**UNITEDSTATES SECURITIES AND EXCHANGE 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, 2004**                                                                                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                            |
| **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&TBancshares, Inc.**

(Exact name of registrantas 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 principalexecutive offices)

 

**(770) 532-1212**

(Registrant’s telephonenumber, 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)filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for the past 90 days.    Yes   ý  No  o

 

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

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

State the number of shares outstanding of each of theissuer’s classes of common stock, as of April 30, 2004:    6,843,898 shares; no par value

 

 

----

 

**GB&T BANCSHARES, INC.**

 

**TABLE OF CONTENTS**

 
| **PART I.**  | **FINANCIAL INFORMATION**                                                                                     |                                                                                             |
|--------------|---------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|
|         |                                                                                                          |                                                                                             |
|         | **Item 1.**                                                                                                   | **FINANCIAL STATEMENTS**                                                                         |   |
|         |                                                                                                          |                                                                                             |
|         | **Consolidated Balance Sheets  – March 31, 2004 (Unaudited)  and December 31, 2003**                     |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **Consolidated  Statements of Income (Unaudited)-  Three months ended March 31, 2004 and 2003**               |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **Consolidated  Statements of Comprehensive Income (Unaudited)-  Three months ended March 31, 2004 and 2003** |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **Consolidated  Statements of Stockholders’ Equity (Unaudited)  Three months ended March 31, 2004**      |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **Consolidated  Statements of Cash Flows (Unaudited) -  Three months ended March 31, 2004 and 2003**          |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **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 6.  Exhibits and Reports on Form 8-K**                                                            |                                                                                             |
|         |                                                                                                          |                                                                                             |
|         | **Signatures**                                                                                                |                                                                                             |

 

2

----

 

**PART I - FINANCIALINFORMATION**

**ITEM 1 - FINANCIALSTATEMENTS**

 

**GB&TBANCSHARES, INC. AND SUBSIDIARIES**

**Consolidated BalanceSheets**

**(Unaudited)**

 
|                                                                                                                                                                     |   | **March 31,  2004**         |    | **December  31,  2003** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|-------------------------|--------|
|                                                                                                                                                                     |   | **(Dollars  in thousands)** |    |
| **Assets**                                                                                                                                                               |   |                        |    |                    |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| Cash and due from banks                                                                                                                                                  |   | $                           | 18,237  |                    | $      | 17,584 |   |
| Interest-bearing deposits in banks                                                                                                                                       |   | 546                         |    | 535                     |   |
| Federal funds sold                                                                                                                                                       |   | 16,306                      |    | 6,534                   |   |
| Securities available for sale                                                                                                                                            |   | 137,249                     |    | 132,945                 |   |
| Restricted equity securities, at cost                                                                                                                                    |   | 4,763                       |    | 4,582                   |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| Loans, net of unearned income                                                                                                                                            |   | 724,282                     |    | 709,958                 |   |
| Less allowance for loan losses                                                                                                                                           |   | 9,004                       |    | 8,726                   |   |
| Loans, net                                                                                                                                                               |   | 715,278                     |    | 701,232                 |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| Premises and equipment, net                                                                                                                                              |   | 25,950                      |    | 25,813                  |   |
| Goodwill and intangible assets                                                                                                                                           |   | 32,909                      |    | 33,043                  |   |
| Other assets                                                                                                                                                             |   | 22,975                      |    | 22,010                  |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Total assets**                                                                                                                                                         |   | $                           | 974,213 |                    | $      | 944,278 |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                            |   |                        |    |                    |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Liabilities:**                                                                                                                                                         |   |                        |    |                    |   |
| Deposits:                                                                                                                                                                |   |                        |    |                    |   |
| Noninterest-bearing                                                                                                                                                      |   | $                           | 86,797  |                    | $      | 90,914 |   |
| Interest-bearing                                                                                                                                                         |   | 671,381                     |    | 637,715                 |   |
| Total deposits                                                                                                                                                           |   | 758,178                     |    | 728,629                 |   |
| Federal funds purchased and securities sold  under repurchase agreements                                                                                                 |   | 11,973                      |    | 17,314                  |   |
| Federal Home Loan Bank advances                                                                                                                                          |   | 77,580                      |    | 75,703                  |   |
| Other borrowings                                                                                                                                                         |   | 1,330                       |    | 300                     |   |
| Other liabilities                                                                                                                                                        |   | 10,361                      |    | 10,025                  |   |
| Subordinated debt                                                                                                                                                        |   | 15,464                      |    | 15,464                  |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Total liabilities**                                                                                                                                                    |   | 874,886                     |    | 847,435                 |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Stockholders’ Equity**:                                                                                                                                           |   |                        |    |                    |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| Capital stock, no par value; 20,000,000  shares authorized, 6,822,098 and 6,794,148 shares issued and outstanding at  March 31, 2004 and December 31, 2003, respectively |   | 68,280                      |    | 67,983                  |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| Retained earnings                                                                                                                                                        |   | 30,012                      |    | 28,393                  |   |
| Accumulated other comprehensive income                                                                                                                                   |   | 1,035                       |    | 467                     |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Total stockholders’ equity**                                                                                                                                      |   | 99,327                      |    | 96,843                  |   |
|                                                                                                                                                                     |   |                        |    |                    |   |
| **Total liabilities and stockholders’ equity**                                                                                                                      |   | $                           | 974,213 |                    | $      | 944,278 |   |

 

See accompanying notes to consolidated financial statements.

 

3

----

 

**GB&TBANCSHARES, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Income**

**(Unaudited)**

 
|                                                                                                                 |   | **Three  months ended  March 31,**                     |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                                                 |   | **2004**                                               |   | **2003** |   |
|                                                                                                                 |   | **(Dollars  in thousands,  except per share amounts)** |   |
| **Interest income:**                                                                                                 |   |                                                   |   |   |   |
| Loans, including fees                                                                                                |   | $                                                      | 11,645 |   | $ | 9,738 |   |
| Taxable securities                                                                                                   |   | 985                                                    |   | 985 |   |
| Nontaxable securities                                                                                                |   | 184                                                    |   | 168 |   |
| Federal funds sold                                                                                                   |   | 27                                                     |   | 54 |   |
| Interest-bearing deposits in banks                                                                                   |   | 1                                                      |   | 11 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Total interest income**                                                                                            |   | 12,842                                                 |   | 10,956 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Interest expense:**                                                                                                |   |                                                   |   |   |   |
| Deposits                                                                                                             |   | 2,903                                                  |   | 2,977 |   |
| Federal funds purchased, securities sold  under  repurchase agreements, other  borrowings and subordinated debt |   | 1,053                                                  |   | 982 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Total interest expense**                                                                                           |   | 3,956                                                  |   | 3,959 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| Net interest income                                                                                                  |   | 8,886                                                  |   | 6,997 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Provision for loan losses**                                                                                        |   | 284                                                    |   | 214 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| Net interest income after provision for  loan losses                                                                 |   | 8,602                                                  |   | 6,783 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Other income**:                                                                                                    |   |                                                   |   |   |   |
| Service charges on deposit accounts                                                                                  |   | 1,394                                                  |   | 1,092 |   |
| Mortgage origination fees                                                                                            |   | 460                                                    |   | 557 |   |
| Insurance commissions                                                                                                |   | 144                                                    |   | 144 |   |
| Gain on sale of securities                                                                                           |   | 263                                                    |   | 28 |   |
| Other operating income                                                                                               |   | 638                                                    |   | 531 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Total other income**                                                                                               |   | 2,899                                                  |   | 2,352 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Other expenses:**                                                                                                  |   |                                                   |   |   |   |
| Salaries and employee benefits                                                                                       |   | 4,933                                                  |   | 4,124 |   |
| Occupancy and equipment expenses, net                                                                                |   | 1,222                                                  |   | 1,004 |   |
| Other operating expenses                                                                                             |   | 2,193                                                  |   | 1,673 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Total other expenses**                                                                                             |   | 8,348                                                  |   | 6,801 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Income before income taxes**                                                                                       |   | 3,153                                                  |   | 2,334 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Income tax expense**                                                                                               |   | 923                                                    |   | 623 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Net income**                                                                                                       |   | $                                                      | 2,230  |   | $ | 1,711 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Earnings per share:**                                                                                              |   |                                                   |   |   |   |
| Basic                                                                                                                |   | $                                                      | 0.33   |   | $ | 0.32 |   |
| Diluted                                                                                                              |   | $                                                      | 0.32   |   | $ | 0.31 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Weighted average shares:**                                                                                         |   |                                                   |   |   |   |
| Basic                                                                                                                |   | 6,809                                                  |   | 5,361 |   |
| Diluted                                                                                                              |   | 6,943                                                  |   | 5,523 |   |
|                                                                                                                 |   |                                                   |   |   |   |
| **Cash dividends per common share**                                                                                  |   | $                                                      | 0.090  |   | $ | 0.085 |   |

 

See accompanying notes to consolidated financial statements.

 

4

----

 

## **GB&TBANCSHARES, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Comprehensive Income**

**(unaudited)**

 
|                                                                                                                      |   | **Three months ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                      |   | **2004**                          |   | **2003** |   |
|                                                                                                                      |   | **(Dollars in thousands)**        |   |
|                                                                                                                      |   |                              |   |   |   |
| **Net Income**                                                                                                            |   | $                                 | 2,230  |   | $ | 1,711 |   |
|                                                                                                                      |   |                              |   |   |   |
| Unrealized holding gains  (losses) on securities available-  for-sale arising during  period, net of tax (benefit)   |   | 731                               |   | (370 | ) |
|                                                                                                                      |   |                              |   |   |   |
| Reclassification adjustment for  gains realized on  securities available-for-sale in net income,  net of  taxes |   | (163                              | )      | (17 | ) |
|                                                                                                                      |   |                              |   |   |   |
| Other comprehensive income  (loss)                                                                                        |   | 568                               |   | (387 | ) |
|                                                                                                                      |   |                              |   |   |   |
| **Comprehensive  income**                                                                                                 |   | $                                 | 2,798  |   | $ | 1,324 |   |

 

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

### **ThreeMonths Ended March 31, 2004**

**(Dollarsin thousands)**

 
|                                |   | **Shares** |   | **Capital  Stock** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income** |   | **Total****Stockholders’  Equity** |   |
|-------------------------------------|--------|------------|--------|--------------------|--------|------------------------|--------|-----------------------------------------------|--------|-----------------------------------------|--------|
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Balance, December 31, 2003          |   | 6,794      |   | $                  | 67,983 |                   | $      | 28,393                                        |   | $                                       | 467    |   | $ | 96,843 |   |
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Net income                          |   | —     |   | —             |   | 2,230                  |   | —                                        |   | 2,230                                   |   |
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Options excercised                  |   | 28         |   | 297                |   | —                 |   | —                                        |   | 297                                     |   |
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Dividends declared  $0.09 per share |   | —     |   | —             |   | (611                   | )      | —                                        |   | (611                                    | )      |
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Other comprehensive income          |   |       |   | —             |   | —                 |   | 568                                           |   | 568                                     |   |
|                                |   |       |   |               |   |                   |   |                                          |   |                                    |   |
| Balance, March 31, 2004             |   | 6,822      |   | $                  | 68,280 |                   | $      | 30,012                                        |   | $                                       | 1,035  |   | $ | 99,327 |   |

 

See accompanying notes to consolidated financial statements.

 

5

----

 

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

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                                |   | **Three  months ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                                |   | **2004**                           |   | **2003** |   |
|                                                                                                |   | **(Dollars  in thousands)**        |   |
| **Operating Activities**                                                                            |   |                               |   |   |   |
| Net income                                                                                          |   | $                                  | 2,230  |   | $ | 1,711 |   |
| Adjustments to reconcile net income to net  cash Provided by (used in) operating activities:        |   |                               |   |   |   |
| Depreciation                                                                                        |   | 533                                |   | 458 |   |
| Provision for loan losses                                                                           |   | 284                                |   | 214 |   |
| Amortization and (accretion), net                                                                   |   | 293                                |   | 157 |   |
| Gain on sale of securities                                                                          |   | (263                               | )      | (28 | ) |
| Net (increase) decrease in other assets                                                             |   | (1,083                             | )      | 971 |   |
| Net increase (decrease) in other  liabilities                                                       |   | 336                                |   | (4,825 | ) |
| Net cash provided by (used in) operating  activities                                                |   | 2,330                              |   | (1,342 | ) |
|                                                                                                |   |                               |   |   |   |
| **Investing Activities**                                                                            |   |                               |   |   |   |
| Purchases of securities available for sale                                                          |   | (16,178                            | )      | (23,479 | ) |
| Proceeds from sales of securities available  for sale                                               |   | 2,271                              |   | 1,116 |   |
| Proceeds from maturities of securities  available for sale                                          |   | 10,615                             |   | 23,613 |   |
| Increase in Federal Home Loan Bank stock                                                            |   | (324                               | )      | — |   |
| (Increase) decrease in interest-bearing  deposits in banks                                          |   | (11                                | )      | 5,873 |   |
| Net increase in federal funds sold                                                                  |   | (9,772                             | )      | (4,420 | ) |
| Net increase in loans                                                                               |   | (14,768                            | )      | (21,110 | ) |
| Proceeds from sale of other real estate  owned                                                      |   | 359                                |   | 544 |   |
| Purchase of premises and equipment                                                                  |   | (670                               | )      | (439 | ) |
| Proceeds from disposals of premises and  equipment                                                  |   | —                             |   | 21 |   |
| Net cash used in investing activities                                                               |   | (28,478                            | )      | (18,281 | ) |
|                                                                                                |   |                               |   |   |   |
| **Financing Activities**                                                                            |   |                               |   |   |   |
| Net increase in deposits                                                                            |   | 29,549                             |   | 19,956 |   |
| Net increase (decrease) in federal funds  purchased and securities sold under repurchase agreements |   | (5,341                             | )      | 2,813 |   |
| Proceeds from other borrowings and Federal  Home Loan Bank advances                                 |   | 6,608                              |   | 107 |   |
| Payments on other borrowings and Federal  Home Loan Bank advances                                   |   | (3,701                             | )      | (2,731 | ) |
| Dividends paid                                                                                      |   | (611                               | )      | (455 | ) |
| Proceeds from issuance of capital stock                                                             |   | 297                                |   | 37 |   |
| Net cash provided by financing activities                                                           |   | 26,801                             |   | 19,727 |   |
|                                                                                                |   |                               |   |   |   |
| Net increase in cash and due from banks                                                             |   | 653                                |   | 104 |   |
|                                                                                                |   |                               |   |   |   |
| Cash and due from banks at beginning of  period                                                     |   | 17,584                             |   | 18,113 |   |
|                                                                                                |   |                               |   |   |   |
| Cash and due from banks at end of period                                                            |   | $                                  | 18,237 |   | $ | 18,217 |   |
|                                                                                                |   |                               |   |   |   |
| Supplemental disclosure of cash paid during  the period for:                                        |   |                               |   |   |   |
| Interest                                                                                            |   | $                                  | 4,214  |   | $ | 4,136 |   |
| Income taxes                                                                                        |   | $                                  | 524    |   | $ | 142 |   |

 

See accompanying notes to consolidated financial statements.

 

6

----

 

**GB&T BANCSHARES, INC. ANDSUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE1.                BASIS OF PRESENTATION**

 

The unaudited consolidated financial statementsinclude the accounts of GB&T Bancshares, Inc. and its wholly-owned bankingsubsidiaries, Gainesville Bank & Trust, United Bank & Trust, CommunityTrust Bank, HomeTown Bank of Villa Rica and First National Bank of the South,and its consumer finance company, Community Loan Company (collectively “theCompany”).  Significant intercompanytransactions and balances have been eliminated in consolidation.

 

The accompanying unaudited consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America, for interim financialinformation and with instructions for 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 ofmanagement, all adjustments (consisting of normal and recurring adjustments)considered necessary for a fair presentation have been included. The results ofoperations for the three month period ended March 31, 2004 is not necessarilyindicative of the results that may be expected for the year ending December 31,2004.

 

**NOTE 2.                STOCK COMPENSATION PLANS**

 

The Company has a stock option plan for granting ofoptions to directors, officers and employees. The options may be exercised over a period of ten years in accordancewith vesting schedules determined by the Board of Directors.  The Company accounts for the plan under therecognition and measurement principles of APB Opinion No. 25, *Accountingfor**Stock Issued to Employees*, and related Interpretations.  No stock-based employee compensation cost isreflected in net income, as all options granted under the plan had an exerciseprice equal to the market value of the underlying stock on the date ofgrant.  The following table illustratesthe effect on net income and earnings per share if the Company had applied thefair value recognition provisions of SFAS No. 123, *Accounting for Stock-Based Compensation*,to stock-based employee compensation.

 

|                                                                                                                                                |   | **March 31,**               |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                                                                                                                |   | **2004**                    |   | **2003** |   |
|                                                                                                                                                |   | **(Dollars  in thousands)** |   |
|                                                                                                                                                |   |                        |   |   |   |
| Net income, as reported                                                                                                                             |   | $                           | 2,230  |   | $ | 1,711 |   |
| Deduct:   Total stock-based employee compensation expense determined under fair  value based method for all awards, net of related tax effects |   | 29                          |   | 26 |   |
| Pro forma net income                                                                                                                                |   | $                           | 2,201  |   | $ | 1,685 |   |
| Earnings per share:                                                                                                                                 |   |                        |   |   |   |
| Basic - as reported                                                                                                                                 |   | $                           | 0.33   |   | $ | 0.32 |   |
| Basic - pro forma                                                                                                                                   |   | $                           | 0.33   |   | $ | 0.32 |   |
| Diluted - as reported                                                                                                                               |   | $                           | 0.32   |   | $ | 0.31 |   |
| Diluted - pro forma                                                                                                                                 |   | $                           | 0.32   |   | $ | 0.31 |   |

 

7

----

 

**NOTE 3.                EARNINGS PER COMMON SHARE**(in thousands, except per share data)

 

Presented below is asummary of the components used to calculate basic and diluted earnings pershare for the three month periods ended March 31, 2004 and 2003.

 
|                                                                                                                                |   | **Three months ended March 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                                                                |   | **2004**                         |   | **2003** |   |
| Basic Earnings Per Share:                                                                                                           |   |                             |   |   |   |
| Weighted average common shares  outstanding                                                                                         |   | 6,809                            |   | 5,361 |   |
|                                                                                                                                |   |                             |   |   |   |
| Net income                                                                                                                          |   | $                                | 2,230  |   | $ | 1,711 |   |
|                                                                                                                                |   |                             |   |   |   |
| Basic earnings per share                                                                                                            |   | $                                | 0.33   |   | $ | 0.32 |   |
|                                                                                                                                |   |                             |   |   |   |
| Diluted Earnings Per Share:                                                                                                         |   |                             |   |   |   |
| Weighted average common shares  outstanding                                                                                         |   | 6,809                            |   | 5,361 |   |
| Net effect of the assumed  exercise of stock Options based on the treasury stock method Using average  market prices for the period |   | 134                              |   | 162 |   |
| Total weighted average common  shares and Common stock equivalents outstanding                                                      |   | 6,943                            |   | 5,523 |   |
|                                                                                                                                |   |                             |   |   |   |
| Net income                                                                                                                          |   | $                                | 2,230  |   | $ | 1,711 |   |
|                                                                                                                                |   |                             |   |   |   |
| Diluted earnings per share                                                                                                          |   | $                                | 0.32   |   | $ | 0.31 |   |

 

**NOTE 4.                RECENT DEVELOPMENTS**

 

On January 26, 2004, the Company signed a definitiveagreement for the merger of Southern Heritage Bancorp, Inc. into GB&TBancshares, Inc.  The terms of theagreement call for the exchange of 1.063 shares of GB&T Bancshares, Inc.stock for each of the outstanding shares of Southern Heritage Bancorp, Inc. orwithin limits, that a portion of the acquisition price be paid in cash, at theoption of Southern Heritage Bancorp, Inc. shareholders.  The merger is subject to approval of theshareholders of Southern Heritage Bancorp, Inc. and regulators.

 

On February 11, 2004, the Company signed a definitiveagreement to acquire Lumpkin County Bank. The terms of the agreement call for the exchange of .82 shares ofGB&T Bancshares, Inc. stock for each of the outstanding shares of LumpkinCounty Bank.  The merger is subject toapproval of the shareholders of Lumpkin County Bank and regulators.

 

Both transactions are expected to close in the thirdquarter of 2004.

 

8

----

 

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

 

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

 

The following is management’s discussion and analysisof certain significant factors which have affected our financial position andoperating results including our wholly-owned subsidiaries, Gainesville Bank& Trust, United Bank & Trust, Community Trust Bank, HomeTown Bank ofVilla Rica (“HTB”), First National Bank of the South (“FNB”) and Community LoanCompany during the periods included in the accompanying consolidated financialstatements.  This discussion should beread in conjunction with the accompanying consolidated financial statements andthe notes thereto.

 

**CautionaryNotice Regarding Forward-Looking Statements**

 

 Some of thestatements in this Report, including, without limitation, matters discussedunder the caption “Management’s Discussion and Analysis of Financial Conditionand Results of Operation,” of GB&T Bancshares, Inc. are “forward-lookingstatements” within the meaning of the federal securities laws.  Forward-looking statements includestatements about the competitiveness of the banking industry, potentialregulatory obligations, our entrance and expansion into other markets, integrationof recently acquired banks, pending or proposed acquisitions, our otherbusiness strategies, our expectations with respect to our allowance for loanlosses and impaired loans, anticipated capital expenditures for our operationscenter, and other statements that are not historical facts.  When we use words like “anticipate”,“believe”, “intend”, “expect”, “estimate”, “could”, “should”, “will”, andsimilar expressions, you should consider them as identifying forward-lookingstatements, although we may use other phrasing.  These forward-looking statements involve risks and uncertaintiesand are based on our beliefs and assumptions, and on the information availableto us at the time that these disclosures were prepared.  Factors that may cause actual results todiffer materially from those expressed or implied by such forward-lookingstatements include, among others, the following possibilities: (1) competitivepressures among depository and other financial institutions may increasesignificantly; (2) changes in the interest rate environment may reduce margins;(3) general economic conditions may be less favorable than expected, resultingin, among other things, a deterioration in credit quality and/or a reduction indemand for credit; (4) legislative or regulatory changes, including changes inaccounting standards, may adversely affect the businesses in which we areengaged; (5) costs or difficulties related to the integration of ourbusinesses, may be greater than expected; (6) deposit attrition, customer lossor revenue loss following acquisitions may be greater than expected; (7)competitors may have greater financial resources and develop products thatenable such competitors to compete more successfully than us; and (8) adversechanges may occur in the equity markets.

 

Many of such factors are beyond our ability to controlor predict, and readers are cautioned not to put undue reliance on suchforward-looking statements.  We disclaimany obligation to update or revise any forward-looking statements contained inthis Report, whether as a result of new information, future events orotherwise.

 

**CriticalAccounting Estimates**

 

The preparation of financial statements and relateddocuments in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reported period.  Actual results could differ from thoseestimates.  We believe that ourdetermination of the allowance for loan losses affect our most significantjudgments and estimates used in the preparation of our consolidated financialstatements.  Estimates and assumptionsare reviewed periodically and the effects of revisions are reflected in theconsolidated financial statements in the period they are determined to benecessary.

 

9

----

 

The allowance for loan losses is an amount thatmanagement believes will be adequate to absorb estimated losses in the loanportfolio. The Company uses an 8 point rating system for its loans. Ratings of1 to 4 are considered “pass ratings”, 5 is special mention, 6 is substandard, 7is doubtful, and 8 is loss. The originating officer rates all loans on thissystem. This rating is adjusted from time to time by the officer to accuratelyreflect the loan’s current status. These ratings are reviewed regularly by theLoan Committee, an outside independent loan review firm, our accountants, andby the applicable regulator for accuracy.

 

Pass loans are separated into homogeneous pools.Currently, these pools consist of real estate, commercial, consumer and creditcard. Management assigns loss percentages to these categories of homogeneouspools of loans based on historic loss data in each category. In addition to thehomogeneous pools management has specified certain industry risks and appliedloss percentages to the specified industry risk categories. Management isdeveloping moving average net losses for the historic loss percentage in eachcategory. These loss percentages will be reviewed and adjusted periodically, bypool, in light of current trends in past dues, changes in lending policies,underwriting standards, economic conditions, and other factors that may affectthis number. Recently, because of low losses in most categories, management hasassigned minimum percentages to each category.

 

For loans rated 5, an industry standard losspercentage of 5% is used.

 

All significant loans rated 6 and 7 are individuallyanalyzed and a specific reserve is assigned based on exposure or industrystandards whichever is greater. These accounts, their reserves, and actionplans to resolve their criticisms are reviewed by the Loan Committee. All otherloans rated 6 and 7 are assigned loss percentages of 15% and 50% respectively.

 

All loans rated 8 are assigned specific reserve of100%

 

The allowance for loanlosses is evaluated on a regular basis by management and is based uponmanagement’s periodic review of the collectibility of the loans in light ofhistorical experience, the nature and volume of the loan portfolio, adversesituations that may affect the borrower’s ability to repay, estimated value ofany underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective asit requires estimates that are susceptible to significant revision as moreinformation becomes available.  Inaddition, regulatory agencies, as an integral part of their examinationprocess, periodically review the Company’s allowance for loan losses, and mayrequire the Company to make additions to the allowance based on their judgmentabout information available to them at the time of their examinations.

 

**Summary**

 

Net income for the three months ended March 31, 2004was $2.2 million, up 30.3% from the same period a year ago.  Diluted net income per share was $0.32 forthe three months ended March 31, 2004, up 3.2% from the same period a yearago.  Return on average assets was 0.93%and return on average equity was 9.14% for the three months ended March 31,2004.  This compares to a return onaverage assets of 0.94% and a return on average equity of 11.28% for the sameperiod a year ago.

 

**BalanceSheets**

 

Our total assets increased $29.9 million or 3.17% forthe period ended March 31, 2004 compared to December 31, 2003.  The increase consists of an increase inloans of $14.3 million or 2.0%, an increase in federal funds sold of $9.8million, and an increase in securities of $4.5 million.

 

Total deposits have increased $29.5 million, or 4.06%during the period ended March 31, 2004 compared to December 31, 2003.  Noninterest-bearing deposits decreased $4.1million while interest-bearing deposits increased $33.7 million during theperiod.   Deposit growth outpaced loangrowth resulting in a loan to deposit ratio of 95.53% at March 31, 2004compared to 97.44% at December 31, 2003. Federal funds purchased decreased during the period by $5.3 million.

 

10

----

 

**AssetQuality**

 

The allowance for loan losses at March 31, 2004 was$9,004,000 or 1.24% to total loans compared to 1.32% at March 31, 2003.  The analysis below indicates a decrease of$308,000 in net charge-offs for the three months ended March 31, 2004 ascompared to the same period in 2003 which is directly attributable to HTB whichcontributed $230,000 to the net charge-off balance at March 31, 2003.  Based on its evaluation, management believesthe allowance is adequate to absorb any potential loan losses at March 31,2004.  The allowance for loan losses isevaluated monthly and adjusted to reflect the risk in the portfolio.

 

The following table summarizes the allowance for loanlosses for the three month period ended March 31, 2004 and 2003.

 
|                                                        |   | **2004**                   |        | **2003**   |   |
|-------------------------------------------------------------|--------|----------------------------|-------------|------------|--------|
|                                                        |   | **(Dollars in thousands)** |        |
| **Average amount  of loans outstanding**                    |   | **$**                      | **720,063** | ** ** | $      | 555,727 |   |
|                                                        |   |                       | ** **  |       |   |
| **Allowance for  loan losses balance, beginning of period** |   | **$**                      | **8,726**   | ** ** | $      | 7,538 |   |
|                                                        |   |                       | ** **  |       |   |
| **Less  charge-offs**                                       |   |                       | ** **  |       |   |
| Commercial loans                                            |   | **—**                 | ** **  | —     |   |
| Real estate loans                                           |   | **—**                 | ** **  | (232       | )      |
| Consumer loans                                              |   | **(141**                   | **)**       | (167       | )      |
| Total charge-offs                                           |   | **(141**                   | **)**       | (399       | )      |
|                                                        |   |                       | ** **  |       |   |
| **Plus  recoveries**                                        |   |                       | ** **  |       |   |
| Commercial loans                                            |   | **44**                     | ** **  | 21         |   |
| Real estate loans                                           |   | **3**                      | ** **  | 1          |   |
| Consumer loans                                              |   | **88**                     | ** **  | 63         |   |
| Total recoveries                                            |   | **135**                    | ** **  | 85         |   |
| **Net  charge-offs**                                        |   | **(6**                     | **)**       | (314       | )      |
|                                                        |   |                       | ** **  |       |   |
| **Plus provision  for loan losses**                         |   | **284**                    | ** **  | 214        |   |
|                                                        |   |                       | ** **  |       |   |
| **Allowance for  loan losses balance, end of period**       |   | **$**                      | **9,004**   | ** ** | $      | 7,438 |   |
|                                                        |   |                       | ** **  |       |   |
| **Net  charge-offs to average loans (annualized)**          |   | **0.003**                  | **%**       | 0.229      | %      |

 

11

----

 

The following table is a summary of nonaccrual, past due andrestructured debt. The numbers indicate a decrease of $1,159,000 in nonaccrualloans which was primarily concentrated at one affiliate, HTB.  The level of nonaccrual loans has continuedto decrease at HTB since its acquisition in November 2002.  A majority of the consumer nonaccrual loanbalance is related to Community Loan Company which represents approximately76.4%, or $427,000 of the balance.  Thetable presents an increase of $613,000 in past due loans over 90 days.  This increase represents one loan in theamount of $552,000 located at CTB, which was in the process of foreclosure atMarch 31, 2004.  Community Loan Companyaccounts for approximately 43.8%, or $461,000 of the past due loan balance atMarch 31, 2004.  Due to the nature ofthe consumer finance business, we believe that the level of nonaccrual and pastdue loans over 90 days for Community Loan Company is normal and willconsistently remain higher than those seen in the banking industry.  Community Loan Company’s reserve for loanloss is also higher to cover these higher levels of nonaccrual and past dueloans.  The reserve for loan loss forCommunity Loan Company was 9.12% for the period ended March 31, 2004 and 10.42%for the period ended March 31, 2003. There is minimal or no loss anticipated on the remaining real estateloans in nonaccrual and past due loans due to the value of the underlyingcollateral.

 

|              |   | **March 31, 2004**         |   |
|-------------------|--------|----------------------------|--------|
|              |   | **Nonaccrual  Loans**      |   | **Past Due  90 Days  Still Accruing** |   | **Restructured  Debt** |   |
|              |   | **(Dollars in thousands)** |   |
|              |   |                       |   |   |   |   |   |
| Real estate loans |   | $                          | 2,118  |   | $ | 552 |   | $ | — |   |
| Commercial loans  |   | 274                        |   | — |   | — |   |
| Consumer loans    |   | 559                        |   | 501 |   | — |   |
| Total             |   | $                          | 2,951  |   | $ | 1,053 |   | $ | — |   |

 

|              |   | **March 31, 2003**         |   |
|-------------------|--------|----------------------------|--------|
|              |   | **Nonaccrual  Loans**      |   | **Past Due  90 Days  Still Accruing** |   | **Restructured  Debt** |   |
|              |   | **(Dollars in thousands)** |   |
|              |   |                       |   |   |   |   |   |
| Real estate loans |   | $                          | 3,104  |   | $ | 83 |   | $ | — |   |
| Commercial loans  |   | 288                        |   | 9 |   | — |   |
| Consumer loans    |   | 718                        |   | 357 |   | — |   |
| Total             |   | $                          | 4,110  |   | $ | 449 |   | $ | — |   |

 

Our banking subsidiary policy is to discontinue theaccrual of interest income when, in the opinion of management, collection ofsuch interest becomes doubtful.  Thisstatus is determined when; (1) there is a significant deterioration in thefinancial condition of the borrower and full repayment of principal andinterest is not expected; and (2) the principal or interest is more than 90days past due, unless the loan is both well-secured and in the process ofcollection.  Our consumer financecompany accrues interest until management determines that full repayment ofprincipal and interest is not probable, which in some cases exceeds 90 dayspast due.  Accrual of interest on suchloans is resumed when, in management’s judgment, the collection of interest andprincipal becomes probable.

 

12

----

 

Loans classified for regulatory purposes as loss,doubtful, substandard, or special mention that have not been included in thetable above do not represent or result from trends or uncertainties whichmanagement reasonably expects will materially impact future operating results,liquidity or capital resources.  Theseclassified loans do not represent material credits about which management isaware of any information which causes management to have serious doubts as tothe ability of such borrowers to comply with their loan repayment terms, exceptas noted above.

 

**Liquidityand Capital Resources**

 

Liquidity management involves the matching of the cashflow requirements of customers who may be either depositors desiring towithdraw funds or borrowers needing assurance that sufficient funds will beavailable to meet their credit needs and our ability to meet those needs.  We seek to meet liquidity requirementsprimarily through management of short-term investments, monthly amortizingloans, maturing single payment loans, and maturities of securities andprepayments.  Also we maintainrelationships with correspondent banks which could provide funds on shortnotice.  As of March 31, 2004, we hadborrowed under Federal funds purchase lines and securities sold under agreementto repurchase, $12.0 million compared to $17.3 million at December 31, 2003.

 

Our liquidity and capital resources are monitored on aperiodic basis by management, State and Federal regulatory authorities.  Management reviews liquidity on a periodicbasis to monitor and adjust liquidity as necessary.  Management has the ability to adjust liquidity by sellingsecurities available for sale, selling participations in loans we generate andaccessing available funds through various borrowing arrangements.  At March 31, 2004, we had availableborrowing capacity totaling approximately $131.9 million through variousborrowing arrangements and available lines of credit.  Our short-term investments and available borrowing arrangementsare adequate to cover any reasonably anticipated immediate need for funds.

 

Our liquidity ratio was 16.67% at March 31, 2004,above our policy minimum ratio of 15%. Liquidity is measured by the ratio of net cash, Federal funds sold andsecurities to net deposits and short-term liabilities. In the event the banksneed to generate additional liquidity, funding plans would be implemented asoutlined in the liquidity policy of the banks. The subsidiary banks have linesof credit available to meet any unforeseen liquidity needs.  Also, the Banks have relationships with theFederal Home Loan Bank of Atlanta, which provide funding for loan growth on anas needed basis.

 

We purchased property in May 2003 in Gainesville,Georgia for the purpose of locating an operations center for the Company’soperations and data processing. The approximate cost of the property was$1,168,000. We anticipate the construction of the operations center to becompleted in the third quarter of 2004 with an approximate cost of $2.9million.

 

13

----

 

As of March 31, 2004, the Company and theBanks were considered to be well-capitalized as defined in the Federal DepositInsurance Corporation Improvement Act and based on regulatory minimum capitalrequirements.  The Company and its banksubsidiaries’ actual capital ratios are presented in the following table.

 
|                                     |   | **ACTUAL** |   | **FOR CAPITAL  ADEQUACY  PURPOSES** |   | **TO BE  WELL  CAPITALIZED** |   |
|------------------------------------------|--------|------------|--------|-------------------------------------|--------|------------------------------|--------|
|                                     |   |       |   |                                |   |                         |   |
| As of March 31, 2004                     |   |       |   |                                |   |                         |   |
| Total Capital to Risk Weighted  Assets:  |   |       |   |                                |   |                         |   |
| Consolidated                             |   | 11.78      | %      | 8                                   | %      | N\A                          |   |
| Gainesville Bank & Trust             |   | 10.16      | %      | 8                                   | %      | 10                           | %      |
| United Bank & Trust                  |   | 12.73      | %      | 8                                   | %      | 10                           | %      |
| Community Trust Bank                     |   | 11.30      | %      | 8                                   | %      | 10                           | %      |
| HomeTown Bank of Villa Rica              |   | 10.14      | %      | 8                                   | %      | 10                           | %      |
| First National Bank of the  South        |   | 10.66      | %      | 8                                   | %      | 10                           | %      |
| Tier I Capital to Risk Weighted  Assets: |   |       |   |                                |   |                         |   |
| Consolidated                             |   | 10.60      | %      | 4                                   | %      | N\A                          |   |
| Gainesville Bank & Trust             |   | 9.05       | %      | 4                                   | %      | 6                            | %      |
| United Bank & Trust                  |   | 11.48      | %      | 4                                   | %      | 6                            | %      |
| Community Trust Bank                     |   | 10.20      | %      | 4                                   | %      | 6                            | %      |
| HomeTown Bank of Villa Rica              |   | 8.89       | %      | 4                                   | %      | 6                            | %      |
| First National Bank of the  South        |   | 9.75       | %      | 4                                   | %      | 6                            | %      |
| Tier I Capital to Average  Assets:       |   |       |   |                                |   |                         |   |
| Consolidated                             |   | 8.71       | %      | 4                                   | %      | N\A                          |   |
| Gainesville Bank & Trust             |   | 7.13       | %      | 4                                   | %      | 5                            | %      |
| United Bank & Trust                  |   | 7.90       | %      | 4                                   | %      | 5                            | %      |
| Community Trust Bank                     |   | 8.57       | %      | 4                                   | %      | 5                            | %      |
| HomeTown Bank of Villa Rica              |   | 7.69       | %      | 4                                   | %      | 5                            | %      |
| First National Bank of the  South        |   | 8.18       | %      | 4                                   | %      | 5                            | %      |

 

**NetInterest Income and Earning Assets**

 

Our profitability is determined by our ability toeffectively manage interest income and expense, to minimize loan and securitylosses, to generate noninterest income, and to control operating expenses.  Since interest rates are determined bymarket forces and economic conditions beyond our control, our ability to generatenet interest income is dependent upon our ability to obtain an adequate netinterest spread between the rate paid on interest-bearing liabilities and therate earned on interest-earning assets. The net interest margin was 4.11% for the three months ended March 31,2004, compared to 4.14% for the same period in 2003, a decrease of 3 basispoints.  This decrease resulted from a55 basis point decrease in the yield on earning assets and a 52 basis pointdecrease in the effective cost of funds. The decreased yield on earning assets was primarily due to lower yieldson loans and the decreased effective cost of funds was due to lower averagerates paid on interest-bearing funding. The Company continues to maintain the volumes needed and competitivepricing during this low interest rate environment.

 

The results of operations for the three months endedMarch 31, 2004, includes First National Bank of the South, which became part ofthe Company effective August 29, 2003. The merger was accounted for as a purchase; therefore, results for FNBhave been included since September 1, 2003 and are not included in quarterended March 31, 2003.

 

Net interest income increased $1,889,000 or 27.00% forthe three months ended March 31, 2004 compared to the same period in 2003.  The net increase consists of an increase ininterest income of $1,886,000 or 17.21% plus a decrease in interest expense of$3,000 or -0.08% for the three-month period. This increase consists of a volume variance of $1,881,098 and a ratevariance of $7,902. Exclusive of FNB, net interest income increased $531,000 or7.59%.

 

14

----

 

**OtherIncome**

 

Other income for the three months ended March 31,2004, increased by $547,000 or 23.26% compared to the same period in 2003.  Service charges increased by $302,000 andgain on sale of securities increased by $235,000. The increase in servicecharges is directly related to the increase in deposit accounts and theinclusion of FNB for the three-month period ended March 31, 2004 whichaccounted for $200,000 of the increase.  Exclusive of FNB, other income increased by $109,000 or 4.63%.

 

**OtherExpense**

 

Other expenses increased by approximately $1,547,000or 22.75% for the three months ended March 31, 2004 compared to the same periodin 2003.  The increase is due primarilyto an increase in salaries and employee benefits of $809,000.  Net occupancy and equipment expensesincreased $218,000 and other operating expenses increased $520,000.  The increase in salaries and employeebenefits is partially due to FNB, which accounted for $678,000 of the increaseand an increase of 60 employees. Exclusive of FNB, other expense increased $237,000 or 3.48% and otheroperating expenses increased $55,000 or 3.29%.

 

**IncomeTax Expense**

 

Income tax expense increased by $300,000 for the threemonth period ended March 31, 2004, compared to the same period last year. Theeffective tax rate for the period ended March 31, 2004 was 29.27%, compared to26.69% for the same period in 2003.

 

**NetIncome**

 

Net income increased by $519,000 or 30.33%, for thethree months ended March 31, 2004 compared to the same period in 2003.   This increase is directly related to theincrease in net interest income which is partially offset by the increase inother expenses as discussed above.

 

We are not aware of any other known trends, events oruncertainties, other than the effect of events as described above, that willhave or that are reasonably likely to have a material effect on its liquidity,capital resources or operations.  We arenot aware of any current recommendations by the regulatory authorities, which,if they were implemented, would have such an effect, except as noted above.

 

15

----

 

**OffBalance Sheet Arrangements**

 

Our financial statements do not reflect variouscommitments and contingent liabilities that arise in the normal course ofbusiness.  These off-balance sheetfinancial instruments include commitments to extend credit, standby letters ofcredit and credit card commitments. Such financial instruments are included in the financial statements whenfunds are distributed or the instruments become payable.  Our exposure to credit loss in the event ofnonperformance by the other party to the financial instrument for commitmentsto extend credit, standby letters of credit and credit card commitments isrepresented by the contractual amount of those instruments.  We use the same credit policies in makingcommitments as we do for on-balance sheet instruments.  Although these amounts do not necessarilyrepresent future cash requirements, a summary of our commitments as of March31, 2004 and December 31, 2003 are as follows:

 
|                                |   | **March 31,  2004**         |    | **December  31, 2003** |   |
|-------------------------------------|--------|-----------------------------|---------|------------------------|--------|
|                                |   | **(Dollars  in thousands)** |    |
|                                |   |                        |    |                   |   |
| Commitments to extend credit        |   | $                           | 159,759 |                   | $      | 138,310 |   |
| Financial standby letters of credit |   | 3,199                       |    | 3,718                  |   |
| Other standby letters of credit     |   | 1,248                       |    | 1,349                  |   |
| Credit card commitments             |   | 5,451                       |    | 5,302                  |   |
| Total                               |   | $                           | 169,657 |                   | $      | 148,679 |   |

 

**Item3.     QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

 

We are exposed only toU.S. dollar interest rate changes and accordingly, we manage exposure byconsidering the possible changes in the net interest margin. We do not have anytrading instruments nor do we classify any portion of the investment portfolioas held for trading.  We do not engagein any hedging activities or enter into any derivative instruments with ahigher degree of risk than mortgage-backed securities that are commonly passthrough securities. Finally, we have no exposure to foreign currency exchangerate risk, commodity price risk, and other market risks. Interest rates play amajor part in the net interest income of a financial institution. Thesensitivity to rate changes is known as “interest rate risk.” The repricing ofinterest earning assets and interest-bearing liabilities can influence thechanges in net interest income. As part of our asset/liability managementprogram, the timing of repriced assets and liabilities is referred to as Gapmanagement. It is our policy to maintain a Gap ratio in the one-year timehorizon of .80 to 1.20.

 

GAP management alone isnot enough to properly manage interest rate sensitivity, because interest ratesdo not respond at the same speed or at the same level to market rate changes.For example, savings and money market rates are more stable than loans tied toa “Prime” rate and thus respond with less volatility to a market rate change.

 

We use a simulation modelto monitor changes in net interest income due to changes in market rates. Themodel of rising, falling and stable interest rate scenarios allow management tomonitor and adjust interest rate sensitivity to minimize the impact of marketrate swings. The analysis of impact on net interest margins as well as marketvalue of equity over a twelve-month period is subjected to a 200 basis pointincrease and decrease in rate. The December model reflects an increase of 2% innet interest income and a 14% decrease in market value equity for a 200 basispoint increase in rates. The same model shows a 1% decrease in net interestincome and a 16% increase in market value equity for a 200 basis point decreasein rates. Our policy is to allow no more than +/- 8% change in net interestincome and no more than +/- 25% change in market value equity for thesescenarios. Therefore, we are within our policy guidelines and are protectedfrom any significant impact due to market rate changes.

 

16

----

 

**Item4.     CONTROLS AND PROCEDURES**

 

As of the end of the period covered by this report, anevaluation was carried out under the supervision and with the participation ofthe Company’s President and Chief Financial Officer, of the effectiveness ofthe design and operation of its disclosure controls and procedures. Based uponthat evaluation, the President and Chief Financial Officer concluded that thedesign and operation of these disclosure controls and procedures were effectiveas of the end of the period covered by this report in alerting them on a timelybasis to material information relating to the Company required to be includedin the Company’s reports filed or submitted under the Securities Exchange Actof 1934. In addition, no change in our internal control over financialreporting  occurred during the firstquarter ended March 31, 2004 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PARTII - OTHER INFORMATION**

 

**Item6.    EXHIBITS AND REPORTS ON FORM 8-K**

 

(a)          Exhibits

31.1     Rule 13a-14(a) Certification of PrincipalExecutive Officer

31.2     Rule 13a-14(a) Certification of PrincipalFinancial Officer

32.1     Section 1350 Certification of PrincipalExecutive Officer

32.2     Section 1350 Certification of PrincipalFinancial Officer

 

(b)         Reportson Form 8-K

 

We furnished a report on Form 8-K on January 30, 2004 to reportearnings for the quarter ending December 31, 2003.

 

17

----

 

**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 

 
| GB&T BANCSHARES, INC. |      |
|---------------------------|-----------|
|                      |      |
|                      |      |
| DATE:                     | 5/10/2004 |   | BY: | /s/ Richard A. Hunt |   |
|                      |      |   |   | Richard A. Hunt |   |
|                      |      |   |   | President and Chief Executive Officer |
|                      |      |   |   |   |   |
|                      |      |   |   |   |   |
| DATE:                     | 5/10/2004 |   | BY: | /s/ Gregory L. Hamby |   |
|                      |      |   |   | Gregory L. Hamby |   |
|                      |      |   |   | Executive Vice President & |
|                      |      |   |   | Chief Financial Officer |
|                           |           |  |  |  |  |  |

 

18

----