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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the quarter ended June 30, 2004

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)

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  x    No  ¨

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

As of July 30^th registrant had outstanding 19,409,884 shares of common stock.

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MAIN STREET BANKS, INC.

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FORM 10-Q

June 30, 2004

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Main Street Banks, Inc.

Consolidated Balance Sheets

(dollars in thousands)

See accompanying notes to consolidated financial statements

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Main Street Banks, Inc.

Consolidated Statements of Income (Unaudited)

(dollars in thousands except per share data)

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Main Street Banks, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(dollars in thousands)

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Main Street Banks, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

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Main Street Banks, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note A – Significant Accounting Policies

Basis of Presentation: The unaudited consolidated financial statements include the accounts of the Parent Company Main Street Banks, Inc. (“Company”) and its wholly owned subsidiaries, Main Street Bank (“the Bank”) Main Street Insurance Services, Inc. (“MSII”), Piedmont Settlement Services, Inc. (“Piedmont”) and MSB Payroll Solutions, LLC. All significant inter-company transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with accounting principles generally accepted in the United States followed within the financial services industry for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statement presentation. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for interim periods have been included.

The results of operations for the three-month and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. These financial statements and related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K.

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

Note B - Acquisitions

On January 2, 2004, MSII acquired substantially all of the assets of Banks Moneyhan Hayes Insurance Agency, Inc. (“BMIA”), an insurance agency headquartered in Conyers, Georgia. The transaction was accounted for as a purchase business combination and accordingly, the results of operations of BMIA are included from the acquisition date. The Company issued 271,109 shares of its common stock as consideration. The value of the 271,109 shares issued was determined based on the Company’s closing market price of $25.82 on December 5, 2003, the date the acquisition was announced. Goodwill of $4.7 million and Intangible Assets of $2.8 million were created as a result of the transaction. Intangible assets will be amortized over a 15 year period. This acquisition also includes an “earn-out” provision of $1.2 million to be paid in 5 annual installments of $240,000 if certain annual performance criteria are met. Summarized below is an initial allocation of assets and liabilities acquired (in thousands):

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On May 22, 2003, the Company completed its acquisition of First Colony Bancshares, Inc., parent of First Colony Bank, a $320 million asset bank headquartered in Alpharetta, Georgia. The transaction was accounted for as a purchase business combination and accordingly, the results of operations of First Colony Bank are included from the acquisition date. The Company issued 2.6 million shares of its common stock and paid $45.0 million in cash in exchange for all outstanding shares of First Colony Bancshares. The value of the 2.6 million shares issued was determined based on the Company’s closing market price of $19.61 on December 11, 2002, the date the acquisition was announced. Goodwill and Intangible Assets of $74.8 million were created as a result of the transaction. Summarized below is an allocation of assets and liabilities acquired (in thousands):

On August 4, 2003, the Company, through an intermediate subsidiary, completed the acquisition of the remaining 50% interest from the other partners of Piedmont Settlement Services, L.L.P., a Pennsylvania limited liability partnership. The assets and liabilities of the Pennsylvania partnership were subsequently transferred to the intermediate subsidiary, which changed its name to Piedmont Settlement Services, Inc. The purchase price for this acquisition was $183,500. The transaction has been accounted for as a purchase and accordingly, the results of operations of Piedmont are included from the acquisition date.

In accordance with FAS 141 the following table presents unaudited summary information on a pro forma basis as if these acquisitions had occurred as of the beginning of each of the periods presented. The proforma information does not necessarily reflect the results of operations that would have occurred if the acquisitions had occurred at the beginning of the periods presented or of any results which may be expected to occur in the future.

Note C - Current Accounting Developments

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities. FIN 46 states that if a business enterprise is the primary beneficiary of a variable interest entity, the assets, liabilities and results of the activities of the variable interest entity should be included in the consolidated financial statements of the business enterprise. This interpretation explains how to identify variable interest entities and how an enterprise assesses its interest in a variable interest entity to decide whether to consolidate the entity. FIN 46 also requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. Variable interest entities that effectively disperse risks will be consolidated unless a single party holds an interest or combination of interests that effectively recombines risks that were previously dispersed. Due to the significant implementation concerns, the FASB revised Interpretation No. 46 (“FIN46R”) in December 2003. Management has evaluated the Company’s investment in variable interest entities and potential variable interest entities or transactions, particularly in trust preferred securities structures because these entities constitute the Company’s primary exposure.

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The Company determined that certain trusts created by it to issue trust preferred securities required deconsolidation due to the provisions of FIN 46R. Accordingly, as of March 31, 2004, the Company was required to deconsolidate these trusts. The deconsolidation required the Company to remove $50.0 million in trust preferred securities from the consolidated statements and to record junior subordinated debentures payable to these trusts of $51.5 million and record the Company’s investment in the trusts of $1.5 million in other assets. In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in Tier 1 capital for regulatory capital purposes until further notice. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary, provide further guidance. However, there can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier 1 capital for regulatory purposes.

Currently, other than the impact described above from the deconsolidation of the trust preferred securities, the adoption of FIN 46 and FIN 46R did not have a material impact on the financial condition or the operating results of the Company. Prior periods have not been restated for this change in accounting methods. Interpretive guidance relating to FIN 46 and FIN 46R is continuing to evolve and the Company’s management will continue to assess various aspects of consolidation and variable interest entity accounting as additional interpretative guidance becomes available.

Note D - - Earnings per Common Share

The Company accounts for earnings per share in accordance with FASB Statement No. 128, Earnings Per Share (“Statement 128”). Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS is calculated by adding to the shares outstanding the additional net effect of employee stock options that could be exercised into common shares. The computation of diluted earnings per share is as follows:

Note E – Commitments and Contingencies

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 its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

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

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

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The following represents the Company’s commitments to extend credit and standby letters of credit:

Note F - Loans

Loans are stated at unpaid principal balances, net of unearned income and deferred loan fees. Interest is accrued only if deemed collectible. The following table represents the composition of the Company’s loan portfolio:

Note G - Stock Options and Long-term Compensation Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25 “Accounting for Stock issued to Employees” (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No.148, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation. The pro-forma disclosure below uses the fair value method of SFAS 123 to measure compensation expense for stock-based employee compensation plans. 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.

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For purposes of pro forma disclosures, the estimated fair value of the options granted is amortized to expense over the options’ vesting period. The Company’s pro forma information follows (in thousands except per share data):

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

The following is management’s discussion and analysis of certain significant factors which have affected the Company’s financial position at June 30, 2004 as compared to December 31, 2003 and operating results for the three and six month periods ended June 30, 2004 as compared to the three and six month periods ended June 30, 2003. These comments should be read in conjunction with the Company’s unaudited consolidated financial statements and accompanying notes appearing elsewhere herein.

Overview

The Company’s total assets increased $175.4 million or 8.90% since December 2003. Federal funds sold decreased $31.1 million primarily due to an increase in loan demand. Loans increased 10.46% or $151.0 million since December 2003, while the investment portfolio increased $26.4 million. Goodwill increased by $7.1 million, as a result of the BMIA acquisition. Total deposits increased by 7.40% or $107.9 million due primarily to an ongoing deposit campaign, use of brokered and national deposits, and seasonal public funds.

Return on average equity for the three and six months ended June 30, 2004 was 13.8% and 14.1% on average equity of $215.1 million and $212.5 million, respectively. This compares to 16.5% and 16.8% on average equity of $154.8 million and $145.4 million for the same periods in 2003. Return on average assets for the three and six months ended June 30, 2004 were 1.41% and 1.47%. This compares to 1.57% and 1.63% for the same periods in 2003.

During the second quarter of 2004 there were several events that occurred that had an impact on the financial statements of the Company:

Each of the preceding items will be discussed in more detail in the “Results of Operations” included in this report on Form 10-Q.

Operating System Conversion

During the second quarter the Company completed its conversion to a new operating system platform. The conversion was done primarily to replace a number of different independent systems with one fully integrated processing platform. This was done to improve reporting and processing efficiencies.

Preparation for the system conversion has been ongoing for the past two years. During that time the Company has capitalized most of the cost associated with the conversion into projects-in-process on our balance sheet. Other related items were expensed as they were incurred and will not be capitalized. It was also necessary for the Company to write-off the remaining book balance of software and hardware systems that were no longer necessary due to the conversion. The Company expects a $2.7 million increase in fixed assets during 2004 due to the conversion to the new system.

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Main Street Banks, Inc.

Selected Financial Data