAL INSTRUMENTS

            The following methods and assumptions were used by the Company in
            estimating its fair value disclosures for financial instruments. In
            cases where quoted market prices are not available, fair values are
            based on estimates using discounted cash flow models. Those models
            are significantly affected by the assumptions used, including the
            discount rates and estimates of future cash flows. In that regard,
            the derived fair value estimates cannot be substantiated by
            comparison to independent markets and, in many cases, could not be
            realized in immediate settlement of the instrument. The use of
            different methodologies may have a material effect on the estimated
            fair value amounts. Also, the fair value estimates presented herein
            are based on pertinent information available to management as of
            December 31, 1998 and 1997. Such amounts have not been revalued for
            purposes of these financial statements since those dates and,
            therefore, current estimates of fair value may differ significantly
            from the amounts presented herein.

      Cash, Due From Banks, Interest-Bearing Deposits in Banks, Federal Funds
      Sold, and Securities Purchased Under Resale Agreements:

            The carrying amounts of cash, due from banks, interest-bearing
            deposits in banks, Federal funds sold, and securities purchased
            under resell agreements approximate their fair value.

      Securities:

            Fair values for securities are based on available quoted market
            prices. The carrying values of equity securities with no readily
            determinable fair value approximate fair value.

      Loans:

            For variable-rate loans that reprice frequently and have no
            significant change in credit risk, fair values are based on carrying
            values. For other loans, the fair values are estimated using
            discounted cash flow models, using current market interest rates
            offered for loans with similar terms to borrowers of similar credit
            quality. Fair values for impaired loans are estimated using
            discounted cash flow models or based on the fair value of the
            underlying collateral.


                                     F-30
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13     FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

      Deposits:

            The carrying amounts of demand deposits, savings deposits, and
            variable-rate certificates of deposit approximate their fair values.
            Fair values for fixed-rate certificates of deposit are estimated
            using discounted cash flow models, using current market interest
            rates offered on certificates with similar remaining maturities.

      Securities Sold Under Repurchase Agreements:

            The carrying amount of securities sold under repurchase agreements
            approximates their fair value.

      Accrued Interest:

            The carrying amounts of accrued interest approximate their fair
            values.

      Off-Balance Sheet Instruments:

            Fair values of the Company's off-balance sheet financial instruments
            are based on fees charged to enter into similar agreements. However,
            commitments to extend credit and standby letters of credit do not
            represent a significant value to the Company until such commitments
            are funded. The Company has determined that these instruments do not
            have a distinguishable fair value and no fair value has been
            assigned.


                                     F-31
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13     FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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

<TABLE>
<CAPTION>
                               December 31, 1998             December 31, 1997
                          ---------------------------   ---------------------------
                            Carrying        Fair          Carrying        Fair
                             Amount         Value          Amount         Value
                          ------------   ------------   ------------   ------------
<S>                       <C>            <C>            <C>            <C>         
Financial assets:
  Cash and due from
    banks,
    interest-bearing
    deposits in
    banks , Federal
    funds sold
    and securities
    purchased
    under resell
    agreements            $ 24,591,204   $ 24,591,204   $ 35,267,810   $ 35,267,810
  Securities
    available-for-sale      34,679,055     34,679,055     18,963,075     18,963,075
  Securities
    held-to-maturity                --             --      2,248,974      2,238,285
  Loans                    133,998,310    135,630,724    105,350,092    106,584,761
  Accrued interest
    receivable               1,059,549      1,059,549        927,091        927,091

Financial liabilities:
  Deposits                 181,427,928    182,515,590    151,322,622    151,548,714
  Securities sold under
    repurchase
    agreements                 593,962        593,962        354,061        354,061
  Accrued interest
    payable                    577,451        577,451        602,097        602,097
</TABLE>

NOTE 14     BUSINESS COMBINATION

            On December 30, 1998, the Company entered into a Merger Agreement
            with Georgia Bancshares, Inc. ("GBI") of Tucker, Georgia. Under this
            agreement, GBI will merge with and into the Company. Immediately
            prior to the consummation of the merger, the Company intends to
            declare a 28.58% stock dividend payable to Company stockholders.
            Upon consummation of the merger, each share of GBI stock will be
            converted into and exchanged for the right to receive one share of
            Company common stock. Consummation is subject to certain conditions,
            including regulatory and stockholder approval.


                                     F-32
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 15     SUPPLEMENTAL FINANCIAL DATA

            Components of other operating income and expenses in excess of 1% of
            total revenue are as follows:

                                                            December 31,
                                                      ------------------------
                                                          1998          1997
                                                      ----------    ----------
         Other income:
            SBA commission income                     $  159,625    $  171,465
            Mortgage origination fee income              216,880        69,366
         Other expense:
            Data processing                              254,754       212,179
            Directors fees                               253,450       182,400

NOTE 16     PARENT COMPANY FINANCIAL INFORMATION

            The following information presents the condensed balance sheets,
            statements of income, and cash flows of First Sterling Banks, Inc.
            as of and for the years ended December 31, 1998 and 1997:

                            CONDENSED BALANCE SHEETS

                                                         1998           1997
                                                     ------------   -----------
         Assets

           Cash                                      $   195,139    $   274,125
           Investment in subsidiaries                 17,959,940     15,824,662
           Other assets                                   22,300         46,623
                                                     -----------    -----------

                  Total assets                       $18,177,379    $16,145,410
                                                     ===========    ===========

         Liabilities                                 $         -    $   25,000

         Stockholders' equity                         18,177,379     16,120,410
                                                     -----------    -----------

         Total liabilities and stockholders' equity  $18,177,379    $16,145,410
                                                     ===========    ===========


                                     F-33
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16     PARENT COMPANY FINANCIAL INFORMATION (Continued)

                         CONDENSED STATEMENTS OF INCOME

                                                          1998          1997
                                                      -----------   -----------

         Income, dividends from subsidiaries          $   512,738   $ 1,171,695
                                                      -----------   -----------

         Expenses
           Merger expenses                                 27,697            --
           Legal and professional                          22,381        24,338
           Other expense                                  180,946       180,663
                                                      -----------   -----------
                  Total expenses                          231,024       205,001
                                                      -----------   -----------
                  Income before income tax benefits
                    and equity in undistributed
                    income of subsidiaries                281,714       966,694

         Income tax benefits                              (87,188)      (70,366)
                                                      -----------   -----------

                  Income before equity in
                    undistributed income
                    of subsidiaries                       368,902     1,037,060

         Equity in undistributed income of
           subsidiaries                                 2,102,292     1,129,607
                                                      -----------   -----------

                  Net income                          $ 2,471,194   $ 2,166,667
                                                      ===========   ===========


                                     F-34
<PAGE>

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16     PARENT COMPANY FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS

                                                         1998          1997
                                                      -----------   -----------

       OPERATING ACTIVITIES
         Net income                                   $ 2,471,194   $ 2,166,667
         Adjustments to reconcile net income to net
           cash provided by operating activities:
           Undistributed income of subsidiaries        (2,102,292)   (1,129,607)
           Other operating activities                        (779)       15,988
                                                      -----------   -----------
                Net cash provided by operating
                  activities                              368,123     1,053,048
                                                      -----------   -----------

       FINANCING ACTIVITIES
         Dividends paid                                  (512,738)     (447,922)
         Proceeds from exercise of stock options           65,629       208,199
         Purchase of treasury stock                            --      (618,875)
                                                      -----------   -----------
                Net cash used in financing
                  activities                             (447,109)     (858,598)
                                                      -----------   -----------

       Net increase (decrease) in cash                    (78,986)      194,450

       Cash at beginning of year                          274,125        79,675
                                                      -----------   -----------

       Cash at end of year                            $   195,139   $   274,125
                                                      ===========   ===========

NOTE 17     COMMON STOCK SPLIT

            On February 25, 1998, the Company declared a two-for-one common
            stock split payable on March 30, 1998 to stockholders of record on
            March 16, 1998. The number of shares issued after the split is
            2,757,330, which is reflected in the number of issued shares of
            common stock on the balance sheet. The basic and diluted earnings
            per common share for the year ended December 31, 1997 has been
            adjusted for the increased number of shares of common stock after
            giving effect to the stock split.


                                     F-35