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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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

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.

Table of Contents

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:

•

it may acquire direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than five (5%) percent of the voting shares of the Bank;



•

it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or



•

it may merge or consolidate with any other bank holding company.

        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

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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.

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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

(a)

The Company's common stock is traded on the NASDAQ National Market under the symbol MSBK.

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

(b)

As of December 31, 2002, there were approximately 3,331 shareholders of record of the Company's common stock.



(c)

During 2002, dividends of $0.105 per share were paid in each quarter. The Company currently intends to continue paying regular cash dividends on a quarterly basis.

        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

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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:

•

that dividends of cash or property may be paid only out of the Bank's retained earnings;



•

that dividends may not be paid if the Banks' paid-in capital and retained earnings which are set aside for dividend payment and other distributions do not, in combination, equal at least 20% of the Bank's capital stock; and



•

that dividends may not be paid without prior approval of the Georgia Banking Department if:



•

the Bank's total classified assets at its most recent examination exceed 80% of its equity capital;



•

the aggregate amount of dividends to be declared exceeds 50% of the Bank's net profits after taxes but before dividends for the previous calendar year; or



•

the ratio of equity capital total to adjusted assets is less than 6%.

        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

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ITEM 6. SELECTED FINANCIAL DATA

(1)

Excludes non-recurring merger related expenses and one-time gains (losses) pertaining to restructuring the investment portfolio and Federal Home Loan Bank advances and sales of property of $130, ($3,370) and ($1,311) in 2002, 2001 2000 and 1999, respectively.

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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.

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        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