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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 2002

Commission file Number 000-25128

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

Georgia(State of Incorporation)

58-2104977(I.R.S. Employer Identification No.)676 Chastain Road, Kennesaw, GA(Address of principal executive offices)

30144(Zip Code)


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

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

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

Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ý    No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes ý    No o

As
of February 28, 2003 the registrant had outstanding 16,722,399 shares of common stock. As of February 28, 2003, the aggregate market value of the common stock held by
nonaffiliates of the registrant was approximately $213,425,733.

The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at June 30, 2002 was approximately $215,204,600.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the 2003 Annual Meeting of Shareholders are incorporated by reference into
Part III.

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Table of Contents

|         |          |                                                                                      | Page
|-------- | -------- | ------------------------------------------------------------------------------------ | ----
|Part I   |          |                                                                                     
|         | Item 1.  | Business                                                                             |     
|         | Item 2.  | Properties                                                                           |     
|         | Item 3.  | Legal Proceedings                                                                    |     
|         | Item 4.  | Submission of Matters to a vote of Security Holders                                  |     
|Part II  |          |                                                                                     
|         | Item 5.  | Market for the Registrants's Common Stock and Related Stockholder Matters            |     
|         | Item 6.  | Selected Financial Data                                                              |     
|         | Item 7.  | Management's Discussion and Analysis of Plan of Operation                            |     
|         | Item 7A. | Quantitative and Qualitative Disclosure about Market Risk                            |     
|         | Item 8.  | Financial Statements                                                                 |     
|         | Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |     
|Part III |          |                                                                                      |     
|         | Item 10. | Directors and Executive Officers of the Registrant                                   |     
|         | Item 11. | Executive Compensation                                                               |     
|         | Item 12. | Security Ownership of Certain Beneficial Owners and Management                       |     
|         | Item 13. | Certain Relationships and Related Transactions                                       |     
|         | Item 14. | Controls and Procedures                                                              |     
|         | Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                     |     

Forward-Looking Statements

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

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PART 1

ITEM 1. BUSINESS

The Company is a financial holding company which engages through its subsidiaries, Main Street Bank ("the Bank") and Williamson, Musselwhite & Main Street
Insurance, Inc. ("Williamson"), in providing a full range of banking, mortgage banking, investment and insurance services to its retail and commercial customers located primarily in Barrow,
Clarke, Cobb, DeKalb, Forsyth, Fulton, Gwinnett, Newton, Rockdale and Walton counties in Georgia. The Bank, a state chartered commercial bank, provides traditional deposit, lending, mortgage and
securities brokerage services. Prior to January 2, 2001, the Company was known as First Sterling Banks, Inc. On December 29, 2000, former bank subsidiaries, The Westside Bank and
Trust Company ("Westside"), The Eastside Bank and Trust Company ("Eastside") and Community Bank of Georgia ("Community") were merged into the Bank. The Company was incorporated on March 16,
1994 as a Georgia business corporation. The Company's executive offices are located at 676 Chastain Road, Kennesaw, Georgia 30144, and its telephone number is 770-422-2888. The
Bank maintains the following website:www.mainstreetbank.com. The Company's annual reports on Form 10-K, quarterly reports on Forms
10-Q, current reports on Forms 8-K, and all amendments to those reports are available free of charge on this website as soon as reasonably practicable after such material is
electronically filed with the Securities and Exchange Commission. Neither the Company nor the Bank has any foreign activities.

During
2002 the Bank acquired First National Bank of Johns Creek ("Johns Creek"). Johns Creek, a $110 million asset community bank was headquartered in Forsyth County, Georgia.
Johns Creek's banking offices in Suwannee and Alpharetta will give the Bank a strong presence in both Forsyth County and north Fulton County.

This
transaction was completed on December 11, 2002. The $26.2 million merger is based on the Company's closing stock price on July 17, 2002 of $20.48 per share. The
Company issued 647,510 shares of its common stock and $10.7 million in cash in exchange for all outstanding shares of Johns Creek. Johns Creek has adopted the Bank's name effective on
December 11, 2002, with offices opened under the Bank's brand on December 12, 2002. A successful conversion of Johns Creek core processing systems was completed on February 10,
2003.

The
Bank also announced the execution of a definitive agreement to acquire First Colony Bancshares, Inc., ("First Colony") parent of First Colony Bank, a $320 million asset
community bank headquartered in Alpharetta, Georgia. First Colony's banking offices are located in Alpharetta, Roswell, and Cumming. First Colony's banking offices in Alpharetta and Roswell will give
Main Street a strong presence in fast growing North Fulton County, and its Cumming office will augment Main Street's presence in Forsyth County, the fastest growing county in the state of Georgia. The
transaction was unanimously approved by the directors of both companies on December 11, 2002.

In
the transaction, First Colony shareholders will receive, on a fully diluted basis, a total of 2.6 million Main Street common shares and $45 million in cash. The
transaction is currently valued at $96.0 million based upon the Company's closing price of $19.61 on December 11. This is the equivalent of approximately $184 per First Colony share
outstanding.

During
2002 Williamson acquired Hometown Insurance Center, Inc. ("Hometown")located in Winder Georgia. Hometown is a multi-line independent insurance agency serving
Barrow, Jackson, and Gwinnett Counties.

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

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

The
first merger occurred in 1996 when the Company merged with Eastside Holding Corporation, a one-bank holding company located in Snellville, Gwinnett County, Georgia. In
1999, the Company consummated a merger with Georgia Bancshares, Inc. and thereby acquired Community Bank located in DeKalb County, Georgia. In May of 2000, the Company consummated a merger with
the former Main Street Banks Incorporated, the former parent of the Bank. In December of 2000, the Company consummated a merger with Williamson Insurance Agency, Inc. and Williamson and
Musselwhite Insurance Agency, Inc. In January of 2001, the Company consummated a merger with Walton Bank and Trust Company.

Recent Legislative and Regulatory Developments

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

Market Area and Competition

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

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

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

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

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

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

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

Employees

As of February 28, 2003, the Company had a total of 459 full-time equivalent employees. These employees are provided with fringe benefits in
varying combinations, including health, accident, disability and life insurance plans. None of the Company's employees are subject to a collective bargaining agreement, and the Company has never
experienced a work stoppage. In the opinion of management, the Company enjoys excellent relations with its employees.

Products and Services

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

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

Deposits

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

Insurance Services

The Company provides insurance services to individuals and businesses through its subsidiary, Williamson. Williamson provides a variety of insurance products for
consumers including life, health, homeowners, automobile and umbrella liability coverage. Commercial products include coverage for property, general liability, worker's compensation, and group life
and health. Williamson is an insurance agency and does not underwrite policies but rather acts as a broker.

Investment Services

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

Supervision and Regulation

General

The Company is a financial holding company registered with the Federal Reserve Board ("Federal Reserve") and the Georgia Department of Banking and Finance under
the Bank Holding Company Act of 1956 as amended "Holding Company Act" and the Georgia Bank Holding Company Act, respectively. As a result, it is subject to the supervision, examination and reporting
requirements of

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

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



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

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

Capital Adequacy

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

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

The
minimum guideline for the ratio of total capital ("Total Capital") to risk-weighted assets (including certain off-balance sheet items, such as standby letters
of credit) is 8.0%. At least half of the Total Capital must be composed of common equity, undivided profits, minority interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets ("Tier 1

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Capital"). The remainder may consist of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. The minimum guideline for Tier 1 Capital ratio is 4.0%. At
December 31, 2002, the Company's consolidated Tier 1 Capital and Total Capital ratios were 10.36% and 12.08%, respectively.

In
addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average
assets, less goodwill and certain other intangible assets (the "Leverage Ratio"), of 4.0% for bank holding companies that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 4.0%, plus an additional cushion of 100 to 200 basis points. The Company's Leverage Ratio at
December 31, 2002, was 8.69%.

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

The
Bank is subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar to those adopted by the Federal Reserve. The Bank was
in compliance with applicable minimum capital requirements as of December 31, 2002. Neither the Company nor the Bank has been advised by any federal banking agency of any violations of specific
minimum capital ratio requirement applicable to it.

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

Support of Subsidiary Bank

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

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") establishes a system of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system, which became effective in December 1992, the federal banking regulators are required to establish five capital categories ("well capitalized",
"adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized") and to take certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally,
subject to a narrow exception, FDICIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have
specified by regulation the relevant capital level for each category.

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

An
institution with a Total Capital ratio of 8.0% or greater, a Tier 1 Capital ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be "adequately
capitalized." A depository institution that has a Total Capital ratio of less than 8.0%, a Tier 1 Capital ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be
"undercapitalized." A depository institution that has a Total Capital ratio of less than 6.0%, a Tier 1 Capital ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
"significantly undercapitalized," and an institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be "critically undercapitalized." For purposes of the
regulation, the term "tangible equity" includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible assets with certain exceptions. A depository institution may be deemed to be in a capitalization category that
is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. An institution that is categorized as undercapitalized, significantly undercapitalized,
or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The obligation of a controlling bank holding company under FDICIA to fund a capital restoration
plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets and the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions, establishing any branches, or engaging in any new line of business, except in accordance with an accepted capital restoration
plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with respect to any undercapitalized depository institution to take any of the actions it
is required to or may take with respect to a significantly undercapitalized institution as described below if it determines "that those actions are necessary to carry out the purpose" of FDICIA.

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

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

At
December 31, 2002, the Bank had the requisite capital levels to qualify as well capitalized.

FDIC Insurance Assessments

Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The risk-based system, which went into effect on January 1, 1994, assigns an institution to one of three
capital categories: (i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action
categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective
action purposes. An institution is also assigned by the FDIC to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information which the FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds (which may include, if applicable, information provided by the institution's state supervisor). An institution's insurance assessment rate is then determined
based on the capital category and supervisory category to which it is assigned. Under the final risk-based assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different assessment rates are applied.

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

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

Safety and Soundness Standards

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

The
guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth and compensation, fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal stockholder. In
addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that

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has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. See "Prompt Corrective Action." If an institution
fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. The federal bank regulatory agencies also proposed guidelines
for asset quality and earnings standards.

Depositor Preference

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

Other

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

Risk Factors

Credit Risk and Loan Concentration

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

Potential Impact of Change in Interest Rates

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

Management Information Systems

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

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Merger Integration

A risk facing financial institutions is the successful integration of an acquired institution's staff, accounts, and products. Failure of management to
effectively integrate all aspects of an acquired institution could lead to higher than anticipated account run-off, lower than anticipated profits from these acquired institutions, and
could have a material adverse effect on the operating results and financial conditions of the company.

Potential Impact of Significant Growth

The Company has grown loans, deposits, fee businesses, and employees rapidly both organically and through acquisition. The ability of the Company to manage this
growth in a disciplined manner is imperative. The Company must thoroughly plan on how to support this growth from a human resources, training, operational, financial and technology standpoint. The
failure to successfully manage this growth could have a material adverse effect on the operating results and financial conditions of the company.

Adverse Economic Conditions

The Company's major lending activities are real estate and commercial loans. Residential mortgage loans are also produced for resale. An increase in interest
rates could have a material adverse effect on the housing industries and consumer spending generally. In addition, an increase in interest rates could cause a decline in the value of residential
mortgages. These events could adversely affect the results of operations and financial condition of the Company.

Governmental RegulationBanking

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

Consumer and Debtor Protection Laws

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

Composition of Real Estate Loan Portfolio

The real estate loan portfolio of the Company includes residential mortgages and construction and commercial loans secured by real estate. The Company generates
all of its real estate mortgage loans in Georgia. Therefore, conditions of these real estate markets could strongly influence the level of the

11

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

Monetary Policy

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

ITEM 2. PROPERTIES

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

The
Bank has 23 branch offices located in Barrow, Clarke, Cobb, DeKalb, Forsyth, Fulton, Gwinnett, Newton, Rockdale and Walton counties, Georgia, 20 of which are owned and three of which
are leased. Deposit and loan operations, proof, information technology, and purchasing are located in leased space at 2118 Usher Street in Covington. Human Resources, Accounting, Credit and Compliance
are in leased space at 1122 Pace Street in Covington. The Bank's corporate headquarters is in leased space at 1121 Floyd Street, Covington, Georgia. The bank also leases a building in Covington,
adjacent to the owned facility on Pace Street, which serves as the location of the Branch Operations and Treasury departments.

Certain Transactions

The Company's directors and certain business organizations and individuals associated with them are customers of and have banking transactions with the Bank in
the ordinary course of business. Such transactions include loans, commitments, lines of credit and letters of credit.

All
of those transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other
persons, and did not and do not involve more than normal risk of collectibility or present any other unfavorable features. Additional transactions with these persons and businesses are anticipated in
the future.

Robert
R. Fowler, III, director and former chairman of the board, has entered into seven lease agreements with the Company, through which he leases to the Company buildings that it uses
for its operations center, bank headquarters, human resources, accounting offices, branch operations and treasury offices, as well as the Covington Main Banking Center. The Company believes that the
terms of the lease agreements are at least as favorable to it as terms available from unrelated third parties.

12

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ITEM 3. LEGAL PROCEEDINGS

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

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

None.

PART II

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



The
following table lists the high and low stock price for each quarter in 2002 and 2001:

2002

2001High

Low

High

LowFirst quarter

$
19.08

$
14.60

$
14.69

$
12.25Second quarter


21.74


18.30


19.65


12.50Third quarter


21.75


18.26


19.62


15.50Fourth quarter


20.48


15.95


18.00


15.91




Neither
the Company's articles of incorporation nor the bylaws set forth any restriction on the ability of the Company to issue dividends to its shareholders. The Georgia Business
Corporation Code, though, forbids any distribution which, after being given effect, would leave the Company unable to pay its debts as they become due in the usual course of business. Additionally,
the Georgia Business Corporation Code provides that no distribution shall be made if, after giving it effect, the corporation's total assets would be less than the sum of its total liabilities plus
the amount that would be needed to satisfy any preferential dissolution rights.

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

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

13

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that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.

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



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

The
following table sets forth information relating to the Company's equity compensation plans as of December 31, 2002:

EQUITY COMPENSATION PLAN INFORMATION

|                                                           |  | Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a) |  | Weighted-average exercise price of outstanding options, warrants, and rights
(b) |       | Number of securities remaining available for future issuance under equity compensation plans (excluding securities in column (a)
(c)
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 1,443,913                                                                                        |  | $                                                                                | 10.77 |                                                                                                                                     
|Equity compensation plans not approved by security holders |  | -0-                                                                                              |  |                                                                                  | N/A   |                                                                                                                                     
|Total                                                      |  | 1,443,913                                                                                        |  | $                                                                                | 10.77 |                                                                                                                                     

14

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ITEM 6. SELECTED FINANCIAL DATA

|                                   |       | December 31 |          
|---------------------------------- | ----- | ----------- | ---------
|
|
|Earnings                           |       |             |          
|Interest income                    |       | $           | 79,189   
|Interest expense                   |       |             | 24,891   
|Net interest income                |       |             | 54,298   
|Non-interest income                |       |             | 19,078   
|Non-interest expense               |       |             | 39,873   
|Operating income (1)               |       |             | 20,385   
|Net income                         |       |             | 20,471   
|Selected Average Balances          |       |             |          
|Assets                             |       | $           | 1,194,583
|Earning assets                     |       |             | 1,101,286
|Loans                              |       |             | 857,184  
|Total deposits                     |       |             | 966,238  
|Shareholders' equity               |       |             | 111,579  
|Common shares outstanding, diluted |       |             | 16,186   
|Year-End Balances                  |       |             |          
|Assets                             |       | $           | 1,381,990
|Earning assets                     |       |             | 1,259,942
|Loans                              |       |             | 982,486  
|Total deposits                     |       |             | 1,128,928
|Shareholders' equity               |       |             | 131,657  
|Common shares outstanding          |       |             | 16,242   
|Per Common Share                   |       |             |          
|Earnings per sharebasic           |       | $           | 1.30     
|Earnings per sharediluted         |       |             | 1.26     
|Book value                         |       |             | 8.11     
|Cash dividend paid                 |       |             | 0.42     
|Market price:                      |       |             |          
|                                   | Close |             |          
|                                   | High  |             |          
|                                   | Low   |             |          
|Operating Income Data (1)          |       |             |          
|Earnings per sharebasic           |       | $           | 1.30     
|Earnings per sharediluted         |       |             | 1.26     
|Operating return on average assets |       |             | 1.71     
|Operating return on average equity |       |             | 18.27    
|Price to operating earnings        |       |             | 15.25    
|Financial Ratios                   |       |             |          
|Return on average assets           |       |             | 1.71     
|Return on average equity           |       |             | 18.3     
|Average equity to average assets   |       |             | 9.02     
|Dividend payout ratio (1)          |       |             | 33.21    
|Price to earnings                  |       |             | 15.18    
|Price to book value                |       |             | 2.29     
|Non-Financial                      |       |             |          
|Shareholders                       |       |             | 3,331    
|Employees                          |       |             | 459      
|Banking Offices                    |       |             | 23       
|ATMs                               |       |             | 26       

---

15

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

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

OVERVIEW

The Company provides a collection of sophisticated products through 23 full service banking facilities located throughout the Atlanta, Georgia and Athens, Georgia
MSAs. Banking centers are staffed with seasoned management with significant banking experience. These banking centers are augmented by 26 ATM machines, 3 insurance agency facilities, and a full
service mortgage and brokerage division. The Company has a history of disciplined acquisitions and strong organic growth.

During
2002, the Company successfully completed the acquisition of First National Bank of Johns Creek on December 11. First National Bank of Johns Creek was a $110 million
bank with 2 branch locations and 2 ATM machines. First National Bank of Johns Creek had approximately $94 million in loans and $96 million in deposits.

On
June 10, 2002, Williamson announced the acquisition of Hometown Insurance Center, Inc. located in Winder, Georgia. Founded in 1991, Hometown Insurance Center is a
multi-line independent insurance agency serving Barrow, Jackson and Gwinnett counties. Hometown employs 11 insurance professionals selling business, personal property and casualty
insurance as well as group life and health.

On
December 11, 2002, the Company also announced the signing of a definitive agreement with First Colony Bancshares, Inc., parent of First Colony Bank a $320 million
asset community bank headquartered in Alpharetta, Georgia.

Total
Assets at December 31, 2002, 2001, and 2000 were $1.38 billion, $1.11 billion, and $1.07 billion, respectively. This growth was a result of the Johns
Creek acquisition, a favorable local economy, the addition of new account officers, and the Company's overall growth strategy. Loans increased to $982.5 million at year end 2002 from
$811.4 million at year end 2001 and $736.0 million at year end 2000. Deposits were $1.13 billion at December 31, 2002, an increase of $220.7 million or 24% from
$908.2 million at the end of 2001. Deposits were $885.9 million at year end 2000.

Net
Income was $20.5 million, $14.3 million, and $13.9 million and diluted earnings per common share was $1.30, $0.92, and $0.90 for the years ended
December 31, 2002, 2001, and 2000, respectively. This increase in net income was primarily the result of strong credit quality, strong loan growth, and expense control which resulted in returns
on average assets of 1.71%, 1.35%, and 1.42% and returns on average common shareholders equity of 18.3%, 14.4%, and 16.7% for the years ended 2002, 2001, and 2000, respectively.

Economy

The economy experienced a significant downward trend in 2002 as evidenced by steady increases in unemployment, decreases in industrial production and unfavorable
consumer sentiment. U.S. economic troubles were tempered by interest rate cuts made by the Fed in an effort to stimulate the economy. In November 2002, the Fed cut the Fed funds rate to 1.25%,
its lowest in 40 years.

With
the decline in interest rates, consumer spending increased, thus slowing the downward trend. However, increased consumer spending sustains economic recovery temporarily. Sustained
recovery occurs only when business spending increases. Business spending in 2002 was minimal, as companies slowed investing in extra capacity and inventories. Precautionary measures were taken by U.S.
companies due to uncertainty related to the United States' ongoing conflict with Iraq.

16

---

Sustained
economic recovery is expected in the third quarter of 2003. Timing and speed of recovery is directly dependent upon resolution of the conflict with Iraq.

Over
the course of 2001, the Federal Reserve Board (Fed) reduced interest rates eleven times. At December 31, 2001, the discount, Federal funds, and Prime interest rates had
fallen to 1.25%, 1.75% and 4.75% respectively. Each rate had been reduced 475 basis points since December 31, 2000.

Critical Accounting Policies

The accounting and reporting policies of the Company and its subsidiaries are in accordance with accounting principles generally accepted in the United States of
America and conform to general practices within the banking industry. The Company's significant accounting policies are described in the notes to the consolidated financial statements. Certain
accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and the Company considers
these to be critical accounting policies. The estimates and assumptions we use are based on historical experience and other factors, which management believes to be reasonable under the circumstances.
Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and
results of operations for the reporting periods.

The
Company believes the following are critical accounting policies that require the most significant estimates and assumptions that are particularly susceptible to a significant change
in the preparation of the Company's financial statements.



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



Investment securities are classified into three categories. Debt securities that the Company has the positive intent and ability to hold to maturity are
classified as "held-to-maturity securities" and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling in the
near term are classified as "trading securities" and reported as fair value, with unrealized gains and losses included in earnings. Debt securities not classified as either
held-to-maturity securities or trading securities and equity securities not classified as trading securities are classified as trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive
income. No securities have been classified as trading securities by the Company as of December 31, 2002.

Premiums
and discounts related to securities are amortized or accreted over the life of the related security as an adjustment to the yield using the effective interest method and
considering prepayment assumptions. Dividend and interest income is recognized when earned.

Gains
and losses on sales or calls of securities are recognized on the settlement date based on the adjusted cost basis of the specific security. The financial statement impact of
settlement date accounting versus trade date accounting is not significant. Declines in fair value of individual held to maturity and

17

---

available for sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value.

Performance Results

The Company's net income was $20.5 million, $14.3 million, and $13.9 million for the years ended December 31, 2002, 2001, and 2000,
respectively. Basic earnings per share were $1.30, $0.92, and $0.90 for the same periods, respectively, and diluted earnings per share were $1.26, $0.89 and $0.88 for the same periods. Earnings growth
from 2000 to 2001 and from 2001 to 2002 resulted principally from an increase in non-interest income fueled mainly by insurance agency income, mortgage origination fees, and service
charges on deposit accounts. Earnings growth was further augmented by an increase in net interest income, which was directly related to an increase in the Company's earning assets.

On
an operating basis, which excludes the impact of merger-related expenses and other one-time items, such as merger related professional fees, conversion costs, and Federal
Home Loan Bank Advances being restructured, the Company's net operating earnings were $20.4 million, $17.7 million, and $15.2 million for the years ended December 31, 2002,
2001, and 2000, respectively. Diluted earnings per share on an operating basis were $1.26, $1.10 and $0.96 for the same periods, respectively. Also on an operating basis, the Company posted returns on
average assets of 1.71%, 1.67%, and 1.55% for the same three years, as well as returns on average equity of 18.27%, 17.7%, and 18.2%.

Total
assets at December 31, 2002 and 2001 were $1.382 billion and $1.110 billion, respectively. At the same time, total deposits were $1.129 billion and
$908.2 million. Loans totaled $982.5 million and $811.4 million for the two year-end dates. From year-end 2001 to year-end 2002, the Company
experienced loan growth of $171.0 million, or 21.1%, and and deposit growth of $220.7 million or 24.3%, respectively. Transaction, savings, and money market account growth during this
period increased $99.7 million or 21.6%. Shareholder's equity was $131.7 million and $105.1 million at December 31, 2002 and 2001, respectively.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income for 2002 was $54.3 million compared to $49.5 million in 2001, an increase of 9.7% or $4.8 million. The increase in net
interest income was largely the result of overall balance sheet growth and the corresponding increase in average interest earning assets, which grew 10.4% over the December 31, 2001 level.
Growth in average loans of $81.9 million or 10.6% provided the bulk of the increase in earning assets and contributed most significantly to the growth in net interest income. In a steadily
declining interest rate environment, yields on earning assets declined throughout the year. Interest on earning assets yielded 7.29% in 2002 versus 8.65% in 2001, a 136 basis point decrease. The cost
of interest bearing liabilities decreased 163 basis points from 4.39% to 2.76% for the comparable period.

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

18

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

|                                     |                 | Years Ended December 31, |          
|------------------------------------ | --------------- | ------------------------ | ---------
|
|
|Interest Bearing Assets              |                 |                          |          
|Loans, net of unearned income (1)(2) |                 | $                        | 857,184  
|Mortgage loans held for sale         |                 |                          | 5,106    
|Investment securities:               |                 |                          |          
|                                     | Taxable         |                          |          
|                                     | Non-taxable (3) |                          |          
|Interest-bearing deposits            |                 |                          | 2,330    
|Federal funds sold                   |                 |                          | 48,561   
|                                     |                 |                          |          
|Total interest earnings assets       |                 |                          | 1,101,286
|                                     |                 |                          |          
|Non-interest-earning assets          |                 |                          |          
|Cash and due from banks              |                 |                          | 31,338   
|Allowance for loan losses            |                 |                          | (12,618  
|Premises and equipment               |                 |                          | 27,240   
|Other real estate owned              |                 |                          | 1,656    
|Other assets                         |                 |                          | 45,681   
|                                     |                 |                          |          
|Total assets                         |                 | $                        | 1,194,583
|                                     |                 |                          |          

|                                           |                                              | Years Ended December 31, |          
|------------------------------------------ | -------------------------------------------- | ------------------------ | ---------
|
|
|Interest-Bearing Liabilities:              |                                              |                          |          
|                                           | Demand and money market deposits             |                          | $        
|                                           | Savings deposits                             |                          |          
|                                           | Time deposits                                |                          |          
|                                           | FHLB advances                                |                          |          
|                                           | Federal funds purchased and other borrowings |                          |          
|                                           | Trust preferred securities                   |                          |          
|                                           |                                              |                          |          
|Total interest bearing Liabilities         |                                              |                          | 902,001  
|                                           |                                              |                          |          
|Non-interest-bearing:                      |                                              |                          |          
|                                           | Demand deposits                              |                          |          
|                                           | Other liabilities                            |                          |          
|                                           | Total liabilities                            |                          |          
|                                           | Shareholders' equity                         |                          |          
|                                           |                                              |                          |          
|Total liabilities and Shareholders' equity |                                              | $                        | 1,194,583
|                                           |                                              |                          |          
|Net interest rate spread                   |                                              |                          |          
|Net interest income and margin (4)         |                                              |                          |          

---

The following schedule presents the dollar amount of changes in interest income and interest expense for the major components of interest-earning
assets and interest-bearing liabilities and distinguishes between the change related to higher outstanding balances and the change in interest

19

---

rates. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated to rate.

|                                              |                                              | 2002 vs. 2001 |       | 2001 vs. 2000 |  
|--------------------------------------------- | -------------------------------------------- | ------------- | ----- | ------------- | -
|
|
|Interest-earning assets:                      |                                              |               |       |               |  
|                                              | Loans                                        |               | $     | 7,629         |  
|                                              | Mortgage loans held for sale                 |               |       | 8             |  
|                                              | Investment securities:                       |               |       |               |  
|                                              | Taxable                                      |               |       | 2,092         |  
|                                              | Non-taxable (1)                              |               |       | 690           |  
|                                              | Interest-bearing deposits                    |               |       | 60            |  
|                                              | Federal funds sold                           |               |       | (511          | )
|                                              |                                              |               |       |               |  
|Total increase (decrease) in Interest income  |                                              | $             | 9,968 |               | $
|                                              |                                              |               |       |               |  
|Interest-bearing liabilities:                 |                                              |               |       |               |  
|                                              | Demand and Money Market deposits             |               |       | 606           |  
|                                              | Savings deposits                             |               |       | 54            |  
|                                              | Time deposits                                |               |       | 734           |  
|                                              | FHLB advances                                |               |       | 735           |  
|                                              | Federal funds purchased and other borrowings |               |       | 1,200         |  
|                                              | Trust preferred securities                   |               |       |              |  
|                                              |                                              |               |       |               |  
|Total increase (decrease) in Interest expense |                                              |               | 3,329 |               |  
|                                              |                                              |               |       |               |  
|Increase (decrease) in net Interest income    |                                              | $             | 6,639 |               | $
|                                              |                                              |               |       |               |  

---

Provision for Loan Losses

Management's policy is to maintain the allowance for loan losses at a level sufficient to absorb estimated losses inherent in the loan portfolio. The allowance is
increased by the provision for loan losses and decreased by charge-offs, net of recoveries. The allowance for loan losses is established through a provision for losses based on
management's evaluation of current economic conditions. The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other matters,
economic conditions, the fair market value or the estimated net realizable value of the underlying collateral, management's estimate of probable credit losses, historical loan loss experience, and
other factors that warrant recognition in providing for an adequate loan loss allowance. As these factors change, the level of loan loss provision changes. The allowance for loan losses at
December 31, 2002 was $14.6 million, representing 1.48% of outstanding loans, compared to $12.0 million or 1.48% of outstanding loans as of December 31, 2001. The 2002
provision of $4.0 million was $1.5 million higher than the provision of $2.5 million in 2001. This exceeded the provision of $2.2 million recorded in 2000.

Net
loans charged off in 2002 were approximately $2,907,000 compared to $1,342,000 in 2001and $1,021,000 in 2000.

Non-Interest Income

For 2002, non-interest income totaled $19.1 million, an increase of $5.0 million over non-interest income of
$14.1 million in 2001, which represented a 35.2% increase. The growth in fee income was primarily fueled by the growth in demand deposit accounts. Other increases are also attributed to the
growth in the Company's mortgage, and insurance business lines as well as the Company's income from bank owned life insurance.

20

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Years Ended December 312002

2001

2000(Dollars in Thousands)Service charges on deposit accounts

$
7,019

$
5,993

$
5,104Mortgage origination fees


1,692


1,445


939Investment division commissions


361


382


428Insurance agency income


3,930


2,677


2,308Gain on sales of SBA loans


736


432


68Net realized gains (losses) on securities


130


22


(513
)Gain on sale of mortgage loans


884


798


389Income on BOLI


1,828


77


Other non-interest income


2,498


2,286


1,953Total non-interest income

$
19,078

$
14,112

$
10,676


Non-Interest Expense

For the years ended 2002, 2001 and 2000, non-interest expense totaled $39.9 million, $39.3 million and $35.0 million,
respectively. The following table presents the major categories of non-interest expense:

Years Ended December 31,2002

2001

2000(Dollars in Thousands)Salaries and employee benefits

$
23,158

$
19,630

$
18,995Net occupancy and equipment


4,710


4,883


4,887Data processing fees


1,147


706


654Professional fees


1,265


1,032


912Regulatory assessments


263


249


340Intangible amortization


180


240


439Merger expense





3,303


1,086Other


9,150


9,299


7,728Total non-interest expense

$
39,873

$
39,342

$
35,041


For
2002, non-interest expense increased 1.35% or approximately $531,000 over 2001. The majority of this increase was related to an increase in salary and employee benefits
expenses. Personnel related costs rose from $19.6 million to $23.2 million or an 18.0%.

Personnel
increases in 2002 were related to the salaries and employee benefit expense for Hometown Insurance Agency, which was acquired during the second quarter of 2002, as well as
First National Bank of Johns Creek acquired during the fourth quarter of 2002. Also contributing to the increase in personnel expenses were general staffing increases concurrent with expansion of
offices and business lines, bringing in-house the Company's information technology function, increases in health insurance costs, and increases in 401(k) matching expenses. Performance
based (or bonus / commissions) compensation increases in the salaries and employee benefits category were also higher in the 2002 due to the achievement of higher performance levels at virtually all
of the Company's operating unit

From
2001 to 2000, non-interest expenses increased by 12.3%. The majority of this increase was related to an increase of one-time expenses associated with
acquisitions and personnel related costs of $2.2 million and $635,000 respectively.

21

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Income Taxes

Income tax expense includes both federal income tax and Georgia state income tax. The amount of federal income tax expense is influenced by the amount of taxable
income, the amount of tax-exempt income and the amount of non-deductible expenses. In 2002, income tax expense was $9.0 million compared to $7.5 million in 2001.
In 2000, income tax expense was $7.8 million. The Company's effective tax rates in 2002, 2001, 2000, respectively, were 30.6%, 34.3%, and 35.8%. The decline in the effective tax rate for 2002
was due primarily to the favorable tax treatment afforded the REIT subsidiary.

FINANCIAL CONDITION

Loans

At December 31, 2002, loans, net of unearned income, were $982.5 million, an increase of $171.0 million or 21.1% over net loans at
December 31, 2001 of $811.4 million. $94 million of the growth was attributable to the acquisition of the Johns Creek loans. Additional growth in the loan portfolio was
attributable to a consistent focus on quality loan production and strong loan markets in the state and region. The Bank's loan portfolio experienced growth in both real estate categories of loans at
December 31, 2002. Real estate mortgage loans increased $84.9 million or 16% from December 31, 2001. There was also a strong increase in real estate-construction loans from
December 31, 2001 to December 31,2002, with an increase of $65 million or 37%. The Company continues to monitor the composition of the loan portfolio to ensure that the market
risk to the balance sheet is not adversely affected by the impact of changes in the economic environment on any one segment of the portfolio.

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

|                                                                             |  | December 31, |        
|---------------------------------------------------------------------------- |  | ------------ | -------
|
|
|
|Commercial and industrial                                                    |  | $            | 104,061
|Real estate construction                                                     |  |              | 238,415
|Real estateresidential mortgage                                             |  |              | 198,400
|Commercial real estate                                                       |  |              | 404,630
|Consumer and other                                                           |  |              | 38,387 
|Unearned income                                                              |  |              | (1,407 
|                                                                             |  |              |        
|Loans, net of unearned income                                                |  | $            | 982,486
|Mortgage loans held for sale                                                 |  | $            | 8,176  
|Percent of loans by category to total loans (excluding loans held for sale): |  |              |        
|Commercial and industrial                                                    |  |              | 10.59  
|Real estate construction                                                     |  |              | 24.27  
|Real estateresidential mortgage                                             |  |              | 20.19  
|Real estateother                                                            |  |              | 41.18  
|Consumer and other                                                           |  |              | 3.91   
|Unearned income                                                              |  |              | (.14   
|                                                                             |  |              |        
|Loan, net of unearned income                                                 |  |              | 100.00 

To
accomplish the Company's lending objectives, management seeks to achieve consistent growth within its primary market areas while maximizing loan yields and maintaining a high quality
loan portfolio. The Company monitors its lending objectives primarily through its Credit Review committees. The Company's lending objectives are clearly defined in its Lending Policy, which is
reviewed annually and approved by the Board of Directors. New loans for borrowers with total credit exposure exceeding

22

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$500,000 require co-approval by officers in the Bank's Credit Administration department. New loans with credit exposure exceeding $2,500,000 require additional approval by one or more
Executive Officers of the Bank. New loans with credit exposure exceeding $7,500,000 require prior approval by the Board of Directors, which also reviews specific credit approvals exceeding $5,000,000
during the prior month.

The
Credit Review committee system includes the Executive Review Committee, the Eastern and Western Senior Review Committees, and the Credit Risk Management Committee. The Executive
Review Committee is chaired by the President of Main Street Bank and includes officers from the Credit Administration and Loan Review Departments. Executive Review Committee annually reviews credit
analysis and financial statements for borrowers with credit relationships exceeding $1,500,000 in exposure. The Eastern and Western Senior Review Committees annually review credit analysis and
financial statements for borrowers with credit relationships exceeding $500,000 in total credit exposure up to $1,500,000 in total credit exposure. This committee is chaired by officers from the
Credit Administration department and its members include officers from the Loan Review and branch administration areas. These committees also review delinquent loan accounts and overdrawn deposit
accounts during the monthly meeting. The Credit Risk Management Committee meets on a quarterly basis and reviews the Bank's larger adversely graded loans. This committee is chaired by officers from
the Bank's Loan Review department and includes officers from the Credit Administration and branch administration areas.

The
Bank primarily focuses on the following loan categories: (1) commercial with an emphasis on owner-occupied commercial real estate, (2) real estate construction,
(3) residential real estate, (4) commercial and industrial loans, (5) Small Business Administration ("SBA") loans and (6) consumer loans. The Company's management has
strategically located its branches in high growth markets and has taken advantage of a surge in residential and industrial growth in the Atlanta area.

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

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

The
Bank also underwrites residential real estate loans. Generally, these loans are owner-occupied and are amortized over a 15 to 20 year period with three to five year maturity
or repricing. The underwriting criteria for these loans are very similar to the underwriting criteria used in the mortgage industry. Typically, a borrower's debt to income ratio cannot exceed 36% and
the loan to appraised

23

---

value ratio cannot exceed 89.9%. However, the Bank's knowledge of its customers and its market allows the Company to be more flexible in meeting its customers' needs.

The
Bank also underwrites commercial and industrial loans. Generally, these loans are for working capital purposes and are secured by inventory, accounts receivable or equipment. The
Bank maintains strict underwriting standards for this type of lending. Potential borrowers must meet certain working capital and debt ratios as well as generate positive cash flow from operations.
Borrowers in this category will generally have a debt service coverage ratio of at least 1.3 to 1.0. The Bank will also perfect its interest in equipment or other business assets of the borrower and
obtain personal guaranties. The Bank does not originate and does not currently hold in its portfolio any foreign loans.

The
Bank is also an active participant in the origination of Small Business Administration ("SBA") loans. These loans are solicited from the Company's market areas, and are generally
underwritten in the same manner as conventional loans generated for the Bank's portfolio. The portion of loans that are secured by the guaranty of the SBA may from time to time be sold in the
secondary market to provide additional liquidity, and to provide a source of fee income.

Consumer
loans include automobile loans, recreational vehicle loans, boat loans, home improvement loans, home equity loans, personal loans (collateralized and uncollateralized) and
deposit account collateralized loans. The terms of these loans typically range from 12 to 120 months and vary based upon the nature of collateral and size of the loan. Consumer loans involve
greater risk than residential mortgage loans. This is due to the fact that these loans may be unsecured or secured by rapidly depreciating assets such as automobiles. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against
the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws may limit
the amount which can be recovered on such loans.

The
contractual maturity ranges of the commercial and industrial and real estate-construction portfolios and the amount of such loans with predetermined interest rates and floating rates
in each maturity range as of December 31, 2002 are summarized as follows:

|                                         |  | One Year
or Less |         | One Year
Through
Five Years |   | After Five
Years |  | Total
|---------------------------------------- |  | ---------------- | ------- | --------------------------- | - | ---------------- |  | -----
|
|Commercial and industrial                |  | $                | 29,556  |                             | $ | 58,175           |  | $    
|Real estateconstruction                 |  |                  | 217,231 |                             |   | 19,410           |  |      
|                                         |  |                  |         |                             |   |                  |  |      
|Total                                    |  | $                | 246,787 |                             | $ | 77,585           |  | $    
|Loans with a predetermined interest rate |  | $                | 51,162  |                             | $ | 35,538           |  | $    
|Loans with a floating interest rate      |  |                  | 195,625 |                             |   | 42,047           |  |      
|                                         |  |                  |         |                             |   |                  |  |      
|Total                                    |  | $                | 246,787 |                             | $ | 77,585           |  | $    

Non-Performing Assets

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

24

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However,
if the loan is deemed to be in process of collection, it may be maintained on an accrual basis. The Company's management conducts continuous training and communicates regularly
with loan officers to make them aware of its lending policy and the collection policy contained therein. The Company's management has also staffed its collection department with properly trained staff
to assist lenders with collection efforts and to maintain records and develop reports on delinquent borrowers. The Company's lending approach has resulted in strong asset quality. The Company had
non-performing assets of $4.2 million, $2.7 million, and $3.3 million as of December 31, 2002, 2001, and 2000, respectively. For 2002, 2001and 2000, the gross
amount of interest income that would have been recorded on non-performing loans, if all such loans had been accruing interest at the original contract rate, was approximately $217,272,
$63,421, and $109,997, respectively. Management is not aware of any loans that meet the definition of a troubled debt restructuring as of December 31, 2002 or 2001. The Company records real
estate acquired through foreclosure at the lesser of the outstanding loan balance or the fair value at the time of foreclosure, less estimated cost to sell.

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

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

|                                                                                           |  | December 31, |      
|------------------------------------------------------------------------------------------ |  | ------------ | -----
|
|
|Non-performing assets                                                                      |  |              |      
|Non-accrual loans                                                                          |  | $            | 3,356
|Other real estate and repossessions                                                        |  |              | 873  
|                                                                                           |  |              |      
|Total non-performing assets                                                                |  |              | 4,229
|Loans past due 90 days or more and still accruing                                          |  | $            | 1,186
|Ratio of past due loans to loans net of unearned income (1)                                |  |              | 0.12 
|Ratio of non-performing assets to loans, net of unearned income, and other real estate (1) |  |              | 0.43 

---

Allowance for Loan Losses

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

25

---

Bank's management reviews activity in the allowance for loan losses, such as charge-offs and recoveries, during each quarter to identify trends.

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

Loans
classified as "substandard" are those loans with clear and defined weaknesses such as a highly-leveraged position, unfavorable financial ratios, uncertain financial ratios,
uncertain repayment sources, or poor financial condition which may jeopardize recoverability of the debt. Loans classified as "doubtful" are those loans that have characteristics similar to
substandard loans but have an increased risk of loss, or at least a portion of the loan may require being charged-off. Loans classified as "loss" are those loans that are in the process of
being charged-off. For the year ended 2002, net charge-offs totaled $2,907 million or 0.34% of average loans outstanding for the period, net of unearned income, compared
to $1,342 million or 0.17% in net charge-offs during 2001. The Company's net charge-offs totaled $1,021 million or 0.14% of average loans, net of unearned income,
outstanding in 2000. The Company recorded a provision for loan losses of $4,003,000, $2,452,000, and $2,184,000 in 2002, 2001and 2000, respectively. At December 31, 2002 the allowance for loan
losses totaled $14.6 million, or 1.48% of total loans, net of unearned income. At December 31, 2001, the allowance for loan losses was $12.0 million, or 1.48% of total loans, net
of unearned income.

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

|                                                         |                           | Years Ended December 31, |        
|-------------------------------------------------------- | ------------------------- | ------------------------ | -------
|
|
|Average loans outstanding (net of unearned income)       |                           | $                        | 857,184
|Total loans, net of unearned income at year end          |                           |                          | 982,486
|Allowance for loan losses at beginning of year           |                           |                          | 12,017 
|Provision for loan losses                                |                           |                          | 4,003  
|Charge offs:                                             |                           |                          |        
|                                                         | Commercial and industrial |                          |        
|                                                         | Real estate               |                          |        
|                                                         | Consumer                  |                          |        
|                                                         |                           |                          |        
|Total charge-offs                                        |                           |                          | (3,150 
|Recoveries:                                              |                           |                          |        
|                                                         | Commercial and industrial |                          |        
|                                                         | Real estate               |                          |        
|                                                         | Consumer                  |                          |        
|                                                         |                           |                          |        
|Total Recoveries                                         |                           |                          | 243    
|Net charge offs                                          |                           |                          | (2,907 
|Addition of Johns Creek allowance                        |                           |                          | 1,476  
|                                                         |                           |                          |        
|Allowance for loan losses at end of period               |                           | $                        | 14,589 
|Ratio of allowance to end of year loans                  |                           |                          | 1.48   
|Ratio of net charge offs to average loans                |                           |                          | 0.34   
|Ratio of allowance to end of period non-performing loans |                           |                          | 434.71 

The following tables describe the allocation of the allowance for loan losses among various categories of loans and certain other information. The
allocation is made for analytical purposes and is

26

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not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of loans.

|                                                    |  | December 31, |       
|--------------------------------------------------- |  | ------------ | ------
|
|
|
|Balance of allowance for loan losses applicable to: |  |              |       
|Commercial and Industrial                           |  | $            | 1,540 
|Real estate                                         |  |              | 12,481
|                                                    |  |              |       
|Consumer and other                                  |  |              | 568   
|Total allowance for loan losses                     |  | $            | 14,589
|                                                    |  |              |       

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

The
Company believes that the allowance for loan losses at December 31, 2002 is adequate to cover losses inherent in the portfolio as of such date. There can be no assurance that
the Company will not sustain losses in future periods, which could be substantial in relation to the size of the allowance for loan losses at December 31, 2002.

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

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

Investment Securities

The Company uses its securities portfolio both as a source of income and as a source of liquidity. At December 31, 2002, investment securities totaled
$202.1 million, an increase of $85.6 million from $116.5 million at December 31, 2001. At December 31, 2002, investment securities represented 15.1% of total assets,
compared to 10.1% of total assets at December 31, 2001. The average yield on a fully taxable equivalent basis on the investment portfolio for the year ended December 31, 2002 was 5.45%
compared to a yield of 6.56% for the year ended December 31, 2001 and 6.50% for the year ended December 31, 2000. Approximately $17.5 million or 8.7% of investment securities
reprice within one year.

27

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The
following table summarizes the contractual maturity of investment securities and their weighted average yields. Average yields on investments are based on amortized cost.

|                                          |  | December 31, 2002
|----------------------------------------- |  | -----------------
|
|
|U.S. Treasury securities                  |  | $                
|U.S. Government agencies and corporations |  |                  
|Mortgage-backed securities                |  |                  
|States and political subdivisions         |  |                  
|                                          |  |                  
|Total                                     |  | $                
|                                          |  |                  

The following table presents the amortized costs and fair value of securities classified as available for sale and
held-to-maturity at December 31, 2002, 2001 and 2000:

|                                          |  | 2002 |         | 2001 |   | 2000   
|----------------------------------------- |  | ---- | ------- | ---- | - | -------
|
|
|Held to Maturity Securities:              |  |      |         |      |   |        
|States and political subdivisions         |  | $    | 688     |      | $ | 755    
|                                          |  |      |         |      |   |        
|Available for Sale Securities:            |  |      |         |      |   |        
|U.S. Treasury securities                  |  |      | 87      |      |   | 88     
|U.S. Government agencies and corporations |  |      | 42,566  |      |   | 44,928 
|Mortgage-backed securities                |  |      | 117,491 |      |   | 119,934
|States and political subdivisions         |  |      | 41,260  |      |   | 43,505 
|                                          |  |      |         |      |   |        
|Total available for sale securities       |  | $    | 201,404 |      | $ | 208,455
|                                          |  |      |         |      |   |        
|Total Investments                         |  | $    | 202,092 |      | $ | 209,210
|                                          |  |      |         |      |   |        

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

At
December 31, 2002, 76.6% of the mortgage-backed securities the Company held had contractual final maturities of more than ten years. However, unlike U.S. Treasury and U.S.
Government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout
the lives of the securities. Mortgage-backed securities which are purchased at a premium will generally suffer decreasing net yields as interest rates drop because homeowners tend to refinance their
mortgages. Thus, the premium paid must be amortized over a shorter period. Conversely, these securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment.
As interest rates rise, the opposite will generally be true. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of
principal and consequently, their average lives will not be unduly shortened. If interest rates fall, prepayments will increase, and the average life of these securities will decrease.

The
Company has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At the date of purchase, the
Company is required to classify debt and equity securities into one of three categories: held to maturity, trading, or available for sale. At each reporting date, the appropriateness of the
classification is reassessed. Investments in

28

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debt securities are classified as held to maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold those securities to
maturity.

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

Deposits

The Bank offers a variety of deposit accounts having a wide range of interest rates and terms. The Bank's deposits consist of demand, savings, money market, and
time accounts. The Bank relies primarily on competitive pricing policies and customer service to attract and retain these deposits. The Bank has a limited amount of brokered deposits. The Bank's
lending and investing activities are funded principally by deposits, approximately 49.7% of which are demand, money market and savings deposits. Deposits at December 31, 2002 were
$1.129 billion, an increase of $220.7 million or 24.3% from $908.2 million at December 31, 2001. Non-interest-bearing deposits were $184.1 million at
December 31, 2002, an increase of $23.5 million, or 14.6% from $160.7 million at December 31, 2001. Certificates of deposit were $567.3 million at
December 31, 2002, an increase of $121.0 million, or 27.1% from $446.3 million at December 31, 2001. The merger with Johns Creek accounted for a portion of this growth
contributing $34 million in demand and money market accounts, and $62 million in time deposits.

The
daily average balances and weighted average rates paid on deposits for each of the years ended December 31, 2002, 2001 and 2000 are presented below:

|                                    |  | Years Ended December 31, |        
|----------------------------------- |  | ------------------------ | -------
|
|
|
|Non-interest bearing demand deposit |  | $                        | 173,947
|Demand and money market deposits    |  |                          | 254,927
|Savings deposits                    |  |                          | 46,618 
|Time deposits                       |  |                          | 490,746
|                                    |  |                          |        
|Total deposits                      |  | $                        | 966,238
|                                    |  |                          |        

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

December 31, 2002(Dollars in Thousands)Three months or less

$
47,459Over three through six months


106,818Over six through 12 months


38,252Over 12 months


4,570Total

$
197,099


29

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Other Borrowings

Deposits are the primary source of funds for the Company's lending and investment activities. Occasionally, the Company obtains additional funds from the Federal
Home Loan Bank (FHLB) and correspondent banks. At December 31, 2002, the Company had borrowings of $50.0 million in the form of FHLB advances and $47.7 million in securities sold
under repurchase agreements compared to $75.1 million and $15.5 million, respectively, at December 31, 2001. The Company's weighted average interest rate on FHLB advances for the
year ended December 31, 2002 and 2001 was 1.79% and 1.70%, respectively. For a more detailed discussion of the borrowings of the Company, see note 7 to the Company's consolidated
financial statements included herein.

Trust Preferred Securities

November 15, 2002, the Company executed a $5,155,000 floating rate Cumulative Trust Preferred Securities transaction ("Trust Preferred Securities") offered
and sold by Main Street Banks Statutory Trust 1 (the "Trust"), having a liquidation amount of $1,000 each. The proceeds from such issuances, together with the proceeds of the related issuance of
common securities of the Trust purchased by the Company, were invested in Floating Subordinated Debentures (the "Debentures") of the Company. The sole assets of the Trust are the Debentures. The
Debentures are unsecured and rank junior to all senior debt of the Company. The Company owns all of the common securities of the Trust.

INTEREST RATE SENSITIVITY AND LIQUIDITY

Asset Liability Management

The Company's primary risk exposures are credit (as discussed previously), interest rate risk and to a lesser degree, liquidity risk. The Bank operates under an
Asset Liability and Risk Management policy approved by the Board of Directors of the Bank through the Asset and Liability Committee ("ALCO"). The policy outlines limits on interest rate risk in terms
of changes in net interest income and changes
in the net market values of assets and liabilities over certain changes in interest rate environments. These measurements are made through a simulation model which projects the impact of changes in
interest rates on the Bank's assets and liabilities. The policy also outlines responsibility for monitoring interest rate risk, and the process for the approval, implementation and monitoring of
interest rate risk strategies to achieve the Bank's interest rate risk objectives.

The
Bank's ALCO is comprised of senior officers of the Bank. The ALCO makes all tactical and strategic decisions with respect to the sources and uses of funds that may affect net
interest income, including net interest spread and net interest margin. The ALCO's decisions are based upon policies established by the Bank's Board of Directors, which are designed to meet three
goalsmanage interest rate risk, improve interest rate spread and maintain adequate liquidity.

The
ALCO has developed a program of action which includes, among other things, the following: (i) selling substantially all conforming, long-term, fixed rate mortgage
originations, (ii) originating and retaining for the portfolio shorter term, higher yielding loan products which meet the Company's underwriting criteria; and (iii) actively managing the
Company's interest rate risk exposure.

Interest Rate Risk

The normal course of business activity exposes the Company to interest rate risk. Interest rate risk is managed within an overall asset and liability framework
for the Company. The principal objectives of asset and liability management are to guide the sensitivity of net interest spreads to potential changes in interest rates and enhance profitability in
ways that promise sufficient reward for recognized and controlled risk. Funding positions are kept within predetermined limits designed to ensure that risk-taking is not excessive and that
liquidity is properly managed. The Company employs sensitivity analysis in the form of a net interest income simulation to help characterize the market risk arising

30

---

from changes in interest rates. In addition, fluctuations in interest rates usually result in changes in the fair market value of the Company's financial instruments, cash flows and net interest
income. The Company's interest rate risk position is managed by ALCO. ALCO's objective is to optimize the Company's financial position, liquidity and net interest income, while remaining within the
Board of Director's approved limits.

The
Company uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. The Company's net interest income simulation includes all financial assets
and liabilities. This simulation measures both the term risk and basis risk in the Company's assets and liabilities. The simulation also captures the option characteristics of products, such as caps
and floors on floating rate loans, the right to pre-pay mortgage loans without penalty and the ability of customers to withdraw deposits on demand. These options are modeled through the
use of primarily historical customer behavior and statistical analysis. These simulations incorporate assumptions regarding balance sheet growth, asset and liability mix, pricing and maturity
characteristics of the existing and projected balance sheets. Other interest rate-related risks such as prepayment, basis and option risk are also considered.
Simulation results quantify interest risk under various interest rate scenarios. Management then develops and implements appropriate strategies. The Board of Directors regularly reviews the overall
rate risk position and asset and liability management strategies.

The
Company uses three standard scenariosrates unchanged, rising rates, and declining ratesin analyzing interest rate sensitivity. The rising and declining rate
scenarios cover a 100 basis points upward and downward rate shock. The Company closely monitors each scenario to manage interest rate risk.

Management
estimates the Company's annual net interest income would increase approximately 3.6%, and decrease approximately 4.88% in an instantaneous 100 basis point rise and decline in
interest rates, respectively. A fair market value analysis of the Company's balance sheet calculated under an instantaneous 100 basis point increase in rates at December 31, 2002, estimates a
12.28% increase in market value. The Company estimates a like decrease in rates would decrease market value 7.44%. These simulated computations should not be relied upon as indicative of actual future
results. Further, the computations do not contemplate certain actions that management may undertake in response to future changes in interest rates.

In
fiscal 2003, the Company will continue to face term risk and basis risk and may be confronted with several risk scenarios. If interest rates rise, net interest income may actually
increase if deposit rates lag increases in market rates. The Company could, however, experience significant pressure on net interest income if there is a substantial increase in deposit rates relative
to market rates. A declining interest rate environment might result in a decrease in loan rates, while deposit rates remain relatively stable, which could also create significant risk to net interest
income.

The
Bank's ALCO has primary responsibility for managing the Company's exposure to interest rate risk. ALCO's subcommittee, the pricing committee, meets weekly to establish interest rates
on loans and deposits and review interest rate sensitivity and liquidity positions.

Interest
rate sensitivity is a measure of exposure to changes in net interest income due to changes in market interest rates. The excess of interest earning assets over interest bearing
liabilities repricing or maturing in a given period of time is commonly referred to as "Gap." A positive Gap indicates an excess of interest rate sensitive assets over interest rate sensitive
liabilities; a negative Gap indicates an excess of interest rate sensitive liabilities over interest rate sensitive assets.

The
following table presents the Company's interest sensitivity Gap between interest earnings assets and interest bearing liabilities at December 31, 2002. The Gap analysis is
prepared using either actual repricing intervals or maturity dates when stated. Loans held for sale are included in less than three months since it is management's intent to sell them within that
time. Equity securities having no stated maturity are reported after five years. Historically, the Company's NOW accounts and savings

31

---

deposits have been relatively insensitive to interest rate changes. However, the Company considers a portion of money market accounts to be rate sensitive based on historical growth trends and
management's expectations. Shortcomings are inherent in any Gap analysis since certain assets and liabilities may not move proportionally as interest rates change.

The
following table sets forth an interest rate sensitivity analysis for the Company at December 31, 2002:

|                                                 |  | Volumes Subject to Repricing Within
|------------------------------------------------ |  | -----------------------------------
|
|
|Interestearning assets:                         |  |                                    
|Investment securities                            |  | $                                  
|Loans                                            |  |                                    
|Mortgage loans held for sale                     |  |                                    
|Interest bearing deposits                        |  |                                    
|Federal funds sold and short term investments    |  |                                    
|Total interestearning assets                    |  | $                                  
|Interestbearing liabilities:                    |  |                                    
|Demand, money market and savings deposits        |  | $                                  
|Time deposits                                    |  |                                    
|FHLB advances                                    |  |                                    
|Federal funds purchased and other borrowings     |  |                                    
|Total interest-bearing liabilities               |  | $                                  
|Rate Sensitive Assets/Rate Sensitive Liabilities |  |                                    
|Period gap                                       |  |                                    
|Cumulative gap                                   |  |                                    
|Period gap to total assets                       |  |                                    
|Cumulative gap to total assets                   |  |                                    

Derivative Instruments and Hedging Activities

Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging
Activities(SFAS 133), as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair
value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm
commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or
other types of forecasted transactions, are considered cash flow hedges.

For
derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives
designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently
reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company
assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the
designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings.

32

---

The
Company's objective in using derivatives is to add stability to interest income and/or interest expense and to manage its exposure to interest rate movements or other identified
risks. To accomplish this objective, the Company primarily uses interest rate swaps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of
fixed-rate amounts in exchange for variable-rate payments, over the life of the agreements without exchange of the underlying principal amount. During 2002, such derivatives
were used to hedge the variable cash inflows associated with existing variable-rate loans.

As
of December 31, 2002, no derivatives were designated as fair value hedges. Additionally, the Company does not use derivatives for trading or speculative purposes and currently
does not have any derivatives that are not designated as hedges. At December 31, 2002, derivatives with a fair value of $1.4 million were included in other assets. The change in net
unrealized gains/losses of $865,000 at
December 31, 2001 (after-tax) for derivatives designated as cash flow hedges is separately disclosed in the statement of changes in shareholders' equity and comprehensive income. No
hedge ineffectiveness on cash flow hedges was recognized during 2002.

Amounts
reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company's
variable-rate loans. The change in net unrealized gains/losses on cash flow hedges reflects a reclassification of $724,000 (pre-tax) of net unrealized gains from accumulated
other comprehensive income to interest income during 2002. During 2003, the Company estimates that an additional $945,000 will be reclassified. The interest rate swap amortizes down by
$15 million in April 2003 bringing the notional amount of the swap down to $35 million for the remainder of the year. The interest rate swap amortized down by another
$15 million in April 2004 and the final $20 million matures in April 2005.

Liquidity

Liquidity involves the Company's ability to raise funds to support asset growth or reduce assets to meet deposit withdrawals and other payment obligations, to
maintain reserve requirements and otherwise to operate on an ongoing basis. During the past three years, the Company's liquidity needs have primarily been met by growth in core deposits, advances from
Federal Home Loan Bank and raising capital. The Company's cash and Federal funds sold and cash flows from amortizing investment and loan portfolios have generally created an adequate liquidity
position. Executive management reviews liquidity monthly. This review is from a regulatory as well as static and a four-quarter forecasted standpoint.

Market
and public confidence in the financial strength of the Company and financial institutions in general will determine the Corporation's access to supplementary sources of liquidity.
The Company's capital levels and asset quality determine levels at which the Company can access supplementary funding sources.

Liquidity
management involves maintaining sufficient cash levels to meet the requirements of borrowers, depositors, and creditors and to fund operations. Obviously higher levels of
liquidity bear higher corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets, and higher interest expense involved in extending liability
maturities. Liquid assets include cash and cash equivalents, securities maturing within one year, and money market instruments. In addition, the Company holds securities maturing after one year, which
can be sold to meet liquidity needs.

The
Company relies primarily on customer deposits, securities sold under repurchase agreements and shareholders' equity to fund interest-earning assets. The Atlanta Federal Home Loan
Bank ("FHLB") is also a major source of liquidity for the Bank. The FHLB allows member banks to borrow against their eligible collateral to satisfy their liquidity requirements.

Management
believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. In addition, the Bank has
access to

33

---

the Atlanta FHLB for borrowing purposes. The Company has not received any recommendations from regulatory authorities that would materially affect liquidity, capital resources or operations.

Maintaining
a steady funding base is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities. This reduces
the Company's exposure to roll over risk on deposits and limits reliance on volatile short-term purchased funds.

Short-term
funding needs arise from funding of loan commitments and requests for new loans and from declines in deposits or other funding sources. The Company's strategy is
to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and low-cost funds. Core deposits include all deposits, except
certificates of deposit of $100,000 and over

Subject
to certain limitations, the Bank may borrow funds from the Atlanta FHLB in the form of advances. Credit availability from the Atlanta FHLB to the Bank is based on the Bank's
financial and operating condition. Borrowings from the FHLB to the Bank were approximately $50.0 million at December 31, 2002. In addition to creditworthiness, the Bank must own a
minimum amount of FHLB capital stock. Unused borrowing capacity at December 31, 2002 was approximately $125.2 million. The Bank uses FHLB advances for both long-term and
short-term liquidity needs.

Additionally,
the Bank has fed funds purchased lines with SunTrust, and the Bankers Bank in the amount of $20 million, and $30 million,
respectively.Additionally the Company has a line of credit with SunTrust in the amount of $20 million.

Impact of Inflation

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

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

Capital Resources

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

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

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

34

---

The
risk-based capital standards issued by the Federal Reserve Board require all bank holding companies to have "Tier 1 capital" of at least 4.0% and "Total
risk-based capital" (Tier 1 and Tier 2) of at least 8.0% of total risk-adjusted assets. "Tier 1 capital" generally includes common shareholders' equity and qualifying
perpetual preferred stock together with related surpluses and retained earnings, less deductions for goodwill and various other intangibles. "Tier 2 capital" may consist of a limited amount of
intermediate-term preferred stock, a limited amount of term subordinated debt, certain hybrid capital instruments and other debt securities, perpetual preferred stock not qualifying as
Tier 1 capital, and a limited amount of the general valuation allowance for loan losses. The sum of Tier 1 capital and Tier 2 capital is "Total risk-based capital."

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

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

Shareholders'
equity increased to $131.6 million at December 31, 2002 from $105.1 million at December 31, 2001, an increase of $26.4 million or 25.2%.
This increase was the combined result of net income of $20.5 million, Johns Creek acquisition of $13.3 million, and net unrealized gains on investment securities available for sale of
$3.8 million, less dividends declared on common stock of $6.6 million, and Treasury stock repurchases of $5.8 million.

The
following table provides a comparison of the Company's and the Bank's subsidiary's leverage and risk-weighted capital ratios as of December 31, 2002 to the minimum
and well-capitalized regulatory standards:

Minimum Required For Capital Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Provisions Action

Actual Ratio At
December 31, 2002The Company:Leverage ratio

4.00
%
5.00
%
8.69
%Tier 1 risk-based capital ratio

4.00
%
6.00
%
10.36
%Risk-based capital ratio

8.00
%
10.00
%
12.08
%The Bank:Leverage ratio

4.00
%
5.00
%
9.24
%Tier 1 risk-based capital ratio

4.00
%
6.00
%
11.44
%Risk-based capital ratio

8.00
%
10.00
%
12.69
%


35

---

RECENT ACCOUNTING PRONOUNCEMENTS

FASB Statement No. 141 and No. 142

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, "Business Combinations" (Statement 141), and Statement
No. 142, "Goodwill and Other Intangible Assets" (Statement 142). Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after
September 30, 2001. Statement 141 also specifies the criteria for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill.
Statement 142 requires companies to no longer amortize goodwill and intangible assets with indefinite useful lives, but instead test these assets for impairment at least annually in accordance with
the provisions of Statement 142. Under Statement 142 intangible assets with definite useful lives continue to be amortized over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with the FASB's Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (Statement 144). The Company
completes an impairment test annually and records the appropriate charges if any impairment in value is indicated.

FASB Statement No. 144

In October 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"),
effective for fiscal years beginning after December 15, 2001 and applied prospectively. Statement 144 supersedes FASB Statement No. 121 (Statement 121) and provides a single accounting
model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules significantly change the
criteria that would have to be met to classify an asset as held-for-sale. Statement 144 also supersedes the provisions of Accounting Principle Board (APB) Opinion 30 with
regard to reporting the effects of a disposal of a segment of a business and requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the
period(s) in which the losses are incurred (rather than as of the measurement date as presently required by APB Opinion 30). In addition, more dispositions will qualify for discontinued operations
treatment in the income statement. The adoption of Statement 144 did not have a material impact on the Company's financial condition or results of operations.

FASB Statement No. 145

In April 2002, FASB issued Statement No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (Statement 145). Statement 145 rescinds Statement 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. In addition, Statement 145 amends Statement 13 on leasing to require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Provisions of Statement 145 related to the recission of Statement 4 are
effective for financial statements issued by the Company after January 1, 2003. The provisions of the statement related to sale-leaseback transactions were effective for any
transactions occurring after May 15, 2002. All other provisions of the statement were effective as of the end of the second quarter of 2002. The adoption of the provisions of Statement 145 did
not have a material impact on the Company's financial condition or results of operations.

FASB Statement No. 146

In June 2002, FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Statement requires that a
liability for costs associated with exit or disposition

36

---

activities be recognized when the liability is incurred and be measured at fair value and adjusted for changes in estimated cash flows. Types of costs covered by Statement 146 include lease
termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, facility closing, or other exit or disposal activity. Existing generally
accepted accounting principles provide for the recognition of such costs at the date of management's commitment to an exit plan. Under Statement No. 146, management's commitment to an exit plan
would not be sufficient, by itself, to recognize a liability. The Statement is effective for exit or disposal activities initiated after December 31, 2002 and is not expected to have a material
impact on the results of operations or financial condition of the Company.

FASB Statement No. 147

In October 2002, FASB issued Statement No. 147, "Acquisition of Certain Financial Institutions" (Statement 147). Statement 147 amends the previous
accounting guidance which required for certain acquisitions of financial institutions where the fair market value of liabilities assumed was greater than the fair value of the tangible assets and
identifiable intangible assets acquired to recognize and account for the excess as an unidentifiable intangible asset. Under the old guidance this unidentifiable intangible asset was to be amortized
over a period no greater than the life of the long-term interest bearing assets acquired. Under Statement 147, this excess, if acquired in a business combination, represents goodwill that
should be accounted for in accordance with Statement 142. In addition,
Statement 147 amends Statement 144 to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement 144 requires. The provisions of Statement 147 were effective on October 1, 2002. The adoption of the provisions of Statement 147 did not have a material
impact on the Company's financial position or results of operations.

FASB Statement No. 148

In December 2002, the FASB issued Statement No. 148 ("SFAS 148"), "Accounting for Stock-Based CompensationTransition and
Disclosure," an amendment of Statement of Financial Accounting Standards No. 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS 148 is effective for fiscal years ended after December 15, 2002. The Company plans to continue to account
for stock-based employee compensation under the intrinsic value based method and to provide disclosure of the impact of the fair value based method on reported income. Employee stock options have
characteristics that are significantly different from those of traded options, including vesting provisions and trading limitations that impact their liquidity. Therefore, the existing option pricing
models, such as Black-Scholes, do not necessarily provide a reliable measure of the fair value of employee stock options. Refer to Note 11 of the Notes to Consolidated Financial Statements for
pro forma disclosure of the impact of stock options utilizing the Black-Scholes valuation method. The adoption of this statement did not have a material impact on the Company's financial condition or
results from operations.

FASB Interpretation No. 45

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantees, Including Indirect Guarantees of Indebtedness of Others," to
clarify accounting and disclosure requirements relating to a guarantor's issuance of certain types of guarantees. FIN 45 requires entities to disclose additional information about certain guarantees,
or groups of similar guarantees, even if the likelihood of the guarantor's having to make any payments under the guarantee is remote. The disclosure

37

---

provisions are effective for financial statements for fiscal years ended after December 15, 2002. For certain guarantees, the interpretation also requires that guarantors recognize a liability
equal to the fair value of the guarantee upon its issuance. The initial recognition and measurement provision is to be applied only on a prospective basis to guarantees issues or modified after
December 31, 2002. The Company does not expect adoption of this Interpretation to have a material impact on the Company's financial statements.

QUARTERLY RESULTS

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

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

|                                        |  | 2002 Quarter Ended
|--------------------------------------- |  | ------------------
|
|
|Interest income                         |  | $                 
|Interest expense                        |  |                   
|Net interest income                     |  |                   
|Provision for loan losses               |  |                   
|Securities gains (losses)               |  |                   
|Earnings before income taxes            |  |                   
|Operating income (1)                    |  |                   
|Net income                              |  |                   
|Net income per share, basic             |  |                   
|Net income per share, diluted           |  |                   
|Operating income per share, diluted (1) |  | $                 

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

---

38

---



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS

The following consolidated financial statements of the Company and its subsidiaries are included on pages F-1 through F-39 of this Annual
Report on Form 10-K.



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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the captions "Board of Directors", "Officers" and "Reports required by Section 16 (a) of the Securities Exchange Act
of 1934" of the Proxy Statement of the Company for the 2003 Annual Meeting is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions "Executive Compensation", "Stock Options" and "Director Compensation" of the Proxy Statement of the Company for the
2003 Annual Meeting is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information set forth under the captions "Security Ownership" of the Proxy Statement of the Company for the 2003 Annual Meeting is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the captions "Certain Transactions" and "Officers" of the Proxy Statement of the Company for the 2003 Annual Meeting is
incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES



39

---



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K





|No.  |  | Description                                                                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Merger dated December 11, 2002 between the Registrant and First Colony Bancshares, Inc. filed as Exhibit 2.1 to Registrant's Form S-4 filed on February 5, 2003 (SEC File No. 333-102984) (incorporated
by reference)
|3.1  |  | Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of Registration Statement No. 333-50762 on Form S-4)                                                                                        
|3.2  |  | Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-78046 on Form S-4)                                                                                                                     
|10.1 |  | Registrant's 1994 Substitute Incentive Stock Option Plan for The Westside Bank & Trust Company's Incentive Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-97300) (incorporated by reference)
*                            
|10.2 |  | Form of Registrant's 1994 Incentive Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No. 33-97300) (incorporated by reference)*                                                                                               
|10.3 |  | Registrant's 1995 Directors Stock Option Plan filed as Exhibit 4.4 to Form S-8 (File No. 33-81053) (incorporated by reference)*                                                                                                            
|10.4 |  | Form of Registrant's 1995 Directors Stock Option Agreement filed as Exhibit 4.5 to Form S-8 (File No. 33-81053) (incorporated by reference)*                                                                                               
|10.5 |  | Registrant's 1996 Substitute Incentive Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-15069) (incorporated by reference)*                                                                                                
|10.6 |  | Form of Registrant's 1996 Substitute Incentive Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-15069) (incorporated by reference)*                                                                                   
|10.7 |  | Registrant's 1997 Directors Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-56473) (incorporated by reference)*                                                                                                           
|10.8 |  | Form of Registrant's 1997 Directors Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-56473) (incorporated by reference)*                                                                                              

40

---

|10.9  |  | Registrant's 1997 Incentive Stock Option Plan filed as Exhibit 4.1 to Form S-8 (File No. 333-74555) (incorporated by reference)*                                                                                                                                                                                                                                                                                                     
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 |  | Form of Registrant's 1997 Incentive Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-74555) (incorporated by reference)*                                                                                                                                                                                                                                                                                        
|10.11 |  | Registrant's 1999 Directors Stock Option Plan included as Appendix B to the Joint Proxy Statement/Prospectus set forth in Part I of the Registration Statement*                                                                                                                                                                                                                                                                      
|10.12 |  | Form of Registrant's 1999 Directors Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-88645) (incorporated by reference)*                                                                                                                                                                                                                                                                                        
|10.13 |  | Registrant's 2000 Directors Stock Option Plan files as Exhibit 4.1 to Form S-8 (File No. 333-49436) (incorporated by reference)*                                                                                                                                                                                                                                                                                                     
|10.14 |  | Form of Registrant's 2000 Director's Stock Option Agreement filed as Exhibit 4.2 to Form S-8 (File No. 333-49436) (incorporated by reference)*                                                                                                                                                                                                                                                                                       
|10.15 |  | Registrant's Omnibus Stock Ownership and Long Term Incentive Plan filed as Exhibit 4.1 to Form S8 (File No. 33365188) (incorporated by reference)*                                                                                                                                                                                                                                                                                   
|10.16 |  | Form of Registrant's Omnibus Stock Ownership and Long Term Incentive Plan Incentive Plan Option Agreement filed as Exhibit 4.2 to File S-8 (File No. 333-65188) (incorporated by reference)*                                                                                                                                                                                                                                         
|10.17 |  | Form of Registrant's Omnibus Stock Ownership and Long Term Incentive Plan Restricted Stock Grant Agreement filed as Exhibit 4.3 to Form S-8 (File No. 333-65188)*                                                                                                                                                                                                                                                                    
|10.18 |  | Employment Agreement dated May 24, 2000 between Registrant and Edward C. Milligan (incorporated by referenced to Exhibit 10.13 to Registration Statement No. 333-50762 on Form S-4)*                                                                                                                                                                                                                                                 
|10.19 |  | Employment Agreement dated May 24, 2000 between the Registrant and Robert R. Fowler, III (incorporated by referenced to Exhibit 10.14 to Registration Statement No. 333-50762 on Form S-4)*                                                                                                                                                                                                                                          
|10.20 |  | Employment Agreement dated May 24, 2000 between the Registrant and Sam B. Hay (incorporated by referenced to Exhibit 10.15 to Registration Statement No. 333-50762 on Form S-4)*                                                                                                                                                                                                                                                     
|10.21 |  | Employment Agreement dated September 17, 2001 between the Registrant and Robert D. McDermott (incorporated by reference to Exhibit 10.21 to the Registrant's Form 10-K filed with the Commission on March 29, 2002)
*                                                                                                                                                                                                                
|10.22 |  | Employment Agreement dated April 11, 2002 between the Registrant and Max S. Crowe (incorporated by reference to Exhibit 10.22 of the Registrant's Form 10-Q filed with the Commission on August 13, 2002)*                                                                                                                                                                                                                           
|10.23 |  | Employment Agreement dated May 15, 2002 between the Registrant and John T. Monroe (incorporated by reference to Exhibit 10.23 to the Registrant's Form 10-Q filed with the Commission on November 14, 2002)*                                                                                                                                                                                                                         
|21    |  | The sole subsidiaries of the Registrant are Main Street Bank (Ga.), Williamson, Musselwhite & Main Street Insurance, Inc. (Ga.) and Main Street VA Partner, Inc. (Ga.). Main Street VA Partner, Inc. holds a 50% interest
in Piedmont Settlement Services, L.L.P., a Pennsylvania limited liability partnership. Main Street Bank has a subsidiary MSB Holdings, Inc. (DE) which in turn has a subsidiary MSB Investments, Inc. (Ga.)
|23.1  |  | Consent of Independent Auditor, Ernst & Young LLP concerning the consolidated financial statements of Main Street Banks, Inc.                                                                                                                                                                                                                                                                                                        

41

---

|23.2 |  | Consent of Mauldin & Jenkins, LLC concerning the financial statements of Walton Bank & Trust Co. Registration Statement No. 333-65188 on Form S-8, dated July 16, 2001 and related Prospectus
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1 |  | Certificate of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                 
|99.2 |  | Certificate of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                 

---

The
Company filed one Form 8-K during the fourth quarter of the year ended December 31, 2002. It was filed on December 12, 2002 and related to the
Company's announcements of the completion of the acquisition of First National Bank of Johns Creek and the execution of a definitive agreement to acquire First Colony Bancshares, Inc.

42

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

MAIN STREET BANKS, INC.(Registrant)

|By: | /s/EDWARD C. MILLIGANEdward C. Milligan, Chairman and Chief Executive Officer
(Principal Executive Officer)                       |  | Date: | March 28, 2003
|--- | --------------------------------------------------------------------------------------------------------------------------------- |  | ----- | --------------
|By: | /s/ROBERT D. MCDERMOTTRobert D. McDermott, Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer) |  | Date: | March 28, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated:

|By: | /s/ROBERT R. FOWLER, IIIRobert R. Fowler, III, Director         |  | Date: |  | March 28, 2003
|--- | --------------------------------------------------------------- |  | ----- |  | --------------
|By: | /s/SAMUEL B. HAY, IIISamuel B. Hay, III, President and Director |  | Date: |  | March 28, 2003
|By: | /s/P. HARRIS HINESP. Harris Hines, Director                     |  | Date: |  | March 28, 2003
|By: | /s/HARRY L. HUDSON, JR.Harry L. Hudson, Jr., Director           |  | Date: |  | March 28, 2003
|By: | /s/C. CANDLER HUNTC. Candler Hunt, Director                     |  | Date: |  | March 28, 2003
|By: | /s/FRANK B. TURNERFrank B. Turner, Director                     |  | Date: |  | March 28, 2003

43

---



CERTIFICATION

I,
Edward C. Milligan, certify that:









Date:
March 28, 2003

| |  | /s/EDWARD C. MILLIGANEdward C. Milligan Chairman and Chief
Executive Officer
| |  | ----------------------------------------------------------------------------

44

---

CERTIFICATION

I,
Robert D. McDermott, certify that:







Date:
March 28, 2003

| |  | /s/ROBERT D. MCDERMOTTRobert D. McDermott Principal
Financial Officer
| |  | ---------------------------------------------------------------------

45

---

Main Street Banks, Inc. and Subsidiaries
Consolidated Financial StatementsYears ended December 31, 2002 and 2001
With report of Independent Auditors

Contents

Report of Independent Auditors

F-2Audited Consolidated Financial Statements:Consolidated Balance Sheets

F-3Consolidated Statements of Income

F-4Consolidated Statements of Changes in Shareholders' Equity

F-5Consolidated Statements of Cash Flows

F-6Notes to Consolidated Financial Statements

F-7


---



Report of Independent Auditors

Board
of Directors
Main Street Banks, Inc.

We
have audited the accompanying consolidated balance sheets of Main Street Banks, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Main Street Banks, Inc. and
Subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States.



January 13,
2003
Atlanta, Georgia

F-2

---

Main Street Banks, Inc. and Subsidiaries
Consolidated Balance Sheets

|                                                                                                                                                                          |                                          | December 31 |              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------- | -------------
|
|Assets                                                                                                                                                                    |                                          |             |              
|Cash and due from banks                                                                                                                                                   |                                          | $           | 43,711,817   
|Interest-bearing deposits in banks                                                                                                                                        |                                          |             | 1,782,121    
|Federal funds sold and securities purchased under agreements to resell                                                                                                    |                                          |             | 54,656,351   
|Investment securities available for sale                                                                                                                                  |                                          |             | 208,455,409  
|Investment securities held to maturity (fair value of $754,704 and $729,102 at December 31, 2002 and 2001, respectively)                                                  |                                          |             | 687,562      
|Other investments                                                                                                                                                         |                                          |             | 3,699,368    
|Mortgage loans held for sale                                                                                                                                              |                                          |             | 8,175,522    
|Loans, net of unearned income                                                                                                                                             |                                          |             | 982,486,447  
|Allowance for loan losses                                                                                                                                                 |                                          |             | (14,588,582  
|                                                                                                                                                                          |                                          |             |              
|Loans, net                                                                                                                                                                |                                          |             | 967,897,865  
|Premises and equipment, net                                                                                                                                               |                                          |             | 31,674,673   
|Other real estate                                                                                                                                                         |                                          |             | 815,880      
|Accrued interest receivable                                                                                                                                               |                                          |             | 6,437,290    
|Goodwill and other intangible assets, net                                                                                                                                 |                                          |             | 16,372,018   
|Bank owned life insurance                                                                                                                                                 |                                          |             | 30,904,434   
|Other assets                                                                                                                                                              |                                          |             | 6,719,791    
|                                                                                                                                                                          |                                          |             |              
|Total assets                                                                                                                                                              |                                          | $           | 1,381,990,101
|                                                                                                                                                                          |                                          |             |              
|Liabilities and shareholders' equity                                                                                                                                      |                                          |             |              
|Liabilities:                                                                                                                                                              |                                          |             |              
|Deposits:                                                                                                                                                                 |                                          |             |              
|                                                                                                                                                                          | Noninterest-bearing demand               |             | $            
|                                                                                                                                                                          | Interest-bearing demand and money market |             |              
|                                                                                                                                                                          | Savings                                  |             |              
|                                                                                                                                                                          | Time deposits of $100,000 or more        |             |              
|                                                                                                                                                                          | Other time deposits                      |             |              
|                                                                                                                                                                          |                                          |             |              
|Total deposits                                                                                                                                                            |                                          |             | 1,128,927,885
|Accrued interest payable                                                                                                                                                  |                                          |             | 3,723,167    
|Federal Home Loan Bank advances                                                                                                                                           |                                          |             | 50,000,000   
|Federal funds purchased and securities sold under repurchase agreements                                                                                                   |                                          |             | 47,666,699   
|Trust preferred securities                                                                                                                                                |                                          |             | 5,155,000    
|Other liabilities                                                                                                                                                         |                                          |             | 14,860,481   
|                                                                                                                                                                          |                                          |             |              
|Total liabilities                                                                                                                                                         |                                          |             | 1,250,333,232
|Shareholders' equity                                                                                                                                                      |                                          |             |              
|Common stockno par value per share; 50,000,000 shares authorized; issued and outstanding shares of 16,242,498 and 15,699,201 at December 31, 2002 and 2001, respectively |                                          |             | 46,912,168   
|Retained earnings                                                                                                                                                         |                                          |             | 86,041,957   
|Accumulated other comprehensive income                                                                                                                                    |                                          |             | 5,561,196    
|Treasury stock, 464,082 and 169,082 shares at December 31, 2002 and 2001, respectively.                                                                                   |                                          |             | (6,858,452   
|                                                                                                                                                                          |                                          |             |              
|Total shareholders' equity                                                                                                                                                |                                          |             | 131,656,869  
|                                                                                                                                                                          |                                          |             |              
|Total liabilities and shareholders' equity                                                                                                                                |                                          | $           | 1,381,990,101
|                                                                                                                                                                          |                                          |             |              

See accompanying notes to consolidated financial statements.

F-3

---

Main Street Banks, Inc. and Subsidiaries
Consolidated Statements of Income

|                                                    |                                                                        | Year ended December 31 |           
|--------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------- | ----------
|
|Interest income:                                    |                                                                        |                        |           
|                                                    | Loans, including fees                                                  |                        | $         
|                                                    | Interest on investment:                                                |                        |           
|                                                    | Taxable                                                                |                        |           
|                                                    | Non-taxable                                                            |                        |           
|                                                    | Interest on other investments                                          |                        |           
|                                                    | Federal funds sold and securities purchased under agreements to resell |                        |           
|                                                    | Interest-bearing deposits in banks                                     |                        |           
|                                                    |                                                                        |                        |           
|Total interest income                               |                                                                        |                        | 79,188,884
|Interest expense:                                   |                                                                        |                        |           
|                                                    | Interest-bearing demand and money market                               |                        |           
|                                                    | Savings                                                                |                        |           
|                                                    | Time deposits of $100,000 or more                                      |                        |           
|                                                    | Other time deposits                                                    |                        |           
|                                                    | Federal funds purchased                                                |                        |           
|                                                    | Federal Home Loan Bank advances                                        |                        |           
|                                                    | Interest expense on Trust preferred securities                         |                        |           
|                                                    | Other                                                                  |                        |           
|                                                    |                                                                        |                        |           
|Total interest expense                              |                                                                        |                        | 24,890,725
|                                                    |                                                                        |                        |           
|Net interest income                                 |                                                                        |                        | 54,298,159
|Provision for loan losses                           |                                                                        |                        | 4,003,000 
|                                                    |                                                                        |                        |           
|Net interest income after provision for loan losses |                                                                        |                        | 50,295,159
|Noninterest income:                                 |                                                                        |                        |           
|                                                    | Service charges on deposit accounts                                    |                        |           
|                                                    | Mortgage origination fees                                              |                        |           
|                                                    | Investment division commissions                                        |                        |           
|                                                    | Insurance agency income                                                |                        |           
|                                                    | Investment securities gains (losses)                                   |                        |           
|                                                    | Gain on sales of SBA loans                                             |                        |           
|                                                    | (Loss) gain on sales of premises and equipment                         |                        |           
|                                                    | Gain on sales of mortgage loans                                        |                        |           
|                                                    | Income on BOLI                                                         |                        |           
|                                                    | Other income                                                           |                        |           
|                                                    |                                                                        |                        |           
|Total non-interest income                           |                                                                        | $                      | 19,077,635
|                                                    |                                                                        |                        |           
|Non-interest expense:                               |                                                                        |                        |           
|                                                    | Salaries and other compensation                                        |                        |           
|                                                    | Employee benefits                                                      |                        |           
|                                                    | Net occupancy and equipment expense                                    |                        |           
|                                                    | Data processing fees                                                   |                        |           
|                                                    | Professional services                                                  |                        |           
|                                                    | Regulatory agency assessments                                          |                        |           
|                                                    | Amortization of intangible assets                                      |                        |           
|                                                    | Merger expense                                                         |                        |           
|                                                    | Other expense                                                          |                        |           
|                                                    |                                                                        |                        |           
|Total non-interest expense                          |                                                                        |                        | 39,873,488
|                                                    |                                                                        |                        |           
|Income before income taxes                          |                                                                        |                        | 29,499,306
|Income tax expense                                  |                                                                        |                        | 9,028,608 
|                                                    |                                                                        |                        |           
|Net income                                          |                                                                        | $                      | 20,470,698
|                                                    |                                                                        |                        |           
|Earnings per share:                                 |                                                                        |                        |           
|Basic                                               |                                                                        | $                      | 1.30      
|Diluted                                             |                                                                        | $                      | 1.26      
|Weighted average common shares outstanding:         |                                                                        |                        |           
|Basic                                               |                                                                        |                        | 15,706,176
|Diluted                                             |                                                                        |                        | 16,186,149

See accompanying notes to consolidated financial statements.

F-4

---

Main Street Banks, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity

|                                                                                                                                  |  | Common Stock |   | Treasury Stock |            |   |         | Accumulated
Other
Comprehensive
Income (Loss) |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | -------------- | ---------- | - | ------- | --------------------------------------------- | - | ---------- | -
|
|
|Balance at December 31, 1999                                                                                                      |  | 15,445,220   |   | $              | 31,101,701 |   | 169,082 |                                               | $ | (1,033,875 | )
|Net Income                                                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|Comprehensive income:                                                                                                             |  |              |   |                |            |   |         |                                               |   |            |  
|Net unrealized gains on investment securities available for sale arising in current year                                          |  |              |   |                |            |   |         |                                               |   |            |  
|Cash dividends                                                                                                                    |  |              |   |                |            |   |         |                                               |   |            |  
|Restricted stock award plan                                                                                                       |  | 69,955       |   |                | 301,485    |   |         |                                               |   |            |  
|Exercise of stock options                                                                                                         |  | 22,500       |   |                | 135,000    |   |         |                                               |   |            |  
|Stock forfeited under restricted stock award plan                                                                                 |  | (3,516       | ) |                | (15,400    | ) |         |                                               |   |            |  
|Tax benefit from exercise of stock option                                                                                         |  |              |   |                |            |   |         |                                               |   |            |  
|                                                                                                                                  |  |              |   |                |            |   |         |                                               |   |            |  
|Balance at December 31, 2000                                                                                                      |  | 15,534,159   |   |                | 31,522,786 |   | 169,082 |                                               |   | (1,033,875 | )
|Net income                                                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|Comprehensive income:                                                                                                             |  |              |   |                |            |   |         |                                               |   |            |  
|Net unrealized gains on investment securities available for sale arising in current year                                          |  |              |   |                |            |   |         |                                               |   |            |  
|Cash dividends                                                                                                                    |  |              |   |                |            |   |         |                                               |   |            |  
|Exercise of stock options                                                                                                         |  | 126,595      |   |                | 580,629    |   |         |                                               |   |            |  
|Restricted stock award plan                                                                                                       |  | 43,780       |   |                | 328,350    |   |         |                                               |   |            |  
|Restricted stock forfeited                                                                                                        |  | (5,333       | ) |                | (24,341    | ) |         |                                               |   |            |  
|Tax benefit from exercise of stock options                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|                                                                                                                                  |  |              |   |                |            |   |         |                                               |   |            |  
|Balance at December 31, 2001                                                                                                      |  | 15,699,201   |   |                | 32,407,424 |   | 169,082 |                                               |   | (1,033,875 | )
|Net income                                                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|Comprehensive income:                                                                                                             |  |              |   |                |            |   |         |                                               |   |            |  
|Net unrealized gains on investment securities available for sale arising in current year net of deferred tax expense of 1,505,367 |  |              |   |                |            |   |         |                                               |   |            |  
|Change in fair value of derivative instruments in current year net of deferred tax expense of 468,511                             |  |              |   |                |            |   |         |                                               |   |            |  
|Total comprehensive income                                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|Shares issued in FNB Johns Creek Acquisition                                                                                      |  | 647,510      |   |                | 13,260,798 |   |         |                                               |   |            |  
|Treasury Stock                                                                                                                    |  | (295,000     | ) |                |            |   | 295,000 |                                               |   | (5,824,577 | )
|Cash dividends                                                                                                                    |  |              |   |                |            |   |         |                                               |   |            |  
|Restricted stock award plan                                                                                                       |  | 67,500       |   |                | 336,750    |   |         |                                               |   |            |  
|Exercise of stock options                                                                                                         |  | 127,125      |   |                | 930,274    |   |         |                                               |   |            |  
|Restricted stock forfeited                                                                                                        |  | (3,838       | ) |                | (23,078    | ) |         |                                               |   |            |  
|Tax benefit from exercise of stock options                                                                                        |  |              |   |                |            |   |         |                                               |   |            |  
|                                                                                                                                  |  |              |   |                |            |   |         |                                               |   |            |  
|Balance at December 31, 2002                                                                                                      |  | 16,242,498   |   | $              | 46,912,168 |   | 464,082 |                                               | $ | (6,858,452 | )
|                                                                                                                                  |  |              |   |                |            |   |         |                                               |   |            |  

See accompanying notes to consolidated financial statements.

F-5

---

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

|                                                              |                                                                                     | Year ended December 31 |             
|------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------- | ------------
|
|Operating activities                                          |                                                                                     |                        |             
|Net income                                                    |                                                                                     | $                      | 20,470,698  
|                                                              | Adjustments to reconcile net income to net cash provided by operating activities:   |                        |             
|                                                              | Provision for loan losses                                                           |                        |             
|                                                              | Depreciation and amortization of premises and equipment                             |                        |             
|                                                              | Amortization of intangible assets                                                   |                        |             
|                                                              | Loss (gain) on sales of other real estate                                           |                        |             
|                                                              | Investment securities (gains) losses                                                |                        |             
|                                                              | Net (accretion) of investment securities                                            |                        |             
|                                                              | Net accretion of loans purchased                                                    |                        |             
|                                                              | Loss (gain) on sales of premises and equipment                                      |                        |             
|                                                              | Net decrease (increase) in mortgage loans held for sale                             |                        |             
|                                                              | Gains on sales of mortgage loans                                                    |                        |             
|                                                              | Gains on sales of other loans                                                       |                        |             
|                                                              | Deferred income tax benefit                                                         |                        |             
|                                                              | Deferred net loan fees                                                              |                        |             
|                                                              | Vesting in restricted stock award plan                                              |                        |             
|                                                              | Changes in operating assets and liabilities:                                        |                        |             
|                                                              | (Increase) decrease in accrued interest receivable                                  |                        |             
|                                                              | Increase cash surrender value of bank owned life insurance                          |                        |             
|                                                              | (Decrease) increase in accrued interest payable                                     |                        |             
|                                                              | Other                                                                               |                        |             
|                                                              |                                                                                     |                        |             
|Net cash provided by operating activities                     |                                                                                     |                        | 25,184,787  
|Investing activities                                          |                                                                                     |                        |             
|                                                              | Purchases of investment securities held to maturity                                 |                        |             
|                                                              | Purchases of investment securities available for sale                               |                        |             
|                                                              | Purchases of other investments                                                      |                        |             
|                                                              | Maturities of investment securities held to maturity                                |                        |             
|                                                              | Maturities and calls of investment securities available for sale                    |                        |             
|                                                              | Proceeds from sales of investment securities available for sale                     |                        |             
|                                                              | Net increase in loans funded                                                        |                        |             
|                                                              | Purchase of Bank Owned Life Insurance                                               |                        |             
|                                                              | Purchases of premises and equipment                                                 |                        |             
|                                                              | Proceeds from sales of premises and equipment                                       |                        |             
|                                                              | Proceeds from sales of other real estate                                            |                        |             
|                                                              | Purchase of Treasury stock                                                          |                        |             
|                                                              |                                                                                     |                        |             
|Net cash used in investing activities                         |                                                                                     |                        | (167,243,572
|                                                              |                                                                                     |                        |             
|Financing activities                                          |                                                                                     |                        |             
|                                                              | Net increase in demand and savings accounts                                         |                        |             
|                                                              | Increase (decrease) in time deposits                                                |                        |             
|                                                              | Increase in federal funds purchased and securities sold under repurchase agreements |                        |             
|                                                              | Net (decrease) increase in Federal Home Loan Bank advances                          |                        |             
|                                                              | Dividends paid                                                                      |                        |             
|                                                              | Proceeds from Trust preferred securities                                            |                        |             
|                                                              | Proceeds from the issuance of common stock                                          |                        |             
|                                                              |                                                                                     |                        |             
|Net cash provided by financing activities                     |                                                                                     |                        | 131,265,666 
|Net (decrease) increase in cash and cash equivalents          |                                                                                     |                        | (10,793,119 
|Cash and cash equivalents at beginning of year                |                                                                                     |                        | 110,943,408 
|Cash and cash equivalents at end of year                      |                                                                                     |                        | 100,150,289 
|Supplemental disclosures of cash flow information             |                                                                                     |                        |             
|Cash paid during the year for:                                |                                                                                     |                        |             
|Interest                                                      |                                                                                     | $                      | 25,737,737  
|Income taxes, net                                             |                                                                                     | $                      | 7,250,000   
|Supplemental disclosures of non-cash transactions             |                                                                                     |                        |             
|Loans transferred to real estate acquired through foreclosure |                                                                                     | $                      | 3,334,588   
|Sales of other real estate financed                           |                                                                                     | $                      | 2,425,630   

See accompanying notes to consolidated financial statements.

F-6

---



Main Street Banks, Inc. and Subsidiaries        Notes to Consolidated Financial Statements        December 31, 2002 and 2001

1. Summary of Significant Accounting Policies

Description of Business

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

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

The
consolidated financial statements of Main Street Banks, Inc. and Subsidiaries are prepared in accordance with accounting principles generally accepted in the United States,
and practices within the financial services industry, which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of other real estate acquired in connection with foreclosures or in satisfaction of loans. Management believes that the allowance for
loan losses is adequate and the valuation of other real estate is appropriate. While management uses available information to recognize losses on loans, future additions to the allowance may be
necessary based on changes in economic conditions. The Company's results of operations are significantly affected by general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory agencies.

Basis of Presentation

The consolidated financial statements include the accounts of the Parent and its wholly owned subsidiaries, the Bank, and Williamson, Musselwhite & Main
Street Insurance. All significant inter-company transactions and balances have been eliminated in consolidation.

Certain
previously reported amounts have been reclassified to conform to the 2002 financial statement presentation. These reclassifications had no effect on net income or stockholders'
equity.

During
2002, the Company completed the acquisition of First National Bank of Johns Creek. This purchase transaction was concluded on December 11, 2002. The results of operations
for Johns Creek are included from the date of purchase.

As
described more fully in Note 16, the accompanying financial statements have been restated to account for the pooling of interests between the former First Sterling
Banks, Inc. and Main Street

F-7

---

Banks, Inc., which occurred on May 24, 2000, the pooling of interests between the Company and Williamson, which occurred on December 28, 2000, and the pooling of interests
between the Company and Walton Bank and Trust Company, which occurred on January 25, 2001. In business combinations accounted for as poolings-of-interests, the financial
position, results of operations and cash flows of the respective companies are restated as though the companies were combined for all periods presented.

Investment Securities

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

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

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

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

Securities Purchased Under Resell Agreements

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

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

Loans

Loans are stated at the principal amounts outstanding reduced by purchase discounts, deferred net loan fees and costs, and unearned income. Interest income on
loans is generally recognized over the terms of the loans based on the unpaid daily principal amount outstanding. If the collectibility of

F-8

---

interest appears doubtful, the accrual thereof is discontinued. When accrual of interest is discontinued, all unpaid interest is reversed. Interest income on such loans is subsequently recognized
only to the extent cash payments are received, the full recovery of principal is anticipated, or after full principal has been recovered when collection of principal is in question.

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

Loan
origination fees, net of direct loan origination costs, are deferred and recognized as income over the life of the related loan on a level-yield basis.

Mortgage Loans Held for Sale

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

Allowance for Loan Losses

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

Premises and Equipment

Premises and equipment are reported at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using primarily accelerated
methods over the estimated useful lives of the assets, which range from 3 to 40 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the improvements or
the term of the related lease.

Other Real Estate Owned

Other real estate owned represents property acquired through foreclosure or in settlement of loans and is recorded at the lower of cost or fair value, based on
current market appraisals, less estimated selling expenses. Losses incurred in the acquisition of foreclosed properties are charged against the allowance for loan losses at the time of foreclosure.
Subsequent write-downs of other real estate are charged to current operations.

F-9

---

Goodwill

The adoption of Statement of Financial Accounting Standards No. 142 ("Statement No. 142") resulted in the Company no longer amortizing goodwill.
Prior to 2002, goodwill was amortized over periods ranging from 10 to 15 years. The Company tests goodwill for impairment annually. There has been no impairment resulting from these impairment
tests to date. The adoption of Statement No. 142 had no material impact on the financial condition or operating results of the Company for prior years. As a result, no pro-forma
earnings data is presented.

Other Intangible Assets

Intangible assets related to capital lease rights are being amortized over the term of the related lease using the straight-line method. Accumulated
amortization was $2,111,533 and $1,977,133 at December 31, 2002 and 2001, respectively. Amortization expense totaled $180,150, $239,667 and $438,767 for the years ended December 31,
2002, 2001 and 2000, respectively.

Securities Sold Under Repurchase Agreements

The Company uses securities sold under repurchase agreements as an investment option for some commercial customers. Such securities sold under repurchase
agreements are classified as secured borrowings, and generally mature within one to four days from the transaction date. The Company also uses securities sold under repurchased agreements as a funding
source, which may have longer maturities up to three years or more. Securities sold under repurchase agreements are reflected at the amount of cash received in connection with the transaction. The
Company monitors the fair value of the underlying securities.

Income Taxes

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

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

Earnings Per Share

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

F-10

---

The
computation of diluted earnings per share is as follows:

Year ended December 312002

2001

2000Numerator:Basic and diluted net income

$
20,470,698

$
14,347,176

$
13,925,234Denominator:Basic weighted average shares


15,706,176


15,639,610


15,486,996Effect of employee stock options


479,973


471,360


316,731Diluted weighted average shares


16,186,149


16,110,970


15,803,727Diluted earnings per share

$
1.26

$
.89

$
.88


Advertising Costs

In accordance with SOP 93-7, the Company expenses advertising costs as incurred. Advertising costs expensed in the years ended December 31,
2002, 2001, and 2000 were not significant.

Financial Instruments

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

Comprehensive Income

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

Cash and Cash Equivalents

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

Risk Management Instruments

Interest rate swaps are used periodically as part of the Company's overall interest rate risk management and are designated as hedges of interest-bearing assets
or liabilities. These derivatives modify the interest rate characteristics of specified financial instruments. Amounts receivable or

F-11

---

payable under interest rate swap are recognized in net interest income. To qualify for special hedge accounting, a swap must be designated and documented as a hedge and be effective in reducing the
market risk associated with the existing asset or liability that is being hedged. Effectiveness of the hedge is evaluated on an initial and ongoing basis using statistical calculations of correlation.
If the underlying designated item is no longer held, any previously unrecognized gain or loss on the derivative contract is recognized in earnings and the contract is subsequently accounted for at
fair value.

Recent Accounting Pronouncements

FASB Statement No. 141 and No. 142

In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("Statement 141"), and Statement No. 142, "Goodwill and Other
Intangible Assets" ("Statement 142"). Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also
specifies the criteria for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. Statement 142 requires companies to no longer
amortize goodwill and intangible assets with indefinite useful lives, but instead test these assets for impairment at least annually in accordance with the provisions of Statement 142. Under Statement
142 intangible assets with definite useful lives continue to be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance
with the FASB's Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"). The Company completes an impairment test annually and records
the appropriate charges if any impairment in value is indicated. The adoption of the statement did not have a material impact on the financial condition or operating results of the Company.

FASB Statement No. 144

In October 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement 144"),
effective for fiscal years beginning after December 15, 2001 and applied prospectively. Statement 144 supersedes FASB Statement No. 121 and provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules significantly change the criteria
that would have to be met to classify an asset as held-for-sale. Statement 144 also supersedes the provisions of Accounting Principle Board (APB) Opinion 30 with regard to
reporting the effects of a disposal of a segment of a business and requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in
which the losses are incurred (rather than as of the measurement date as presently required by APB Opinion 30). In addition, more dispositions will qualify for discontinued operations treatment in the
income statement. The adoption of Statement 144 did not have a material impact on the Company's financial condition or results of operations.

FASB Statement No. 145

In April 2002, FASB issued Statement No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and
Technical Corrections" (Statement 145). Statement 145

F-12

---

rescinds Statement 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. In
addition, Statement 145 amends Statement 13 on leasing to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the
same manner as sale-leaseback transactions. Provisions of Statement 145 related to the recission of Statement 4 are
effective for financial statements issued by the Company after January 1, 2003. The provisions of the statement related to sale-leaseback transactions were effective for any
transactions occurring after May 15, 2002. All other provisions of the statement were effective as of the end of the second quarter of 2002. The adoption of the provisions of Statement 145 did
not have a material impact on the Company's financial condition or results of operations.

FASB Statement No. 146

In June 2002, FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Statement requires that a
liability for costs associated with exit or disposition activities be recognized when the liability is incurred and be measured at fair value and adjusted for changes in estimated cash flows. Types of
costs covered by Statement 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, facility closing, or other exit or
disposal activity. Existing generally accepted accounting principles provide for the recognition of such costs at the date of management's commitment to an exit plan. Under Statement No. 146,
management's commitment to an exit plan would not be sufficient, by itself, to recognize a liability. The Statement is effective for exit or disposal activities initiated after December 31,
2002 and is not expected to have a material impact on the results of operations or financial condition of the Company.

FASB Statement No. 147

In October 2002, FASB issued Statement No. 147, "Acquisition of Certain Financial Institutions" ("Statement 147"). Statement 147 amends the previous
accounting guidance which required for certain acquisitions of financial institutions where the fair market value of liabilities assumed was greater than the fair value of the tangible assets and
identifiable intangible assets acquired to recognize and account for the excess as an unidentifiable intangible asset. Under the old guidance this unidentifiable intangible asset was to be amortized
over a period no greater than the life of the long-term interest bearing assets acquired. Under Statement 147, this excess, if acquired in a business combination, represents goodwill that
should be accounted for in accordance with Statement 142. In addition, Statement 147 amends Statement 144 to include in its scope long-term customer-relationship intangible assets of
financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires. The provisions of Statement 147 were effective on October 1,
2002. The adoption of the provisions of Statement 147 did not have a material impact on the Company's financial position or results of operations.

F-13

---



1. Summary of Significant Accounting Policies (Continued)

FASB Statement No. 148

In December 2002, the FASB issued Statement No. 148 ("SFAS 148"), "Accounting for Stock-Based CompensationTransition and
Disclosure," an amendment of Statement of Financial Accounting Standards No. 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS 148 is effective for fiscal years ended after December 15, 2002. The Company plans to continue to account
for stock-based employee compensation under the intrinsic value based method and to provide disclosure of the impact of the fair value based method on reported income. Employee stock options have
characteristics that are significantly different from those of traded options, including vesting provisions and trading limitations that impact their liquidity. Therefore, the existing option pricing
models, such as Black-Scholes, do not necessarily provide a reliable measure of the fair value of employee stock options. Refer to Note 11 for pro forma disclosure of the impact of stock
options utilizing the Black-Scholes valuation method. The adoption of this statement did not have a material impact on the financial condition or operating results of the Company.

FASB Interpretation No. 45

In November 2002, FASB issued Interpretation No. 45 ("FIN 45"), "Guarantees, Including Indirect Guarantees of Indebtedness of Others," to clarify
accounting and disclosure requirements relating to a guarantor's issuance of certain types of guarantees. FIN 45 requires entities to disclose additional information about certain guarantees, or
groups of similar guarantees, even if the likelihood of the guarantor's having to make any payments under the guarantee is remote. The disclosure provisions are effective for financial statements for
fiscal years ended after December 15, 2002. For certain guarantees, the interpretation also requires that guarantors recognize a liability equal to the fair value of the guarantee upon its
issuance. The initial recognition and measurement provision is to be applied only on
a prospective basis to guarantees issues or modified after December 31, 2002. The Company does not expect adoption of this Interpretation to have a material impact on the Company's financial
statements.

2. Cash and Due From Banks

The Company is required to maintain average reserve balances with the Federal Reserve Bank, on deposit with national banks, or in cash. The average reserve
requirements at December 31, 2002 and 2001 were approximately $1,633,000 and $173,000 respectively. The increase in the reserve requirement between 2002 and 2001, is the result of growth in the
Company's transaction type deposit accounts.

F-14

---

3. Investment Securities

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

|                                          |  | December 31, 2002
|----------------------------------------- |  | -----------------
|
|Held to maturity securities               |  |                  
|States and political subdivisions         |  | $                
|Available for sale securities             |  |                  
|U.S. Treasury securities                  |  |                  
|U.S. Government agencies and corporations |  |                  
|States and political subdivisions         |  |                  
|Mortgage-backed securities                |  |                  
|                                          |  |                  
|Total                                     |  | $                
|                                          |  |                  

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

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

December 312002

2001Federal Home Loan Bank stock


2,950,000


3,756,100Southeast Bankcard Association stock


40,000


40,000North Georgia Bank stock


150,000


150,000Banker's Bank stock


222,568


172,500Other investments


336,800


Total

$
3,699,368

$
4,118,600


The
amortized cost and estimated fair value of investment securities held to maturity and available for sale at December 31, 2002, by contractual maturity, are
shown below. Expected maturities will differ

F-15

---

from contractual maturities because issuers may have the right to call or repay obligations without call or prepayment penalties.

|                                       |  | Investment Securities
Held to Maturity |         | Investment Securities
Available for Sale
|-------------------------------------- |  | -------------------------------------- | ------- | ----------------------------------------
|
|Due in one year or less                |  | $                                      |        |                                         
|Due after one year through five years  |  |                                        | 262,124 |                                         
|Due after five years through ten years |  |                                        | 425,438 |                                         
|Due after ten years                    |  |                                        |         |                                         
|                                       |  |                                        |         |                                         
|Total                                  |  | $                                      | 687,562 |                                         
|                                       |  |                                        |         |                                         

During
2002, 2001 and 2000, proceeds from sales of investment securities available for sale were $11,245,427, $6,655,982 and $15,036,570, respectively, with gross realized gains and
losses of $130,310, $22,191 and ($512,568), respectively. The tax impact of the gain or loss on these transactions was $44,305, $7,545 and ($174,273) for the years ended December 31, 2002,
2001, and 2000, respectively. The method followed in determining the cost of investments sold is specific identification.

Securities
with carrying values of $112,360,114 and $100,864,688 and estimated fair values of $116,355,552 and $100,864,688 at December 31, 2002 and 2001, respectively, were
pledged to secure public deposits.

4. Loans

Loans are summarized as follows:

December 312002

2001Commercial and industrial

$
104,061,368

$
68,320,271Real estate construction


238,415,023


173,464,129Residential mortgage


198,400,329


152,226,068Commercial real estate


404,630,039


366,002,884Consumer and other


38,386,805


53,074,956Less:Purchase discount


(109,273
)

(164,732
)Deferred net loan fees


(1,233,812
)

(1,342,428
)Unearned income


(64,032
)

(134,802
)Total loans, net of unearned income


982,486,447


811,446,346Allowance for loan losses


(14,588,582
)

(12,017,448
)Loans, net

$
967,897,865

$
799,428,898


Nonaccrual
loans were $3,356,901 and $1,414,926 at December 31, 2002 and 2001, respectively. The allowance for loan losses related to these impaired loans was $503,535 and
$212,239 at December 31, 2002 and 2001, respectively. The average recorded investment in impaired loans was $3,485,002; $1,269,093; and $1,242,984 for the years ended December 31, 2002,
2001 and 2000,

F-16

---

respectively. If such loans had been on an accrual basis, interest income would have been approximately $217,272; $63,421; and $109,997, higher for the years ended December 31, 2002, 2001 and
2000, respectively.

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

Year ended December 312002

2001

2000Balance at beginning of year

$
12,017,448

$
10,907,424

$
9,743,922Provision for loan losses


4,003,000


2,452,000


2,184,000Loans charged off


(3,149,859
)

(1,685,070
)

(1,374,110
)Recoveries of loans previously charged off


243,039


343,094


353,612Allowance of purchased institution at acquisition date


1,474,954





Balance at end of year

$
14,588,582

$
12,017,448

$
10,907,424


A
substantial portion of the Company's loans are secured by real estate in northeast Georgia communities, primarily in Barrow, Clarke, Cobb, DeKalb, Forsyth, Fulton, Gwinnett, Newton,
Rockdale, and Walton counties. In addition, a substantial portion of real estate acquired through foreclosure consists of single-family residential properties and land located in these same markets.
The ultimate collectibility of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the carrying amount of real estate are susceptible to changes in
market conditions in northeast Georgia.

5. Premises and Equipment

Premises and equipment are composed of the following:

December 312002

2001Land

$
7,715,019

$
6,854,839Buildings and leasehold improvements


19,374,308


17,875,532Furniture, fixtures and equipment


14,613,469


13,697,120Construction in process


2,448,372


1,020,328Less: accumulated depreciation and amortization


(12,476,495
)

(12,755,415
)Total Premises & Equipment

$
31,674,673

$
26,692,404


Depreciation
and amortization expense totaled $2,457,223, $2,187,811 and $2,242,473 for the years ended December 31, 2002, 2001 and 2000, respectively.

F-17

---

The
Company leases certain buildings and various equipment under operating leases. Minimum payments, by year and in the aggregate, under noncancelable operating leases with initial or
remaining terms in excess of one year as of December 31, 2002 are as follows:

2003

$
505,1552004


460,9302005


418,9342006


386,5872007


314,347Thereafter


1,377,143Total minimum lease payments

$
3,463,096


Rental
expense for all operating leases was $524,497, $407,424 and $415,299 in 2002, 2001 and 2000, respectively.

6. Interest Bearing Deposits

A summary of time deposits by year of maturity at December 31, 2002 is as follows:

2003

$
425,464,1172004


121,113,8262005


9,225,7642006


5,542,3032007


5,840,972After 2007


117,615Total

$
567,304,597


The
Company had $197,098,700 and $152,749,296 in time deposits over $100,000 at December 31, 2002 and 2001, respectively. Interest expense on these deposits was $6,535,736,
$9,062,793, and $7,177,496 for the years ended December 31, 2002, 2001 and 2000, respectively.

7. Borrowings

At December 31, 2002 and 2001 the Company had advances from the Federal Home Loan Bank totaling $50,000,000 and $75,121,250, respectively. The Company has
pledged all of its eligible residential mortgage loans secured by first mortgages on one-to-four family dwellings as collateral. The Company has also pledged eligible
commercial real estate loans. The Company is allowed to borrow up to 75% of the balance of the eligible first mortgage loans pledged as collateral, and up to 50% of the eligible commercial real estate
loans. At December 31, 2002 and 2001 the available balance under the Company's line with the Federal Home Loan Bank was approximately $125,209,000 and $9,850,750, respectively. This increase is
the combined result of a decrease in the amount borrowed at the Federal Home Loan Bank, as well as the addition of the commercial real estate collateral. At December 31, 2002, the Company has
two advances of $25,000,000 each, one of which has a rate of 1.58% and matures in July 2004 and the other of which has a rate of 1.99% and matures in July 2005.

F-18

---

Other borrowings

At December 31, 2002 the Company had additional borrowings outstanding as shown in the table below:

Description

Amount

Maturity

RateSecurities sold under repurchase agreements

12,500,000

4/2003

2.77
%Securities sold under repurchase agreements

17,500,000

4/2004

3.82
%Securities sold under repurchase agreements

12,500,000

4/2005

4.46
%Retail customer repurchase agreements

5,166,699

various

1.86
%Trust preferred securities

5,155,000



4.65
%


The
securities sold under repurchase agreements noted above are with Solomon Smith Barney. Government agency and mortgage backed securities in the amount of $47,129,764 are pledged as
collateral for these agreements.

The
following table stratifies the Bank's borrowings as short-term and long-term:

Description

Amount

RateShort Term:Securities sold under repurchase agreements

$
12,500,000

2.77
%Retail Customer repurchase agreements


5,166,699

1.86
%Federal funds purchased


Total Short term borrowings


17,666,699

2.52
%Long Term:Federal Home Loan Bank Advances


50,000,000

1.79
%Securities sold under repurchase agreements


30,000,000

4.09
%Trust preferred securities


5,155,000

4.65
%Total Long Term


85,155,000

2.77
%


8. Income Taxes

Income tax expense is summarized as follows:

Year ended December 312002

2001

2000Current income tax expense

$
10,317,068

$
7,838,254

$
7,888,663Deferred income tax benefit


(1,288,460
)

(338,124
)

(127,142
)Income Tax Expense

$
9,028,608

$
7,500,130

$
7,761,521


State
income tax expense for the year ended December 31, 2002 was comprised of $377,026 of current tax expense and ($377,026) of current tax benefit. No state income tax was paid
as a result of the establishment of a REIT subsidiary. The REIT allows the Bank to increase the effective yield on its real estate related assets and residential mortgage loan portfolios by
transferring a portion of the assets

F-19

---

and loans to an entity that receives favorable tax treatment. A reconciliation of income tax computed at statutory rates to total income tax expense is as follows:

Year ended December 312002

2001

2000Pretax income

$
29,499,306

$
21,847,306

$
21,686,755Income tax computed at statutory rate


10,324,757

$
7,646,557

$
7,373,497Increase (decrease) resulting from:Tax-exempt interest


(1,368,669
)

(590,509
)

(503,237
)Nondeductible interest on tax-exempt investments


160,560


50,050


59,500Nondeductible merger expenses





455,000


330,800Other, net


(88,040
)

(60,968
)

500,961Income Tax Expense

$
9,028,608

$
7,500,130

$
7,761,521


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

December 312002

2001Reserve for loan losses

$
5,198,516

$
4,471,693Depreciation on premises and equipment


(1,611,637
)

(1,006,721
)Core deposit intangible


153,121


123,259Deferred net loan fees


492,280


540,917Net unrealized gains on investment securities available for sale


(2,120,115
)

(998,637
)Other, net


(1,654,004
)

(1,097,778
)Net deferred tax asset

$
458,161

$
2,032,733


9. Employee Benefits

The Company sponsors a 401(k) Employee Savings Plan that permits employees to defer annual cash compensation as specified under the plan. The Board of Directors
determines the annual Company contribution, which was $326,285, $236,465 and $255,826, in 2002, 2001 and 2000, respectively.

The
Company has a Management Incentive Bonus Plan for key executives that provides annual cash awards, if approved, based on eligible compensation and achieving earnings goals. The
Company also has a General Bonus Plan that provides for annual cash awards to eligible employees as established by the Board of Directors. The total expense under these plans was $2,201,541,
$1,096,566 and $1,185,623 in 2002, 2001 and 2000, respectively.

F-20

---



10. Related Party Transactions

Directors, executive officers, and their related interests were customers of the Company and had other transactions with the Company in the ordinary course of
business. Loans outstanding to certain directors, executive officers, and their related interests at December 31, 2002 and 2001 were $636,298 and $644,124, respectively. For the years ended
December 31, 2002 and 2001, $983,403 and $0, respectively of such loans were made and loan repayments totaled $554,528 and $14,386 for the respective years. It is the policy of the Company that
such transactions are made on substantially the same terms as those prevailing at the time for comparable loans to other persons and do not involve more than normal risks of collectability or present
other unfavorable features. All of these loans are in a current and performing status as of the report date. These individuals and their related interests also maintain customary demand and time
deposit accounts with the Company. These totaled approximately $326,000 at December 31, 2002.

The
Company has operating leases for bank premises that are owned by related parties. These related parties consist of an individual who is a primary shareholder, member of the Board of
Directors, and an Executive Officer of the Company, and also members of this individual's family. Terms for these related party leases are substantially the same as those that would be expected to
prevail in the marketplace. During 2002, 2001 and 2000, total lease payments under these related party leases totaled approximately $212,000, $270,000 and $250,000, respectively.

11. Stock Options and Long-Term Compensation Plans

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

The
Company has a nonqualified Restricted Stock Award Plan and a Long-term Incentive Plan, which grant restricted stock and other stock based compensation to key executives
and officers of the Company. In the case of restricted stock, Company executives and officers designated, as an "eligible executive" will vest in the number of shares of common stock awarded under the
plan based on service over a five-year period. A total of 960,000 shares were authorized to be issued under the plans, with 829,242 and 761,742 shares of restricted stock issued as of
December 31, 2002 and 2001, respectively. A total of 692,614 and 651,320 shares were vested with 136,628 and 110,422 shares issued and unvested as of December 31, 2002 and 2001.

In
2000, the Board of Directors approved the Omnibus Stock Ownership and Long-Term Incentive Plan ("Omnibus Plan") under which incentive stock options and
non-qualified stock options to acquire shares of common stock, restricted stock, stock appreciation rights or units may be granted to eligible employees. During 2002, the Company issued
67,500 shares of restricted stock under the Omnibus Plan.

At
December 31, 2002 and 2001, the Company had 109,862 and 293,362 shares, respectively, of its authorized but unissued common stock reserved for future grants under the Omnibus
Plan. During 2002, 183,500 options were granted under the Omnibus Plan. Option prices under all stock option plans are equal to the fair value of the Company's common stock on the date of the grant.
The options vest over time periods determined by the Compensation Committee of the Board of Directors and expire

F-21

---

ten years from date of grant. A summary of the Company's stock option activity and related information is as follows:

|                                |  | 2002      |   | 2001 |       | 2000
|------------------------------- |  | --------- | - | ---- | ----- | ----
|
|Under option, beginning of year |  | 1,152,353 |   | $    | 9.89  |     
|Granted                         |  | 483,521   |   |      | 18.31 |     
|Exercised                       |  | (127,125  | ) |      | 7.31  |     
|Terminated                      |  | (43,240   | ) |      | 13.77 |     
|Under option, end of year       |  | 1,465,509 |   |      | 12.77 |     
|Exercisable, end of year        |  | 633,719   |   |      | 8.01  |     

Following
is a summary of the status of options outstanding at December 31, 2002:

Under OptionWeighted-
Average
Remaining
Contractual
Life

Options ExercisableRange of
Exercise Prices

Number

Weighted-
Average
Exercise Price

Number
Exercisable

Weighted-Average
Exercise Price2.42-4.81

186,098

3.24

3

186,098

3.244.82-7.19

165,908

6.97

5

165,908

6.977.40-9.72

1,150

7.40

6

1.150

7.4011.08-13.20

489,994

11.83

8

280.563

11.8013.21-18.99

167,618

16.44

9



19.01-21.00

454,741

19.47

10



1,465,509





633,719


Pro
forma information regarding net income and net income per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2002, 2001 and 2000: risk-free interest of 3.47%, 5.09% and 5.28%, respectively; dividend yield of 1.95%, 2.47% and 2.29%, respectively; volatility factor
of the expected market price of the Company's common stock of .247, .288, and .448, respectively; and a weighted-average expected life of the options of 8 years in 2002, 2001 and 2000. Because
the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair
value estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted-average fair value of
options granted during 2002, 2001 and 2000 was $5.26, $5.21 and $5.23, respectively.

F-22

---

For
purposes of pro forma disclosures, the estimated fair value of the options granted in 2002, 2001 and 2000 is amortized to expense over the options' vesting period. The Company's pro
forma information follows:

Year ended December 312002

2001

2000Net income


20,470,698


14,347,176


13,925,234Compensated expense, net of taxes


358,609


228,305


647,457Pro forma net income

$
20,112,089

$
14,118,871

$
13,277,777Pro forma net income per share:Basic

$
1.28

$
0.90

$
0.86Diluted

$
1.24

$
0.88

$
0.84


12. Regulatory Matters

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

Quantitative
measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios (set forth in the table below) of Tier 1 capital (as
defined) to total average assets (as defined), and minimum ratios of Tier 1 and total capital (as defined) to risk-weighted assets (as defined). To be considered adequately capitalized (as
defined) under the regulatory framework for prompt corrective action, the Company and the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-based
ratios as set forth in the following tables.

As
of its most recent regulatory notification, the Company and the Bank were considered well capitalized under current regulatory guidelines. There are no conditions or events since that
notification that management believes have changed the category.

F-23

---

The
following is a summary of the Company's and the Bank's capital ratios at December 31, 2002 and 2001.

|                                         |  | Actual Amount |             | Ratio |       | For Capital Adequacy Purposes |   | Ratio      |  | To Be Well Capitalized Under Prompt Corrective Action Provisions |   | Ratio |            
|---------------------------------------- |  | ------------- | ----------- | ----- | ----- | ----------------------------- | - | ---------- |  | ---------------------------------------------------------------- | - | ----- | -----------
|As of December 31, 2002                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Company                                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Total Capital (to Risk Weighted Assets)  |  | $             | 129,770,000 |       | 12.08 | %                             | $ | 85,958,000 |  | 8                                                                | % | $     | 107,448,000
|Tier 1 Capital (to Risk Weighted Assets) |  |               | 111,325,000 |       | 10.36 | %                             |   | 42,979,000 |  | 4                                                                | % |       | 64,469,000 
|Tier 1 Capital (to Average Assets)       |  |               | 111,325,000 |       | 8.69  | %                             |   | 51,251,000 |  | 4                                                                | % |       | 76,877,000 
|As of December 31, 2001                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Company                                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Total Capital (to Risk Weighted Assets)  |  |               | 113,164,000 |       | 12.83 | %                             | $ | 70,556,000 |  | 8                                                                | % |       | 88,196,000 
|Tier 1 Capital (to Risk Weighted Assets) |  |               | 102,250,000 |       | 11.59 | %                             |   | 35,278,000 |  | 4                                                                | % |       | 52,917,000 
|Tier 1 Capital (to Average Assets)       |  | $             | 102,250,000 |       | 9.24  | %                             | $ | 44,287,000 |  | 4                                                                | % | $     | 55,359,000 
|As of December 31, 2002                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|The Bank:                                |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Total Capital (to Risk Weighted Assets)  |  | $             | 135,805,000 |       | 12.69 | %                             | $ | 85,651,000 |  | 8                                                                | % | $     | 107,063,000
|Tier 1 Capital (to Risk Weighted Assets) |  |               | 122,413,000 |       | 11.44 | %                             |   | 42,825,000 |  | 4                                                                | % |       | 64,238,000 
|Tier 1 Capital (to Average Assets)       |  |               | 122,413,000 |       | 9.24  | %                             |   | 53,014,000 |  | 4                                                                | % |       | 66,267,000 
|As of December 31, 2001                  |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|The Bank:                                |  |               |             |       |       |                               |   |            |  |                                                                  |   |       |            
|Total Capital (to Risk Weighted Assets)  |  |               | 111,481,000 |       | 12.58 | %                             |   | 70,918,000 |  | 8                                                                | % |       | 88,647,000 
|Tier 1 Capital (to Risk Weighted Assets) |  |               | 100,519,000 |       | 11.34 | %                             |   | 35,459,000 |  | 4                                                                | % |       | 53,188,000 
|Tier 1 Capital (to Average Assets)       |  | $             | 100,519,000 |       | 9.09  | %                             | $ | 44,236,000 |  | 4                                                                | % | $     | 55,295,000 

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

13. Off-Balance Sheet Financial Instruments

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

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

The
Company's exposure to credit loss in the event of nonperformance by the customer to the financial instrument for commitments to extend credit and standby letters of credit is
represented by

F-24

---

the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as are used for on-balance-sheet instruments.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Total commitments to extend credit at December 31, 2002 and 2001 include $51,801,416 and $47,998,000, respectively, in undisbursed credit lines
and $109,339,789 and $93,282,000, respectively, in unfunded construction and development loans. The Company's experience has been that approximately 80 percent of loan commitments are
ultimately drawn upon by customers.

The
Company issues standby letters of credit, which are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued
to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The
Company had $3,314,935 and $2,451,008 in irrevocable standby letters of credit outstanding at December 31, 2002 and 2001, respectively.

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

The
Company primarily uses interest rate swaps as part of its hedging strategy. The company uses interest rate swaps designated as cash flow hedges which involves the receipt of fixed
rate amounts in exchange for variable rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2002, the Company's only hedge related
to a $50 million notional received fixed prime-based interest rate swap. The fixed rate received on the swap is 6.63% versus paying prime rate which was 4.25% at December 31, 2002.

14. Litigation

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

F-25

---



15. Fair Values of Financial Instruments

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



F-26

---



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

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

16. Business Combinations

On December 11, 2002 the Bank acquired First National Bank of Johns Creek. First National Bank of Johns Creek, a $110 million asset community bank
was headquartered in Forsyth County, Georgia. This transaction was accounted for using the purchase method of accounting. This transaction was completed on December 11, 2002. The
$26.2 million merger is based on Main Street's closing stock price on July 17, 2002 of $20.48 per share. The Company issued 647,510 shares of its common stock and $10.7 million in
cash in exchange for all outstanding shares of First National Bank of Johns Creek. First National Bank of Johns Creek adopted the Main Street Bank name effective on December 11, 2002, with
offices opened under the Main Street Bank brand on December 12, 2002. A conversion of Johns Creek core processing systems will be completed by February 10, 2003.

The
resulting goodwill recorded was $14.8 million. Johns Creek added $92.7 million in loans and $96 million in deposits.

F-27

---

During
2002 Williamson, Musselwhite & Main Street Insurance Agency, Inc., acquired Hometown Insurance Center, Inc. located in Winder, Georgia. Hometown is a
multi-line independent insurance agency serving Barrow, Jackson, and Gwinnett counties. This acquisition was accounted for as a purchase. The purchase price was $1.2 million payable
over five years with $300,000 paid up front. Goodwill of $492,290 was recorded as well as non-compete intangible assets of $677,892.

On
January 25, 2001, the Company effected a business combination and merger with Walton Bank and Trust. Under the terms of the transactions, Walton Bank and Trust shareholders
received 2.752 shares of Main Street Banks, Inc. common stock for each share of Walton Bank and Trust stock owned prior to the merger. The combination was accounted for as a pooling of interest
and, accordingly, all prior financial statements have been restated to include the financial results of Walton Bank and Trust.

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

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

F-28

---

The
results of operations of the separate companies purchased under the pooling of interests method of accounting, for periods prior to the combination are summarized as follows:

Years Ended December 312001

2000Net interest income:Main Street Banks, Inc., exclusive of pre-acquisition amounts

$


$
36,364,900The former Main Street Banks, Incorporated





8,880,630Walton Bank and Trust


136,472


2,973,896Williamson Insurance Agency





14,245Williamson & Musselwhite Insurance Agency





2,576Total


136,472

$
48,236,247Net income:Main Street Banks, Inc., exclusive of pre-acquisition amounts

$


$
9,062,895The former Main Street Banks, Incorporated





3,544,112Walton Bank and Trust


85,032


1,092,434Williamson Insurance Agency





38,386Williamson & Musselwhite Insurance Agency





187,407$
85,032

$
13,925,234


17. Parent Company Financial Information

The following information presents the condensed balance sheets of the Parent at December 31, 2002 and 2001, and the statements of income and cash flows
for the years ended December 31, 2002, 2001 and 2000:

Condensed Balance Sheets

December 312002

2001Assets

$


$Cash and cash equivalents


690,967


508,506Investment in subsidiaries


144,077,603


104,249,285Other assets


2,443,395


444,908Total assets


147,211,965


105,202,699Liabilities and shareholders' equityLiabilities


15,555,096


81,347Shareholders' equity


131,656,869


105,121,352Total liabilities and shareholders' equity

$
147,211,965

$
105,202,699


F-29

---

Condensed Statements of Income

Year ended December 312002

2001

2000Income:Dividends from subsidiaries

$
14,500,000

$
6,116,403

$
5,841,908Other income


106,204Total income


14,606,204


6,116,403


5,841,908Expenses:Salaries and employee benefits


427,750





150,115Merger expense


1,412,362





1,085,774Other expense


921,160


643,804


660,191Total expense


1,348,910


2,056,166


1,896,080Income before income tax benefit and equity in undistributed income of subsidiaries


13,257,294


4,060,237


3,945,828Income tax benefit


427,672


366,985


421,342Income before equity in undistributed income of subsidiaries


13,684,966


4,427,222


4,367,170Equity in undistributed income of subsidiaries


6,785,732


9,919,954


9,558,064Net income

$
20,470,698

$
14,347,176

$
13,925,234


Condensed Statements of Cash Flows

Year ended December 312002

2001

2000Operating activitiesNet income

$
20,470,698

$
14,347,176

$
13,925,234Adjustments to reconcile net income to net cash provided by operating activities:Undistributed income of subsidiaries


(6,785,732
)

(9,919,954
)

(9,558,064
)Other


(2,007,145
)

256,245


(1,345,719
)Net cash provided by operating activities


11,677,821


4,683,467


3,021,451Financing activitiesDividends paid


(6,601,057
)

(5,808,235
)

(4,382,624
)Purchase of Treasury Stock


(5,824,577
)Proceeds from exercise of common stock options


930,274


580,629


301,485Net cash used in financing activities


(11,495,360
)

(5,227,606
)

(4,081,139
)Net decrease in cash


182,461


(544,139
)

(1,059,688
)Cash at beginning of year


508,506


1,052,645


2,112,333Cash at end of year

$
690,967

$
508,506

$
1,052,645


F-30

---

18. Stock Repurchase Plan

On March 31, 2002, the Company announced a stock repurchase program whereby the Company was authorized to acquire up to 500,000 shares of its common stock.
The shares are to be repurchased from time to time in the open market at prevailing market prices or in privately negotiated transactions. The extent and time of any repurchase will depend on market
conditions and other corporate considerations. This repurchase plan replaced a plan approved in September 2001, which authorized the repurchase of up to 150,000 shares of common stock.
Repurchased shares will be available for use in connection with the Company's stock option plans and other compensation programs, or for other corporate purposes as determined by the Company's Board
of Directors. During fiscal 2002, the Company repurchased 295,000 shares of its outstanding common stock under this repurchase plan.

19. Subsequent Events

The bank announced the execution of a definitive agreement to acquire First Colony Bancshares, Inc., parent of First Colony Bank, a $320 million
asset community bank headquartered in Alpharetta, Georgia. First Colony's banking offices are located in Alpharetta, Roswell, and Cumming. First Colony's banking offices in Alpharetta and Roswell will
give Main Street a strong presence in fast growing North Fulton County, and its Cumming office will augment Main Street's presence in Forsyth County, the fastest growing county in the state of
Georgia. The transaction was unanimously approved by the directors of both companies on December 11, 2002.

In
the transaction, First Colony shareholders will receive, on a fully diluted basis, a total of 2.6 million Main Street common shares and $45 million in cash. The
transaction is currently valued at $96.0 million based upon Main Street's closing price of $19.61 on December 11. This is the equivalent of approximately $184 per First Colony share
outstanding.

F-31

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