**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**Mark One**

 

| **ý**                                                                                                                              |       | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                    |       |                                                                                                     |
| **For the quarterly period ended March 31,  2006**                                                                                 |
| ** **                                                                                                                              | ** ** | ** **                                                                                               |
|                                                                                                                                    |       |                                                                                                     |
| **o**                                                                                                                                   |       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                                                                                                    |       |                                                                                                     |
|                                                                                                                                    |       |                                                                                                     |
| **For the transition period from           to        ** |

 

**Commission File Number: 000-24203**

 

**GB&T Bancshares, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Georgia**                                                      | ** ** | **58-2400756**                     |
|------------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (IRS Employer  Identification No.) |

 

**500 Jesse Jewell Parkway, S.E.****Gainesville, Georgia 30501**(Address of principal executive offices)

 

**(770) 532-1212**(Registrant’s telephone number, including area code)

 

**N/A**

(Former name, formeraddress and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act.

 

| Large accelerated  filer  o |   | Accelerated filer  ý |   | Non-accelerated filer  o |
|---------------------------------------|--------|-------------------------------------|--------|------------------------------------|

 

Indicate by check mark whether the registrant isa shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o    No  ý

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

State the number of shares outstanding of eachof the issuer’s classes of capital stock, as of April 26, 2006:  12,941,629shares; no par value

 

----

 

**GB&T BANCSHARES, INC.**

**TABLE OF CONTENTS**

 
| **PART I.**  |               | **FINANCIAL INFORMATION**                                                                                     |
|-------------------|--------------------|---------------------------------------------------------------------------------------------------------------|
| ** **        |               | ** **                                                                                                    |
|              |               | **Item 1. Financial Statements**                                                                              |   |
|              |               |                                                                                                          |   |   |
|              |               |                                                                                                          | **Consolidated  Balance Sheets – March 31, 2006 (Unaudited) and December 31, 2005** |   |
|              |               |                                                                                                          |   |   |
|              |               |                                                                                                          | **Consolidated  Statements of Income (Unaudited)- Three  months ended March 31, 2006 and 2005** |   |
|              |               |                                                                                                          |   |   |
|              |               |                                                                                                          | **Consolidated Statements of  Comprehensive Income (Unaudited)-Three months ended March 31, 2006 and  2005** |   |
|              |               |                                                                                                          |   |   |
|              |               |                                                                                                          | **Consolidated Statements of  Stockholders’ Equity (Unaudited)- Three  months ended March 31, 2006** |   |
|              |               |                                                                                                          |   |   |
|              |               |                                                                                                          | **Consolidated Statements of  Cash Flows (Unaudited) - Three months  ended March 31, 2006 and 2005** |   |
|              |               |                                                                                                          |   |   |
| ** **        | ** **         | ** **                                                                                                    | **Notes to Consolidated  Financial Statements (Unaudited)** | ** ** |
| ** **        | ** **         | ** **                                                                                                    | ** ** | ** ** |
|              |               | **Item 2. Management’s  Discussion and Analysis of Financial  Condition and Results of Operations** |   |
|              |               |                                                                                                          |   |
|              |               | **Item 3. Quantitative and  Qualitative Disclosures About Market Risk**                                       |   |
|              |               |                                                                                                          |   |
|              |               | **Item 4. Controls and Procedures**                                                                           |   |
|              |               | ** **                                                                                                    | ** ** |
| **PART II.** |               | **OTHER INFORMATION**                                                                                         |
| ** **        |               | ** **                                                                                                    |
|              |               |       **Item 1. Legal Proceedings**                                                  |   |
|              |               |                                                                                                          |   |
|              |               | **Item 1A.  Risk Factors**                                                                                    |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Item 2. Unregistered Sales  of Equity Securities and Use of Proceeds**                                      |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Item 3. Defaults Upon Senior  Securities**                                                                  |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Item 4. Submission of  Matters to a Vote of Security Holders**                                              |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Item 5. Other Information**                                                                                 |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Item  6. Exhibits**                                                                                         |   |
|              |               | ** **                                                                                                    | ** ** |
|              |               | **Signatures**                                                                                                |   |
|              |               | ** **                                                                                                    | ** ** |
|              | **Certifications** |

 

2

----

 

**PART I- FINANCIAL INFORMATION**

**ITEM 1 -FINANCIAL STATEMENTS**

 

**GB&T BANCSHARES, INC.AND SUBSIDIARIES**

**ConsolidatedBalance Sheets**

 
| ** **                                                                                                                                                                           | ** ** | **March 31,  2006**             | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                           | ** ** | **(Unaudited)**                      | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                                                           | ** ** | **(Dollars in thousands)** | ** ** |
| **Assets**                                                                                                                                                                           |       |                                 |       |                        |       |
| ** **                                                                                                                                                                           |       |                                 |       |                        |       |
| Cash and due from banks                                                                                                                                                              |       | $                                    | 22,925     |                        | $          | 30,748 |   |
| Interest-bearing deposits in banks                                                                                                                                                   |       | 810                                  |       | 728                         |       |
| Federal funds sold                                                                                                                                                                   |       | 21,661                               |       | 568                         |       |
| Securities available for sale, at fair value                                                                                                                                         |       | 182,385                              |       | 188,127                     |       |
| Restricted equity securities, at cost                                                                                                                                                |       | 9,366                                |       | 9,277                       |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| Loans, net of unearned income                                                                                                                                                        |       | 1,273,719                            |       | 1,231,410                   |       |
| Less allowance for loan losses                                                                                                                                                       |       | 13,703                               |       | 12,773                      |       |
| Loans, net                                                                                                                                                                           |       | 1,260,016                            |       | 1,218,637                   |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| Premises and equipment, net                                                                                                                                                          |       | 36,707                               |       | 37,014                      |       |
| Goodwill                                                                                                                                                                             |       | 61,164                               |       | 61,164                      |       |
| Intangible assets                                                                                                                                                                    |       | 5,400                                |       | 5,586                       |       |
| Other assets                                                                                                                                                                         |       | 34,307                               |       | 32,245                      |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Total assets**                                                                                                                                                                     |       | $                                    | 1,634,741  |                        | $          | 1,584,094 |   |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                        |       |                                 |       |                        |       |
| ** **                                                                                                                                                                           |       |                                 |       |                        |       |
| **Liabilities:**                                                                                                                                                                     |       |                                 |       |                        |       |
| Deposits:                                                                                                                                                                            |       |                                 |       |                        |       |
| Noninterest-bearing                                                                                                                                                                  |       | $                                    | 170,130    |                        | $          | 158,487 |   |
| Interest-bearing demand and savings                                                                                                                                                  |       | 424,466                              |       | 414,542                     |       |
| Time deposits                                                                                                                                                                        |       | 681,860                              |       | 623,997                     |       |
| Total deposits                                                                                                                                                                       |       | 1,276,456                            |       | 1,197,026                   |       |
| Federal funds purchased and securities sold under  repurchase agreements                                                                                                             |       | 18,008                               |       | 45,510                      |       |
| Federal Home Loan Bank advances                                                                                                                                                      |       | 90,811                               |       | 97,298                      |       |
| Other borrowings                                                                                                                                                                     |       | 652                                  |       | 968                         |       |
| Other liabilities                                                                                                                                                                    |       | 17,147                               |       | 14,683                      |       |
| Subordinated debt                                                                                                                                                                    |       | 29,898                               |       | 29,898                      |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Total liabilities**                                                                                                                                                                |       | 1,432,972                            |       | 1,385,383                   |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Stockholders’ Equity:**                                                                                                                                                       |       |                                 |       |                        |       |
| ** **                                                                                                                                                                           |       |                                 |       |                        |       |
| Capital stock, no par value; 20,000,000 shares  authorized, 12,938,842 and 12,784,397 shares issued and outstanding at  March 31, 2006 and December 31, 2005, respectively |       | 159,140                              |       | 157,875                     |       |
| Retained earnings                                                                                                                                                                    |       | 45,588                               |       | 43,404                      |       |
| Accumulated other comprehensive loss                                                                                                                                                 |       | (2,959                               | )          | (2,568                      | )          |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Total stockholders’ equity**                                                                                                                                                  |       | 201,769                              |       | 198,711                     |       |
|                                                                                                                                                                                 |       |                                 |       |                        |       |
| **Total liabilities and stockholders’ equity**                                                                                                                                  |       | $                                    | 1,634,741  |                        | $          | 1,584,094 |   |

 

 See accompanying notes to consolidatedfinancial statements.

 

3

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**GB&T BANCSHARES, INC. AND SUBSIDIARIES**

**Consolidated Statements of Income**

**(Unaudited)**

 
| ** **                                                                                                    | ** ** | **Three months ended  March 31,**       | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
|                                                                                                          |       | **(Dollars in thousands,  except per share amounts )** |       |
| **Interest income:**                                                                                          | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Loans, including fees                                                                                         |       | $                                                      | 24,532     |   | $ | 16,959 |   |
| Taxable securities                                                                                            |       | 1,912                                                  |       | 1,699 |   |
| Nontaxable securities                                                                                         |       | 117                                                    |       | 165 |   |
| Federal funds sold                                                                                            |       | 99                                                     |       | 46 |   |
| Interest-bearing deposits in banks                                                                            |       | 8                                                      |       | 10 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Total interest income**                                                                                     |       | 26,668                                                 |       | 18,879 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Interest expense:**                                                                                         | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Deposits                                                                                                      |       | 9,432                                                  |       | 4,631 |   |
| Federal funds purchased, securities sold under  repurchase agreements, other borrowings and Subordinated debt |       | 1,774                                                  |       | 1,502 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Total interest expense**                                                                                    |       | 11,206                                                 |       | 6,133 |   |
|                                                                                                          |       |                                                   |       |   |   |
| Net interest income                                                                                           |       | 15,462                                                 |       | 12,746 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Provision for loan losses**                                                                                 |       | 1,206                                                  |       | 482 |   |
|                                                                                                          |       |                                                   |       |   |   |
| Net interest income after provision for loan losses                                                           |       | 14,256                                                 |       | 12,264 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Other income:**                                                                                             |       |                                                   |       |   |   |
| Service charges on deposit accounts                                                                           |       | 1,521                                                  |       | 1,512 |   |
| Mortgage origination fees                                                                                     |       | 525                                                    |       | 465 |   |
| Insurance commissions                                                                                         |       | 2                                                      |       | 147 |   |
| Gain on sale of securities                                                                                    |       | —                                                 |       | 1 |   |
| Other operating income                                                                                        |       | 415                                                    |       | 632 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Total other income**                                                                                        |       | 2,463                                                  |       | 2,757 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Other expenses:**                                                                                           | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Salaries and employee benefits                                                                                |       | 7,180                                                  |       | 6,315 |   |
| Occupancy and equipment expenses, net                                                                         |       | 1,629                                                  |       | 1,439 |   |
| Other operating expenses                                                                                      |       | 2,935                                                  |       | 2,841 |   |
| **Total other expenses**                                                                                      |       | 11,744                                                 |       | 10,595 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Income before income taxes**                                                                                |       | 4,975                                                  |       | 4,426 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Income tax expense**                                                                                        |       | 1,698                                                  |       | 1,415 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Net income**                                                                                                |       | $                                                      | 3,277      |   | $ | 3,011 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Earnings per share:**                                                                                       | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Basic                                                                                                         |       | $                                                      | 0.26       |   | $ | 0.25 |   |
| Diluted                                                                                                       |       | $                                                      | 0.25       |   | $ | 0.25 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Weighted average shares:**                                                                                  | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Basic                                                                                                         |       | 12,856                                                 |       | 12,069 |   |
| Diluted                                                                                                       |       | 13,121                                                 |       | 12,245 |   |
|                                                                                                          |       |                                                   |       |   |   |
| **Cash dividends per common share**                                                                           |       | $                                                      | 0.085      |   | $ | 0.076 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

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## **GB&T BANCSHARES, INC. AND SUBSIDIARIES**

**Consolidated Statements ofComprehensive Income**

**(unaudited)**

 
| ** **                                                                                                                | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                                                | ** ** | **(Dollars in thousands)**             | ** ** |
|                                                                                                                      |       |                                             |       |   |   |
| **Net Income**                                                                                                            |       | $                                                | 3,277      |   | $ | 3,011 |   |
|                                                                                                                      |       |                                             |       |   |   |
| Unrealized holding losses on  securities available  for sale  arising during period, net of tax benefit              |       | (391                                             | )          | (1,947 | ) |
|                                                                                                                      |       |                                             |       |   |   |
| Reclassification adjustment  for gains realized on  securities  available for sale in net income, net of  taxes |       | —                                           |       | (1 | ) |
|                                                                                                                      |       |                                             |       |   |   |
| Other comprehensive loss                                                                                                  |       | (391                                             | )          | (1,948 | ) |
|                                                                                                                      |       |                                             |       |   |   |
| **Comprehensive income**                                                                                                  |       | $                                                | 2,886      |   | $ | 1,063 |   |

 

See accompanying notes toconsolidated financial statements.

 

### **Consolidated Statements of Stockholders’ Equity**

### **Three Months Ended March 31, 2006**

**(Unaudited)**

 
| ** **                                | ** ** | **(Dollars in thousands)** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| ** **                                | ** ** | **Shares**                           | ** ** | **Capital  Stock** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total****Stockholders’  Equity** | ** ** |
| Balance, December 31,  2005          |       | 12,784                               |       | $ | 157,875 |   | $ | 43,404 |   | $ | (2,568 | ) | $ | 198,711 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Net income                                |       | —                               |       | — |   | 3,277 |   | — |   | 3,277 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Options exercised                         |       | 155                                  |       | 1,207 |   | — |   | — |   | 1,207 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Dividends declared  $0.085 per share |       | —                               |       | — |   | (1,093 | ) | — |   | (1,093 | ) |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Stock option expense                      |       | —                               |       | 58 |   | — |   | — |   | 58 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Other comprehensive loss                  |       | —                               |       | — |   | — |   | (391 | ) | (391 | ) |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Balance, March 31, 2006              |       | 12,939                               |       | $ | 159,140 |   | $ | 45,588 |   | $ | (2,959 | ) | $ | 201,769 |   |

 

See accompanying notes toconsolidated financial statements.

 

5

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**GB&T BANCSHARES, INC. AND SUBSIDIARIES**

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                                 | ** ** | **Three months ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                                                                 | ** ** | **(In thousands)**                          | ** ** |
| **Operating Activities**                                                                   |       |                                             |       |   |   |
| Net income                                                                                 |       | $                                                | 3,277      |   | $ | 3,011 |   |
| Adjustments to reconcile net income to net cash  Provided by operating activities:         |       |                                             |       |   |   |
| Depreciation                                                                               |       | 733                                              |       | 640 |   |
| Provision for loan losses                                                                  |       | 1,206                                            |       | 482 |   |
| Amortization and (accretion), net                                                          |       | 246                                              |       | 310 |   |
| Gain on sale of securities                                                                 |       | —                                           |       | (1 | ) |
| Net increase in other assets                                                               |       | (1,661                                           | )          | (130 | ) |
| Net increase in other liabilities                                                          |       | 2,464                                            |       | 3,920 |   |
| Net cash provided by operating activities                                                  |       | 6,265                                            |       | 8,232 |   |
|                                                                                       |       |                                             |       |   |   |
| **Investing Activities**                                                                   |       |                                             |       |   |   |
| Purchases of securities available for sale                                                 |       | (3,560                                           | )          | (8,016 | ) |
| Proceeds from sales of securities available for sale                                       |       | 608                                              |       | 1,106 |   |
| Proceeds from maturities of securities available for  sale                                 |       | 8,043                                            |       | 8,948 |   |
| Net increase in restricted equity securities                                               |       | (89                                              | )          | (1,508 | ) |
| Net increase in interest-bearing deposits in banks                                         |       | (82                                              | )          | (123 | ) |
| Net increase in federal funds sold                                                         |       | (21,093                                          | )          | (5,836 | ) |
| Net increase in loans                                                                      |       | (43,001                                          | )          | (42,595 | ) |
| Net cash acquired in business combinations                                                 |       | —                                           |       | 142 |   |
| Proceeds from sale of other real estate owned                                              |       | 525                                              |       | 210 |   |
| Purchase of premises and equipment                                                         |       | (690                                             | )          | (1,432 | ) |
| Proceeds from sale of premises and equipment                                               |       | 12                                               |       | — |   |
| Net cash used in investing activities                                                      |       | (59,327                                          | )          | (49,104 | ) |
|                                                                                       |       |                                             |       |   |   |
| **Financing Activities**                                                                   |       |                                             |       |   |   |
| Net increase in deposits                                                                   |       | 79,430                                           |       | 57,744 |   |
| Net decrease in federal funds purchased and  securities sold under repurchase agreements   |       | (27,502                                          | )          | (16,998 | ) |
| Proceeds from other borrowings and Federal Home Loan  Bank advances                        |       | 4,314                                            |       | 16,063 |   |
| Payments on other borrowings and Federal Home Loan Bank  advances                          |       | (11,117                                          | )          | (6,410 | ) |
| Dividends paid                                                                             |       | (1,093                                           | )          | (895 | ) |
| Payment for fractional shares                                                              |       | —                                           |       | (3 | ) |
| Proceeds from exercise of stock options                                                    |       | 1,207                                            |       | 170 |   |
| Net cash provided by financing activities                                                  |       | 45,239                                           |       | 49,671 |   |
|                                                                                       |       |                                             |       |   |   |
| Net increase (decrease) in cash and due from banks                                         |       | (7,823                                           | )          | 8,799 |   |
|                                                                                       |       |                                             |       |   |   |
| Cash and due from banks at beginning of period                                             |       | 30,748                                           |       | 20,723 |   |
|                                                                                       |       |                                             |       |   |   |
| Cash and due from banks at end of period                                                   |       | $                                                | 22,925     |   | $ | 29,522 |   |
|                                                                                       |       |                                             |       |   |   |
| Supplemental disclosure of cash paid during the  period for:                               |       |                                             |       |   |   |
| Interest                                                                                   |       | $                                                | 10,133     |   | $ | 6,328 |   |
| Income taxes                                                                               |       | $                                                | 427        |   | $ | 5 |   |
|                                                                                       |       |                                             |       |   |   |
| Acquisition of subsidiary                                                                  |       |                                             |       |   |   |
| Capital stock issued (see “Assets acquired  (liabilities Assumed)” on next page) |       | $                                                | —     |   | $ | 24,347 |   |

 

6

----

 
| ** **                                | ** ** | **Three months ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                                | ** ** | **(In thousands)**                          | ** ** |
| **Assets acquired (liabilities assumed)** |       |                                             |       |   |   |
| Cash and due from banks, net of cash paid |       | $                                                | —     |   | $ | 142 |   |
|                                      |       |                                             |       |   |   |
| Federal funds sold                        |       | —                                           |       | 4,889 |   |
|                                      |       |                                             |       |   |   |
| Securities available for sale             |       | —                                           |       | 10,872 |   |
|                                      |       |                                             |       |   |   |
| Restricted equity securities              |       | —                                           |       | 634 |   |
|                                      |       |                                             |       |   |   |
| Loans, net                                |       | —                                           |       | 100,229 |   |
|                                      |       |                                             |       |   |   |
| Premises and equipment                    |       | —                                           |       | 3,755 |   |
|                                      |       |                                             |       |   |   |
| Goodwill                                  |       | —                                           |       | 19,278 |   |
|                                      |       |                                             |       |   |   |
| Core deposit intangible                   |       | —                                           |       | 697 |   |
|                                      |       |                                             |       |   |   |
| Other assets                              |       | —                                           |       | 1,451 |   |
|                                      |       |                                             |       |   |   |
| Deposits                                  |       | —                                           |       | (109,628 | ) |
|                                      |       |                                             |       |   |   |
| Other borrowings                          |       | —                                           |       | (7,150 | ) |
|                                      |       |                                             |       |   |   |
| Other liabilities                         |       | —                                           |       | (444 | ) |
|                                      |       |                                             |       |   |   |
|                                      |       | $                                                | —     |   | $ | 24,725 |   |

 

See accompanying notes toconsolidated financial statements.

 

7

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**GB&T BANCSHARES, INC.AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 1.****   ****BASIS OF PRESENTATION**

 

The unaudited consolidated financial statementsinclude the accounts of GB&T Bancshares, Inc. and its wholly-ownedbanking subsidiaries, Gainesville Bank & Trust, United Bank &Trust, Community Trust Bank, HomeTown Bank of Villa Rica, First National Bankof the South and First National Bank of Gwinnett. Significant intercompanytransactions and balances have been eliminated in consolidation.

 

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with U.S. generallyaccepted accounting principles for interim financial information and with the instructionsfor Form 10-Q. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all adjustments (consistingof normal and recurring adjustments) considered necessary for a fairpresentation have been included. The results of operations for the three-monthperiod ended March 31, 2006 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2006. Thesestatements should be read in conjunction with the consolidated financialstatements and related notes included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005.

 

**NOTE 2. STOCK COMPENSATION PLANS**

 

At December 31, 2005, the Company had astock option plan for grants of options to directors, officers and employees. Theoptions may be exercised over a period of ten years in accordance withvesting schedules determined by the Board of Directors. Prior to January 1,2006, the Company accounted for the plan under the recognition and measurementprinciples of APB Opinion No. 25, *Accounting for**Stock Issued to Employees*, and related interpretations, aspermitted by FASB Statement No. 123, *Accounting for Stock-Based**Compensation*.No stock-based employee compensation cost was recognized in the Results ofOperations for the years ended December 31, 2005 or 2004, nor thethree-month period ended March 31, 2005, as all options granted under the planhad an exercise price equal to the market value of the underlying stock on thedate of grant. Effective January 1, 2006, the Company adopted the fairvalue recognition provisions of FASB Statement No. 123(R), *Share-Based Payment*,using the modified-prospective-transition method. Under that transition method,compensation cost recognized in 2006 includes (a) compensation cost forall share-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of Statement 123, and (b) compensation cost for allshare-based payments granted subsequent to January 1, 2006, based on thegrant-date fair value estimated in accordance with the provisions of Statement123(R). Results for prior periods have not been restated.

 

8

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The following table illustrates the effect onnet income and earnings per share if the Company had applied the fair valuerecognition provisions of SFAS No. 123, *Accountingfor Stock-Based Compensation*, to stock-based employee compensation. Forpurposes of this pro forma disclosure, the value of the options is estimatedusing a Black-Scholes-Merton option-pricing formula and amortized to expenseover the options’ vesting period.

 
| ** **                                                                                                                                    | ** ** | **Three months ended**                                  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                                                    | ** ** | **March 31, 2005**                                      | ** ** |
| ** **                                                                                                                                    | ** ** | **(In thousands, except per  share amounts)** | ** ** |
|                                                                                                                                          |       |                                                              |       |
| Net income, as reported                                                                                                                       | ** ** | **$**                                                             | **3,011**  | ** ** |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |       | 43                                                                |       |
| Pro forma net income                                                                                                                          |       | $                                                                 | 2,968      |   |
| Earnings per share:                                                                                                                           |       |                                                              |       |
| Basic - as reported                                                                                                                           | ** ** | **$**                                                             | 0.25       | ** ** |
| Basic – pro forma                                                                                                                        | ** ** | **$**                                                             | 0.25       | ** ** |
| Diluted - as reported                                                                                                                         | ** ** | **$**                                                             | 0.25       | ** ** |
| Diluted - pro forma                                                                                                                           | ** ** | **$**                                                             | 0.25       | ** ** |

 

**NOTE 3.**** ****EARNINGS PER COMMON SHARE**

 

Presented below is a summary of the componentsused to calculate basic and diluted earnings per share for the three-monthperiods ended March 31, 2006 and 2005.

 
| ** **                                                                                                                          | ** ** | **Three months ended March 31,**                  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                                          | ** ** | **2006**                                                              | ** ** | **2005** | ** ** |
| ** **                                                                                                                          | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Basic Earnings Per Share:                                                                                                           |       |                                                                  |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,856                                                                |       | 12,069 |   |
|                                                                                                                                |       |                                                                  |       |   |   |
| Net income                                                                                                                          |       | $                                                                     | 3,277      |   | $ | 3,011 |   |
|                                                                                                                                |       |                                                                  |       |   |   |
| Basic earnings per share                                                                                                            |       | $                                                                     | 0.26       |   | $ | 0.25 |   |
|                                                                                                                                |       |                                                                  |       |   |   |
| Diluted Earnings Per Share:                                                                                                         |       |                                                                  |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,856                                                                |       | 12,069 |   |
| Net effect of the assumed  exercise of stock options based on the treasury stock method using average  market prices for the period |       | 265                                                                   |       | 176 |   |
| Total weighted average common  shares and common stock equivalents outstanding                                                      |       | 13,121                                                                |       | 12,245 |   |
|                                                                                                                                |       |                                                                  |       |   |   |
| Net income                                                                                                                          |       | $                                                                     | 3,277      |   | $ | 3,011 |   |
|                                                                                                                                |       |                                                                  |       |   |   |
| Diluted earnings per share                                                                                                          |       | $                                                                     | 0.25       |   | $ | 0.25 |   |

 

9

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**NOTE 4. BUSINESS COMBINATIONS**

 

On March 1, 2005, the Company completed theacquisition of FNBG Bancshares, Inc., the parent company of First NationalBank of Gwinnett in Duluth, Gwinnett County, Georgia, which resulted in FirstNational Bank of Gwinnett becoming a wholly owned subsidiary of the Company. Theaggregate purchase price was $25.6 million, which included 845,128  sharesof capital stock valued at $18.4 million, $3.8 million in cash and stockoptions and warrants valued at $2.9 million and $523,000 in direct acquisitioncosts. The value of the capital stock issued was determined based on theaverage market price of GB&T’s capital stock over a 2 day period before andafter the terms of the acquisition were agreed upon and announced. The fairvalue of the stock options and warrants was determined based on the Black-Scholesoption pricing model. The acquisition was accounted for as a purchase resultingin estimated goodwill of approximately $16.4 million. The goodwill will not bedeductible for tax purposes. Identifiable intangible assets of $697,000acquired consist of a core deposit premium with an estimated weighted averageuseful life of 7 years. First National Bank of Gwinnett’s results of operationsfrom March 1, 2005, are included in the consolidated results of operationsfor the three months ended  March 31,2005.

 

Unaudited pro forma consolidated results ofoperations for the three months ended March 31, 2005 as though thecompanies had combined as of January 1, 2005 are as follows:

 
| ** **                 | ** ** | **Three months ended**                        | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|
| ** **                 | ** ** | **March 31, 2005**                            | ** ** |
| ** **                 | ** ** | **(In thousands, except  per share amounts)** |       |
|                       |       |                                                    |       |
| Net interest income        |       | $                                                       | 13,553     |   |
| Net income                 |       | 3,084                                                   |       |
| Basic earnings per share   |       | 0.26                                                    |       |
| Diluted earnings per share |       | 0.25                                                    |       |
|                            |            |                                                         |            |  |

 

**NOTE 5. PENDING ACQUISITION**

 

On May 1, 2006, the Company completed theacquisition of Mountain Bancshares, Inc., the parent company of the $130million-asset Mountain State Bank headquartered in Dawsonville, Georgia, whichresulted in Mountain State Bank becoming a wholly owned subsidiary of theCompany. Under the terms of the agreement, Mountain Bancshares shareholders willreceive 0.8911 shares of GB&T Bancshares common stock and $8.40 in cash inexchange for each share of Mountain Bancshares common stock. Mountain StateBank’s results of operations are not included in the results of operations forthe Company for the periods ended March 31, 2006 or 2005.

 

**NOTE 6. SUBSEQUENT EVENT**

 

On January 30, 2006, the Company’s Board ofDirectors approved the repurchase of up to approximately 2% of the Company’soutstanding common stock, no par value per share. SunTrust Robinson Humphreywill purchase from time to time, on behalf of the Company, on a best-effortsbasis, up to 260,000 shares of the Common Stock in open-market transactions. Thepurchases will be accomplished in accordance with the volume and timingguidelines of Rule 10b-18 of the Exchange Act applicable to the Companyand Rule 10b5-1 of the Exchange Act. As of March 31, 2006, norepurchases had been made due to the pending merger between the Company andMountain Bancshares, Inc. On April 17, 2006, Mountain Bancshares, Inc.held a special shareholders’ meeting and approved the merger. As of May 1,2006, 13,447 shares have been repurchased by the Company.

 

10

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

 

The following is management’s discussion andanalysis of certain significant factors which have affected our financialposition and operating results including our wholly-owned subsidiaries,Gainesville Bank & Trust (“GBT”), United Bank & Trust (“UBT”),Community Trust Bank (“CTB”), HomeTown Bank of Villa Rica (“HTB”), FirstNational Bank of the South (“FNBS”) and First National Bank of Gwinnett (“FNBG”)during the periods included in the accompanying consolidated financial statements.This discussion should be read in conjunction with the accompanyingconsolidated financial statements and the notes thereto and the consolidatedfinancial statements, related notes, and Management’s Discussion and Analysisof Financial Condition and Results of Operations for the year ended December 31,2005 included in the Company’s 2005 Annual Report on Form 10-K.

 

**Cautionary Notice Regarding Forward-LookingStatements**

 

Some of the statements of GB&T Bancshares, Inc.(the “Company”) contained or incorporated by reference in this Report,including, without limitation, matters discussed under the caption “Management’sDiscussion and Analysis of Financial Condition and Results of Operation,” are “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. Forward-looking statements include statements about thecompetitiveness of the banking industry, potential regulatory obligations, ourentrance and expansion into other markets, our other business strategies andother statements that are not historical facts. Forward-looking statements arenot guarantees of performance or results. When we use words like “may,” “plan,”“contemplate,” “anticipate,” “believe,” “intend,” “continue,” “expect,” “project,”“predict,” “estimate,” “could,” “should,” “would,” “will,” and similarexpressions, you should consider them as identifying forward-lookingstatements, although we may use other phrasing. These forward-lookingstatements involve risks and uncertainties and are based on our beliefs andassumptions, and on the information available to us at the time that thesedisclosures were prepared. Factors that may cause actual results to differmaterially from those expressed or implied by such forward-looking statementsinclude, among others, the following possibilities: (1) competitivepressures among depository and other financial institutions may increasesignificantly; (2) changes in the interest rate environment may reducemargins; (3) general economic conditions may be less favorable thanexpected, resulting in, among other things, a deterioration in credit qualityand/or a reduction in demand for credit; (4) economic, governmental orother factors may prevent the projected population and commercial growthin the counties in which we operate;  (5) legislativeor regulatory changes, including changes in accounting standards, may adverselyaffect the businesses in which we are engaged; (6) costs or difficulties related to the integration of ourbusinesses may be greater than expected; (7) deposit attrition,customer loss or revenue loss following acquisitions may be greater thanexpected; (8) competitors may have greater financial resources anddevelop products that enable such competitors to compete more successfully thanwe can; and (9) adverse changes may occur in the equity markets. Manyof these factors are beyond our ability to control or predict, and readers arecautioned not to put undue reliance on such forward-looking statements. We donot intend to, and assume no responsibility to update or revise anyforward-looking statements contained in this Report, whether as a result of newinformation, future events or otherwise.

 

**Critical Accounting Policies**

 

We have adoptedvarious accounting policies that govern the application of accountingprinciples generally accepted in the United States and general practices withinthe banking industry in the preparation of our financial statements. Oursignificant accounting policies are described in the notes to our auditedfinancial statements as of December 31, 2005. Certain accounting policiesrequire management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reported period. Actual results could differfrom those estimates. Estimates and assumptions are reviewed periodically andthe effects of revisions are reflected in the consolidated financial statementsin the period they are determined to be necessary.

 

*Allowancefor Loan Losses*.We believe that our determination of the allowance for loan losses is our mostsignificant judgment and estimate used in the preparation of our consolidatedfinancial statements. The allowance for loan losses is an

 

11

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amount that managementbelieves will be adequate to absorb estimated losses in the loan portfolio. Thecalculation is an estimate of the amount of loss in the loan portfolios of oursubsidiary banks and finance company. The allowance for loan losses isevaluated on a regular basis by management and is based upon management’speriodic review of the collectibility of the loans in light of historical experience,the nature and volume of the loan portfolio, adverse situations that may affectthe borrower’s ability to repay, estimated value of any underlying collateraland prevailing economic conditions. This evaluation is inherently subjective asit requires estimates that are susceptible to significant revision as moreinformation becomes available. In addition, regulatory agencies, as an integralpart of their examination process, periodically review our allowance forloan losses, and may require us to make additions to the allowance basedon their judgment about information available to them at the time of theirexaminations.

 

The company uses an 8 point rating system forits loans. Ratings of 1 to 3 are considered pass ratings, 4 is pass/watch, 5 isspecial mention, 6 is substandard, 7 is doubtful, and 8 is loss. Theoriginating officer rates all loans on this system. This rating is adjustedfrom time to time by the officer to accurately reflect the loan’s currentstatus. These ratings are reviewed for accuracy regularly by the loan committeeof the respective bank subsidiary, an outside independent loan review firm, internalauditors and by the applicable regulator.

 

The general allowance consists of “Pass” loans. Passloans are separated into homogeneous pools. Currently, these pools consist ofreal estate, commercial, consumer and credit card. Management assigns losspercentages to these categories of homogeneous pools of loans based on thegreater of historic loss data in each category or the minimum risk percentagefor this category. Currently, management is developing the moving average netlosses for the historic loss percentage in each category. This number isreviewed and adjusted periodically, by pool, in light of current trends in pastdues, changes in lending policies, underwriting standards, economic conditions,and other factors that may affect this number. In addition to thehomogeneous pools management has specified certain industry risks and appliedloss percentages to the specified industry risk categories. Recently, becauseof low losses in most categories, management has assigned minimum percentagesto each category. These minimums are reviewed and may be adjusted fromtime to time to reflect current economic conditions, changes in lendingpractices, underwriting standards and other matters that may be necessary.Those minimums are indicated on our loan loss reserve adequacy calculation.

 

For loans rated 4, (pass/watch) a losspercentage of 1% is used.

 

The specific allowance consists of loans thatare classified as either, doubtful, substandard or special mention. Allimpaired or significant loans rated 5, 6 and 7 are individually analyzed and aspecific reserve assigned.Management,considering current information and events regarding a borrowers’ ability torepay its obligations, considers a loan to be impaired when the ultimatecollectibility of all amounts due, according to the contractual terms of theloan agreement, is in doubt. When a loan is considered to be impaired, theamount of impairment is measured based on the present value of expected futurecash flows discounted at the loan’s effective interest rate. If the loan iscollateral-dependent, the fair value of the collateral less estimated sellingcosts is used to determine the amount of impairment. Impairment losses areincluded in the allowance for loan losses through a charge to the provision forlosses on loans. A majority of our impaired loans are collateral dependent. Theallowance for loan losses on these loans is determined based upon fair valueestimates (net of selling costs) of the respective collateral. The actuallosses on these loans could differ significantly if the fair value of thecollateral is different from the estimates used in determining the allocatedallowance. Most of our collateral-dependent impaired loans are secured by realestate. The fair value of these real estate properties is generally determinedbased upon appraisals performed by a certified or licensed appraiser.Management also considers other factors or recent developments which couldresult in adjustments to the collateral value estimates indicated in theappraisals.

 

All other loans rated 5, 6, 7 and 8 are assignedloss percentages of 5%, 15%, 50% and 100%, respectively.

 

The remainder of thebalance in the reserve for loan losses is unallocated. Management believes thatthe unallocated allowance is adequate to provide for probable losses that areinherent in the loan portfolio and that have not been fully provided

 

12

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for through theallocated allowance. Factors considered in determining the adequacy of theunallocated allowance include the economic environment, experience level oflenders, concentration in commercial and consumer real estate loans, size ofindividual loans and the continued strong loan growth in our markets. Thesefactors are tempered by lending practices related to the real estate portfolio,the continuing positive performance within this segment of our loan portfolio,the knowledge and experience of our commercial lending staff, and therelationship banking philosophy maintained in our community banks.

 

*Goodwill*. Our growth over the past several yearshas been enhanced significantly by mergers and acquisitions. Prior to July 2001,all of our acquisitions were accounted for using the pooling-of-interestsbusiness combination method of accounting. Effective July 1, 2001, weadopted SFAS No. 141, “Business Combinations,” which allows only the useof the purchase method of accounting. For purchase acquisitions, we arerequired to record the assets acquired, including identified intangible assets,and liabilities assumed at their fair value, which in many instances involvesestimates based on third party valuations, such as appraisals, or externalvaluations based on discounted cash flow analyses or other valuationtechniques. The determination of the useful lives of intangible assets issubjective as is the appropriate amortization period for such intangibleassets. In addition, purchase acquisitions typically result in recordinggoodwill, which is subject to ongoing periodic impairment tests based on thefair value of net assets acquired compared to the carrying value of goodwill.In July 2005, we performed the required impairment testing of goodwill andno impairment existed as of the valuation date, as the fair value of our netassets exceeded their carrying value. If for any future period we determinethat there has been impairment in the carrying value of our goodwill balances,we will record a charge to our earnings, which could have a material adverseeffect on our net income.

 

**Summary**

 

Net income for the three months ended March 31,2006 was $3.3 million, an increase of 8.83% compared to the same period a yearago. Diluted earnings per share was $0.25 for the three months ended March 31,2006, compared to $0.25 for the same period a year ago. The return on averageassets was 0.83% and the return on average equity was 6.60% for the threemonths ended March 31, 2006. This compares to a return on average assetsof 0.91% and a return on average equity of 6.65% for the same period a yearago.

 

FNBG became part of the Company effective March 1,2005. The merger was accounted for as a purchase transaction; therefore,results of operations for FNBG since March 1, 2005 have been included inthe Company’s results of operations for the three-month period ended March 31,2005 and for all subsequent periods.

 

Total revenue, defined as net interest incomeplus other income, was $17.9 million for the three months ended March 31,2006, an increase of $2.4 million, or 15.62%, from the $15.5 million reportedfor the same period a year ago. Other expense was $11.7 million for the threemonths ended March 31, 2006, an increase of $1.1 million, or 10.84%, comparedto the $10.6 million reported for the same period a year ago. Revenue growthhas outpaced expense growth resulting in an improving efficiency ratio for thethree months ended March 31, 2006 of 64.48% compared to 67.25% for the threemonths ended March 31, 2005.

 

13

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**Balance Sheets**

 

Our total assets increased $50.6 million to $1.6billion at March 31, 2006, or 3.20%, compared to December 31, 2005. Theincrease consists primarily of an increase in total loans of $42.3 million, or 3.44%,and an increase in federal funds sold of $21.1 million. These increases arepartially offset by a decrease in investment securities of $5.7 million.

 

Total deposits increased $79.4 million to $1.3 billionat March 31, 2006, or 6.64%, compared to December 31, 2005. Noninterest-bearingdeposits increased $11.6 million to $170.1 million and interest-bearingdeposits increased $67.8 million to $1.1 billion during the same period. Depositgrowth outpaced loan growth resulting in a loan to deposit ratio of 99.79% at March 31,2006 compared to 102.87% at December 31, 2005.

 

Total stockholders’ equity increased $3.1million to $201.8 million at March 31, 2006, or 1.54%, compared to December 31,2005. This increase consisted primarily of net income of $3.3 million and $1.2million from options exercised, which was partially offset by the payment ofdividends of $1.1 million.

 

**Asset Quality**

 

The allowance for loan losses at March 31,2006 was $13.7 million, or 1.08%, of total loans compared to $12.8 million, or 1.04%,at December 31, 2005. The provision for loan losses was $1.2 million at March 31,2006. Net charge-offs year-to-date have been $276,000. Management believes thatthe Company’s business fundamentals remain strong, and that the allowance isadequate to absorb any potential loan losses at March 31, 2006. Theallowance for loan losses is evaluated monthly and adjusted to reflect the riskin the portfolio.

 

The following table summarizes the allowance forloan losses for the three-month periods ended March 31, 2006 and 2005. 

 
| ** **                                                  | ** ** | **Three months ended  March 31,** | ** **    |
|-------------------------------------------------------------|------------|--------------------------------------------------|---------------|
| ** **                                                  | ** ** | **2006**                                         | ** **    | **2005** | ** ** |
| ** **                                                  | ** ** | **(Dollars in thousands)**             | ** **    |
| **Average amount of loans  outstanding**                    | ** ** | **$**                                            | **1,244,261** |   | $ | 1,004,191 |   |
|                                                        |       |                                             |          |   |   |
| **Allowance for loan losses  balance, beginning of period** | ** ** | **$**                                            | **12,773**    |   | $ | 11,061 |   |
|                                                        |       |                                             |          |   |   |
| **Less charge-offs**                                        |       |                                             |          |   |   |
| Commercial loans                                            | ** ** | **(161**                                         | )             | (96 | ) |
| Real estate loans                                           | ** ** | **(49**                                          | )             | (32 | ) |
| Consumer loans                                              | ** ** | **(156**                                         | )             | (205 | ) |
| Total charge-offs                                           | ** ** | **(366**                                         | )             | (333 | ) |
|                                                        |       |                                             |          |   |   |
| **Plus recoveries**                                         |       |                                             |          |   |   |
| Commercial loans                                            | ** ** | **6**                                            |          | 9 |   |
| Real estate loans                                           | ** ** | **7**                                            |          | 4 |   |
| Consumer loans                                              | ** ** | **77**                                           |          | 54 |   |
| Total recoveries                                            | ** ** | **90**                                           |          | 67 |   |
| **Net charge-offs**                                         | ** ** | **(276**                                         | )             | (266 | ) |
|                                                        |       |                                             |          |   |   |
| **Plus provision for loan losses**                          | ** ** | **1,206**                                        |          | 482 |   |
| ** **                                                  | ** ** | ** **                                       |          |   |   |
| **Allowance for loan losses  balance, end of period**       | ** ** | **$**                                            | **13,703**    |   | $ | 11,277 |   |
|                                                        |       |                                             |          |   |   |
| **Net charge-offs to average  loans, annualized**           | ** ** | **0.090**                                        | %             | 0.107 | % |

 

14

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The following table is a summary of the Company’snonaccrual, past due loans and restructured loans at March 31, 2006 and March 31,2005. The numbers indicate a decrease of approximately $3.1 million innonaccrual loans as of March 31, 2006 as compared to March 31, 2005. Thisdecrease is primarily related to five loans at HTB totaling $4.6 millionrepresenting one loan relationship, of which $1.0 million was moved to otherreal estate and $3.6 million was charged off, all during the last half of 2005.In addition to nonaccrual loans, the Company also has other real estate, whichis considered a nonperforming asset. At March 31, 2006, the balance in otherreal estate was $3.3 million compared to $3.4 million at December 31, 2005.The following table presents a decrease of $364,000 in past due loans over 90days. The majority of the decrease relates to loans at Community Loan Company,which made up $303,000 of the past due balance at March 31, 2005. CommunityLoan Company was sold during the fourth quarter of 2005. Management believesthat all significant losses related to nonaccrual loans and other real estate havebeen identified.

 
| ** **        | ** ** | **March 31, 2006**         | ** ** |
|-------------------|------------|--------------------------------------|------------|
| ** **        | ** ** | ** **                           | ** ** | **Past Due** | ** ** | ** ** | ** ** |
| ** **        | ** ** | **Nonaccrual**                       | ** ** | **90 Days** | ** ** | **Restructured** | ** ** |
| ** **        | ** ** | **Loans**                            | ** ** | **Still Accruing** | ** ** | **Debt** | ** ** |
| ** **        | ** ** | **(Dollars in thousands)** | ** ** |
|              |       |                                 |       |   |   |   |   |
| Real estate loans |       | $                                    | 6,511      |   | $ | — |   | $ | 103 |   |
| Commercial loans  |       | 476                                  |       | — |   | — |   |
| Consumer loans    |       | 127                                  |       | — |   | — |   |
| Total             |       | $                                    | 7,114      |   | $ | — |   | $ | 103 |   |

 
| ** **        | ** ** | **March 31, 2005**         | ** ** |
|-------------------|------------|--------------------------------------|------------|
| ** **        | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **        | ** ** | ** **                           | ** ** | **Past Due** | ** ** | ** ** | ** ** |
| ** **        | ** ** | **Nonaccrual**                       | ** ** | **90 Days** | ** ** | **Restructured** | ** ** |
| ** **        | ** ** | **Loans**                            | ** ** | **Still Accruing** | ** ** | **Debt** | ** ** |
| ** **        | ** ** | **(Dollars in thousands)** | ** ** |
|              |       |                                 |       |   |   |   |   |
| Real estate loans |       | $                                    | 8,982      |   | $ | 4 |   | $ | 31 |   |
| Commercial loans  |       | 807                                  |       | 53 |   | — |   |
| Consumer loans    |       | 424                                  |       | 307 |   | 8 |   |
| Total             |       | $                                    | 10,213     |   | $ | 364 |   | $ | 39 |   |

 

Our banking subsidiaries’ policy is todiscontinue the accrual of interest income when, in the opinion of management,collection of such interest becomes doubtful. This status is determined when: (1) thereis a significant deterioration in the financial condition of the borrower andfull repayment of principal and interest is not expected; and (2) theprincipal or interest is more than 90 days past due, unless the loan is bothwell-secured and in the process of collection.

 

Loans classified for regulatory purposes asloss, doubtful, substandard, or special mention that have not been included inthe table above do not represent or result from trends or uncertainties whichmanagement reasonably expects will materially impact future operating results,liquidity or capital resources. These classified loans do not representmaterial credits about which management is aware of any information whichcauses management to have serious doubts as to the ability of such borrowers tocomply with their loan repayment terms, except as noted above.

 

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**Liquidity and Capital Resources**

 

Liquidity management involves the matching ofthe cash flow requirements of customers who may be either depositorsdesiring to withdraw funds or borrowers needing assurance that sufficient fundswill be available to meet their credit needs and our ability to meet thoseneeds. We seek to meet liquidity requirements primarily through management ofshort-term investments, monthly amortizing loans, maturing single paymentloans, and maturities and prepayments of securities. Also, we maintainrelationships with correspondent banks which could provide funds on shortnotice.

 

Our liquidity and capital resources aremonitored on a periodic basis by management, and state and federal regulatoryauthorities. Our liquidity ratio was 13.42% at March 31, 2006. Liquidityis measured by the ratio of net cash, Federal funds sold and securities to netdeposits and short-term liabilities. In the event our subsidiary banks need togenerate additional liquidity, funding plans would be implemented as outlinedin the liquidity policy of the subsidiary banks. Our subsidiary banks havelines of credit available to meet any unforeseen liquidity needs. Also, oursubsidiary banks have relationships with the Federal Home Loan Bank of Atlanta,which provides funding for loan growth on an as needed basis, however theseamounts are subject to collateral pledging and therefore the full amount mightnot be available. Management reviews liquidity on a periodic basis to monitorand adjust liquidity as necessary. Management has the ability to adjustliquidity by selling securities available for sale, selling participations inloans we generate and accessing available funds through various borrowingarrangements. At March 31, 2006, we had available borrowing capacitytotaling approximately $228.7 million through various borrowing arrangementsand available lines of credit. We believe our short-term investments andavailable borrowing arrangements are adequate to cover any reasonablyanticipated immediate need for funds.

 

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As of March 31, 2006, our subsidiary bankswere considered to be well-capitalized as defined in the Federal DepositInsurance Corporation Improvement Act and based on regulatory minimum capitalrequirements. The Company and the subsidiary banks’ capital ratios arepresented in the following table:

 
| ** **                               | ** ** | ** **  | ** ** | **FOR CAPITAL** | ** ** | **TO BE**  | ** ** |
|------------------------------------------|------------|-------------|------------|----------------------|------------|-----------------|------------|
| ** **                               | ** ** | **CAPITAL** | ** ** | **ADEQUACY**         | ** ** | **WELL**        | ** ** |
| ** **                               | ** ** | **RATIOS**  | ** ** | **PURPOSES**         | ** ** | **CAPITALIZED** | ** ** |
|                                     |       |        |       |                 |       |            |       |
| As of March 31, 2006                |       |        |       |                 |       |            |       |
| Total Capital to Risk Weighted  Assets:  |       |        |       |                 |       |            |       |
| Consolidated                             |       | 13.57       | %          | 8.00                 | %          | N\A             |       |
| Gainesville Bank &  Trust       |       | 11.21       | %          | 8.00                 | %          | 10.00           | %          |
| United Bank & Trust             |       | 12.01       | %          | 8.00                 | %          | 10.00           | %          |
| Community Trust Bank                     |       | 10.13       | %          | 8.00                 | %          | 10.00           | %          |
| HomeTown Bank of Villa Rica              |       | 10.68       | %          | 8.00                 | %          | 10.00           | %          |
| First National Bank of the  South        |       | 10.17       | %          | 8.00                 | %          | 10.00           | %          |
| First National Bank of  Gwinnett         |       | 11.34       | %          | 8.00                 | %          | 10.00           | %          |
| Tier I Capital to Risk  Weighted Assets: |       |        |       |                 |       |            |       |
| Consolidated                             |       | 12.54       | %          | 4.00                 | %          | N\A             |       |
| Gainesville Bank &  Trust       |       | 10.06       | %          | 4.00                 | %          | 6.00            | %          |
| United Bank & Trust             |       | 10.85       | %          | 4.00                 | %          | 6.00            | %          |
| Community Trust Bank                     |       | 9.14        | %          | 4.00                 | %          | 6.00            | %          |
| HomeTown Bank of Villa Rica              |       | 9.91        | %          | 4.00                 | %          | 6.00            | %          |
| First National Bank of the  South        |       | 9.26        | %          | 4.00                 | %          | 6.00            | %          |
| First National Bank of  Gwinnett         |       | 10.22       | %          | 4.00                 | %          | 6.00            | %          |
| Tier I Capital to Average  Assets:       |       |        |       |                 |       |            |       |
| Consolidated                             |       | 10.92       | %          | 4.00                 | %          | N\A             |       |
| Gainesville Bank &  Trust       |       | 8.49        | %          | 4.00                 | %          | 5.00            | %          |
| United Bank & Trust             |       | 8.50        | %          | 4.00                 | %          | 5.00            | %          |
| Community Trust Bank                     |       | 8.33        | %          | 4.00                 | %          | 5.00            | %          |
| HomeTown Bank of Villa Rica              |       | 8.45        | %          | 4.00                 | %          | 5.00            | %          |
| First National Bank of the  South        |       | 8.14        | %          | 4.00                 | %          | 5.00            | %          |
| First National Bank of  Gwinnett         |       | 9.47        | %          | 4.00                 | %          | 5.00            | %          |

 

At March 31, 2006, the Company’s constructionin process included costs related to the construction of a branch in Athens,Georgia, for the Athens division of Gainesville Bank & Trust. Theconstruction of the Athens branch building is expected to be completed in thesecond quarter of 2006 with an approximate cost of $1.1 million.

 

Our subsidiary banks are subject to certainrestrictions on the amount of dividends that may be declared without priorregulatory approval. At March 31, 2006, approximately $7.8 million ofretained earnings at our subsidiary banks was available for dividenddeclaration without regulatory approval.

 

**Net Interest Income and Earning Assets**

 

Our profitability is determined by our abilityto effectively manage interest income and expense, to minimize loan andsecurity losses, to generate noninterest income, and to control operatingexpenses. Because interest rates are determined by market forces and economicconditions beyond our control, our ability to generate net interest incomedepends upon our ability to obtain an adequate net interest spread between therate paid on interest-bearing liabilities and the rate earned oninterest-earning assets. The net interest margin, on a tax equivalent basis, was4.35% for the three months ended March 31, 2006, compared to 4.32% for thesame period in 2005, an increase of 3 basis points. The increased yield onearning assets was primarily due to increased volumes and yields on loans andthe increased effective cost of funds was due to higher average rates paid on timedeposits and other borrowings. The Company continues to experience growth in loansand deposits while maintaining its competitive pricing.

 

17

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The following table sets forth the amount of our interest income orinterest expense for each category of interest-earning assets andinterest-bearing liabilities and the average interest yield/rate for totalinterest-earning assets and total interest-bearing liabilities, net interestspread and net yield on average interest-earning assets.

 
| ** **                                                             | ** ** | **For the Three Months Ended  March 31, 2006** | ** ** | **For the Three Months Ended  March 31, 2005** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **Average**                                                                  | ** ** | ** **                                                                   | ** ** | **Yields** | ** ** | **Average** | ** ** | ** ** | ** ** | **Yields** | ** ** |
| ** **                                                             | ** ** | **balances**                                                                 | ** ** | **Interest**                                                                 | ** ** | **/Rates** | ** ** | **Balances** | ** ** | **Interest** | ** ** | **/Rates** | ** ** |
|                                                                   |       | **(Dollars in thousands)**                                                   |       |
| **Assets**                                                             |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Interest earning assets:                                               |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Taxable securities                                                     |       | $                                                                            | 190,059    |                                                                         | $          | 1,912 |   | 4.08 | % | $ | 187,000 |   | $ | 1,699 |   | 3.68 | % |
| Nontaxable securities*                                                 |       | 10,332                                                                       |       | 172                                                                          |       | 6.75 | % | 15,538 |   | 243 |   | 6.34 | % |
| Federal funds sold                                                     |       | 9,458                                                                        |       | 99                                                                           |       | 4.25 | % | 6,758 |   | 46 |   | 2.76 | % |
| Interest bearing deposits in banks                                     |       | 666                                                                          |       | 8                                                                            |       | 4.87 | % | 692 |   | 10 |   | 5.86 | % |
| Loans, net of unearned income                                          |       | 1,237,056                                                                    |       | 24,532                                                                       |       | 8.04 | % | 994,104 |   | 16,959 |   | 6.92 | % |
| Total interest earning assets                                          |       | 1,447,571                                                                    |       | 26,723                                                                       |       | 7.49 | % | 1,204,092 |   | 18,957 |   | 6.38 | % |
| Noninterest earning assets:                                            |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Unrealized gains (losses) on securities                                |       | (4,147                                                                       | )          |                                                                         |       |   |   | (810 | ) |   |   |   |   |
| Allowance for loan losses                                              |       | (13,018                                                                      | )          |                                                                         |       |   |   | (11,177 | ) |   |   |   |   |
| Nonaccrual loans                                                       |       | 7,205                                                                        |       |                                                                         |       |   |   | 10,087 |   |   |   |   |   |
| Cash and due from banks                                                |       | 22,855                                                                       |       |                                                                         |       |   |   | 26,152 |   |   |   |   |   |
| Other assets                                                           |       | 136,413                                                                      |       |                                                                         |       |   |   | 119,018 |   |   |   |   |   |
| Total noninterest earning assets                                       |       | 149,308                                                                      |       |                                                                         |       |   |   | 143,270 |   |   |   |   |   |
| Total assets                                                           |       | $                                                                            | 1,596,879  |                                                                         |       |   |   |   | $ | 1,347,362 |   |   |   |   |   |
| **Liabilities & Stockholders’ Equity**                   |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Interest bearing liabilities:                                          |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Interest bearing demand & savings                             |       | $                                                                            | 412,978    |                                                                         | 2,646      |   | 2.60 | % | $ | 382,613 |   | 1,510 |   | 1.60 | % |
| Time                                                                   |       | 654,117                                                                      |       | 6,786                                                                        |       | 4.21 | % | 472,771 |   | 3,121 |   | 2.68 | % |
| Borrowings                                                             |       | 153,237                                                                      |       | 1,774                                                                        |       | 4.70 | % | 159,921 |   | 1,502 |   | 3.81 | % |
| Total interest bearing liabilities                                     |       | 1,220,332                                                                    |       | 11,206                                                                       |       | 3.72 | % | 1,015,305 |   | 6,133 |   | 2.45 | % |
| Noninterest bearing liabilities &  stockholders’ equity: |       |                                                                         |       |                                                                         |       |   |   |   |   |   |   |   |   |
| Noninterest bearing deposits                                           |       | 159,046                                                                      |       |                                                                         |       |   |   | 135,560 |   |   |   |   |   |
| Other liabilities                                                      |       | 16,209                                                                       |       |                                                                         |       |   |   | 12,911 |   |   |   |   |   |
| Stockholders’ equity                                              |       | 201,292                                                                      |       |                                                                         |       |   |   | 183,586 |   |   |   |   |   |
| Total liabilities & stockholders’ equity                 |       | $                                                                            | 1,596,879  |                                                                         |       |   |   |   | $ | 1,347,362 |   |   |   |   |   |
| Net interest spread                                                    |       |                                                                         |       |                                                                         |       | 3.76 | % |   |   |   |   | 3.94 | % |
| Net interest income*                                                   |       |                                                                         |       | 15,517                                                                       |       |   |   |   |   | 12,824 |   |   |   |
| Less: Tax equivalent adjustment                                        |       |                                                                         |       | 55                                                                           |       |   |   |   |   | 78 |   |   |   |
| Net interest income                                                    |       |                                                                         |       | $                                                                            | 15,462     |   |   |   |   |   | $ | 12,746 |   |   |   |
| Net interest margin*                                                   |       |                                                                         |       |                                                                         |       | 4.35 | % |   |   |   |   | 4.32 | % |

 

----

*Fully taxequivalent

 

Net interest income increased $2.7 million, or 21.31%,for the three months ended March 31, 2006 compared to the same period in2005. The net increase consists of an increase in interest income of $7.8million, or 41.26%, less an increase in interest expense of $5.1 million, or 82.72%,for the three-month period. These increases reflect an increase of $243 millionin interest-earning assets for the three months ended March 31, 2006 as comparedto the three months ended March 31, 2005. The change in net interestincome resulted from increases in net loan volume and an increase in interestrates. These variances include the impact of the acquisition of FNBG in March 2005.

 

18

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**Other Income**

 

Other income for the three months ended March 31,2006, decreased by $294,000, compared to the same period in 2005. Servicecharges on deposit accounts, the largest contributor to fee income, remainedstable compared with the prior-year quarter, while mortgage origination feesincreased 12.9%. The majority of the decline in other income reflects the lossof insurance commissions due to the sale of Community Loan Company in thefourth quarter of 2005, and a decrease in other income related to thetermination of certain outside service contracts.

 

**Other Expense**

 

Other expense increased by approximately $1.1million, or 10.84%, for the three months ended March 31, 2006 compared tothe same period in 2005. The increase is due primarily to an increase insalaries and employee benefits expense of $865,000. Net occupancy and equipmentexpenses increased $190,000. The increase can also be attributed to theinclusion of FNBG for three months during the period ended March 31, 2006compared to one month for the period ended March 31, 2005.

 

**Income Tax Expense**

 

Income tax expense increased by $283,000 for thethree-month period ended March 31, 2006, compared to the same period in2005. The effective tax rate for the three-month period ended March 31,2006 was 34.13%, compared to 31.97% for the same period in 2005.

 

**Net Income**

 

Net income increased by $266,000, or 8.83%, forthe three months ended March 31, 2006, compared to the same period in 2005.

 

We are not aware of any other known trends,events or uncertainties, other than the effect of events as described above,that will have or that are reasonably likely to have a material effect on our liquidity,capital resources or operations. We are not aware of any currentrecommendations by the regulatory authorities, which, if they were implemented,would have such an effect.

 

19

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**Off Balance Sheet Arrangements**

 

Our financial statements do not reflect variouscommitments and contingent liabilities that arise in the normal course ofbusiness. These off-balance sheet financial instruments include commitments toextend credit, standby letters of credit and credit card commitments. Suchfinancial instruments are included in the financial statements when funds aredistributed or the instruments become payable. Our exposure to credit loss inthe event of nonperformance by the other party to the financial instrument forcommitments to extend credit, standby letters of credit and credit cardcommitments is represented by the contractual amount of those instruments. Weuse the same credit policies in making commitments as we do for on-balancesheet instruments. Although these amounts do not necessarily represent futurecash requirements, a summary of our commitments as of March 31, 2006 and December 31,2005 are as follows:

 
| ** **                          | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|-------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                          | ** ** | **(In thousands)**      | ** ** |
|                                |       |                         |       |                            |       |
| Commitments to extend credit        |       | $                            | 358,751    |                            | $          | 288,448 |   |
| Financial standby letters of credit |       | 8,154                        |       | 8,650                           |       |
| Other standby letters of credit     |       | 1,332                        |       | 1,569                           |       |
| Credit card commitments             |       | 7,223                        |       | 7,229                           |       |
| Total                               |       | $                            | 375,460    |                            | $          | 305,896 |   |

 

**Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

Our asset/liabilitymix is monitored on a regular basis and a report evaluating the interest ratesensitive assets and interest rate sensitive liabilities is prepared andpresented to the Investment Committee of the holding company’s board ofdirectors on a quarterly basis. The objective of this policy is to monitorinterest rate sensitive assets and liabilities so as to minimize the impact ofsubstantial movements in interest rates on earnings. An asset or liability isconsidered to be interest rate sensitive if it will reprice or mature withinthe time period analyzed, usually one year or less. The interest ratesensitivity gap is the difference between the interest-earning assets andinterest-bearing liabilities scheduled to mature or reprice within such timeperiod. A gap is considered positive when the amount of interest rate sensitiveassets exceeds the amount of interest rate sensitive liabilities. A gap isconsidered negative when the amount of interest rate sensitive liabilitiesexceeds the interest rate sensitive assets. During a period of rising interestrates, a negative gap would tend to adversely affect net interest income, whilea positive gap would tend to result in an increase in net interest income.Conversely, during a period of falling interest rates, a negative gap wouldtend to result in an increase in net interest income, while a positive gapwould tend to adversely affect net interest income. If our assets andliabilities were equally flexible and moved concurrently, the impact of anyincrease or decrease in interest rates on net interest income would be minimal.

 

A simple interest rate“gap” analysis by itself may not be an accurate indicator of how netinterest income will be affected by changes in interest rates. Accordingly, wealso evaluate how the repayment of particular assets and liabilities isimpacted by changes in interest rates. Income associated with interest-earningassets and costs associated with interest-bearing liabilities may not beaffected uniformly by changes in interest rates. In addition, the magnitude andduration of changes in interest rates may have a significant impact on netinterest income. For example, although certain assets and liabilities may havesimilar maturities or periods of repricing, they may react in differentdegrees to changes in market interest rates. Interest rates on certain types ofassets and liabilities fluctuate in advance of changes in general market rates,while interest rates on other types may lag behind changes in generalmarket rates. In addition, certain assets, such as adjustable rate mortgageloans, have features (generally referred to as “interest rate caps and floors”)which limit the amount of changes in interest rates. Prepayment and earlywithdrawal levels also could deviate significantly from those assumed incalculating the interest rate gap. The ability of many borrowers to servicetheir debts also may decrease during periods of rising interest rates.

 

20

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Changes in interestrates also affect our liquidity position. We currently price deposits inresponse to market rates and it is management’s intention to continue thispolicy. If deposits are not priced in response to market rates, a loss ofdeposits could occur which would negatively affect our liquidity position.

 

Management believesthat gap analysis is a useful tool for measuring interest rate risk only whenused in conjunction with its simulation model. As of March 31, 2006, theCompany maintained an asset sensitive interest rate risk position based on itssimulation model results. This positioning would be expected to result in anincrease in net interest income in a rising rate environment and a decrease innet interest income in a declining rate environment. This is generally due to agreater proportion of interest earning assets repricing on a variable ratebasis as compared to variable rate funding sources. This asset sensitivity isindicated by selected results of net interest income simulations. The actualrealized change in net interest income would depend on several factors. Thesefactors include, but are not limited to, actual realized growth in asset andliability volumes, as well as the mix experienced over these time horizons. Marketconditions and their resulting impact on loan, deposit, and funding pricingwould also be a primary determinant in the realized level of net interestincome. The table below shows the impact on net interest margins over atwelve-month period when subjected to an immediate 100 basis point increase anddecrease in rate.

 

**Twelve-Month Net Interest Income Sensitivity**

 
| **Change in Short-Term Interest  Rates (in basis points)** | ** ** | **Estimated Change in Net  Interest Income** | ** ** |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
|                                                                                     |       |                                                             |       |
| +100                                                                                     |       | 4.05                                                             | %          |
| Flat                                                                                     |       | —                                                           |       |
| -100                                                                                     |       | (3.83                                                            | )%         |

 

We actively manage themix of asset and liability maturities to control the effects of changes in thegeneral level of interest rates on net interest income. Except for its effecton the general level of interest rates, inflation does not have a materialimpact on us due to the rate variability and short-term maturities of ourearning assets.

 

**Item 4.**** ****CONTROLS AND PROCEDURES**

 

**Disclosure Controls andProcedures**

 

As of the end of the period covered by thisreport, an evaluation was carried out under the supervision and with theparticipation of the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of its disclosurecontrols and procedures. Based upon that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the design and operation ofthese disclosure controls and procedures were effective as of the end of theperiod covered by this report in alerting them on a timely basis to materialinformation relating to the Company required to be included in the Company’sreports filed or submitted under the Securities Exchange Act of 1934.

 

**Internal Control over FinancialReporting**

 

The management of GB&T Bancshares, Inc.and subsidiaries is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a-15 and15d-15. This internal control system has been designed to provide reasonableassurance to the Company’s management and board of directors regarding the reliabilityof financial reporting and the preparation and fair presentation of financialstatements for external purposes in accordance with accounting principlesgenerally accepted in the United States of America.

 

21

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All internal control systems, no matter how welldesigned, have inherent limitations. Therefore, even those systems determinedto be effective can provide only reasonable assurance with respect to financialstatement preparation and presentation.

 

The management of GB&T Bancshares, Inc.and subsidiaries has assessed the effectiveness of the company’s internalcontrol over financial reporting as of March 31, 2006. To make thisassessment, we used the criteria for effective internal control over financialreporting described in Internal Control – Integrated Framework, issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). Basedon our assessment and based on such criteria, we believe that, as of March 31,2006, the Company’s internal control over financial reporting was effective. Therewere no changes made in the Company’s internal controls over financialreporting that occurred during the Company’s most recent fiscal quarter thathave materially affected, or are reasonably likely to materially affect, theCompany’s control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

**Item1. LEGAL PROCEEDINGS**

 

None.

 

**Item1A. RISK FACTORS**

 

Therehave been no material changes to the risk factors previously disclosed in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2005.

 

**Item2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**Item3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**Item4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**Item5. OTHER INFORMATION**

 

None.

 

**Item 6. EXHIBITS**

 

Exhibits

31.1   Rule 13a-14(a) Certificationof Principal Executive Officer.

31.2   Rule 13a-14(a) Certificationof Principal Financial Officer.

32.1   Section 1350Certification of Principal Executive Officer.

32.2   Section 1350Certification of Principal Financial Officer.

 

22

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**SIGNATURES**

 

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| GB&T BANCSHARES, INC. |      |   |
|--------------------------------|-----------|--------|
|                           |      |   |   |
|                           |      |   |   |
| DATE:                          | 5/10/2006 |   | BY: | /s/ Richard A. Hunt |   |
|                           |      |   |   | Richard A. Hunt |
|                           |      |   |   | President and Chief  Executive Officer |
|                           |      |   |   |   |
|                           |      |   |   |   |
| DATE:                          | 5/10/2006 |   | BY: | /s/ Gregory L. Hamby |   |
|                           |      |   |   | Gregory L. Hamby |
|                           |      |   |   | Executive Vice  President & |
|                           |      |   |   | Chief Financial  Officer |
|                                |           |        |  |  |  |  |  |  |

 

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