**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 June 30, 2005**

** **

**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 ofregistrant as specified in its charter)

 
| **Georgia**                      | ** ** | **58-2400756**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (IRS Employer       |
| incorporation or  organization)  |       | 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)

 

Indicateby check mark whether the registrant (1) filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.    Yes   ý     No   o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).  Yes   ý     No   o

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

Statethe number of shares outstanding of each of the issuer’s classes of capitalstock, as of August 2, 2005:  12,720,155shares; no par value

 

 

----

 

**GB&T BANCSHARES, INC.**

 

**TABLE OF CONTENTS**

 
| **PART  I.**       | **FINANCIAL  INFORMATION**                                                                                          |
|--------------------|---------------------------------------------------------------------------------------------------------------------|
|               |                                                                                                                |   |
|               | **Item  1. FINANCIAL STATEMENTS**                                                                                   |   |
|               |                                                                                                                |   |
|               | **Consolidated Balance Sheets – June  30, 2005 (Unaudited) and December 31, 2004**                             |   |
|               |                                                                                                                |   |
|               | **Consolidated Statements of  Income (Unaudited)-Three and six months ended June 30, 2005 and 2004**                |   |
|               |                                                                                                                |   |
|               | **Consolidated Statements of  Comprehensive Income (Unaudited)-Three and six months ended June 30, 2005 and  2004** |   |
|               |                                                                                                                |   |
|               | **Consolidated Statements of  Stockholders’ Equity (Unaudited)-Six months ended June 30, 2005**                |   |
|               |                                                                                                                |   |
|               | **Consolidated Statements of  Cash Flows (Unaudited) -Six months ended June 30, 2005 and 2004**                     |   |
|               |                                                                                                                |   |
| ** **         | **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 4. Submission of  Matters to a Vote of Security Holders**                                                    |   |
|               |                                                                                                                |   |
|               | **Item 6.  Exhibits**                                                                                               |   |
|               |                                                                                                                |   |
|               | **Signatures**                                                                                                      |   |
|               |                                                                                                                |   |
| **Certifications** |                                                                                                                |

 

2

----

 

**PART I - FINANCIAL INFORMATION**

**ITEM 1 -FINANCIAL STATEMENTS**

 

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

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                | ** ** | **June 30,**               | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|------------------|------------|
| ** **                                                                                                                                                                | ** ** | **2005**                   | ** ** | **2004**         | ** ** |
| ** **                                                                                                                                                                | ** ** | **(Unaudited)**            | ** ** | ** **       | ** ** |
| ** **                                                                                                                                                                | ** ** | **(Dollars in thousands)** | ** ** |
| **Assets**                                                                                                                                                                |       |                       |       |             |       |
| ** **                                                                                                                                                                |       |                       |       |             |       |
| Cash and due from banks                                                                                                                                                   |       | $                          | 31,934     |             | $          | 20,723 |   |
| Interest-bearing deposits in banks                                                                                                                                        |       | 5,849                      |       | 700              |       |
| Federal funds sold                                                                                                                                                        |       | 13,702                     |       | 93               |       |
| Securities available for sale, at fair  value                                                                                                                             |       | 194,509                    |       | 190,636          |       |
| Restricted equity securities, at cost                                                                                                                                     |       | 9,003                      |       | 7,226            |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| Loans, net of unearned income                                                                                                                                             |       | 1,152,737                  |       | 955,880          |       |
| Less allowance for loan losses                                                                                                                                            |       | 14,581                     |       | 11,061           |       |
| Loans, net                                                                                                                                                                |       | 1,138,156                  |       | 944,819          |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| Premises and equipment, net                                                                                                                                               |       | 37,335                     |       | 31,548           |       |
| Goodwill                                                                                                                                                                  |       | 68,469                     |       | 49,127           |       |
| Intangible assets                                                                                                                                                         |       | 5,907                      |       | 5,618            |       |
| Other assets                                                                                                                                                              |       | 28,071                     |       | 23,646           |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Total assets**                                                                                                                                                          |       | $                          | 1,532,935  |             | $          | 1,274,136 |   |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                             |       |                       |       |             |       |
| ** **                                                                                                                                                                |       |                       |       |             |       |
| **Liabilities:**                                                                                                                                                          |       |                       |       |             |       |
| Deposits:                                                                                                                                                                 |       |                       |       |             |       |
| Noninterest-bearing                                                                                                                                                       |       | $                          | 156,486    |             | $          | 125,704 |   |
| Interest-bearing                                                                                                                                                          |       | 1,002,623                  |       | 802,899          |       |
| Total deposits                                                                                                                                                            |       | 1,159,109                  |       | 928,603          |       |
| Federal funds purchased and securities sold  under repurchase agreements                                                                                                  |       | 28,664                     |       | 47,582           |       |
| Federal Home Loan Bank advances                                                                                                                                           |       | 101,787                    |       | 80,992           |       |
| Other borrowings                                                                                                                                                          |       | 649                        |       | 934              |       |
| Other liabilities                                                                                                                                                         |       | 11,559                     |       | 11,412           |       |
| Subordinated debt                                                                                                                                                         |       | 29,898                     |       | 29,898           |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Total liabilities**                                                                                                                                                     |       | 1,331,666                  |       | 1,099,421        |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Stockholders’ Equity:**                                                                                                                                            |       |                       |       |             |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| Capital stock, no par value; 20,000,000  shares authorized, 12,732,172 and 11,772,352 shares issued and outstanding at  June 30, 2005 and December 31, 2004, respectively |       | 163,999                    |       | 139,207          |       |
| Retained earnings                                                                                                                                                         |       | 37,976                     |       | 35,550           |       |
| Accumulated other comprehensive loss                                                                                                                                      |       | (706                       | )          | (42              | )          |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Total stockholders’ equity**                                                                                                                                       |       | 201,269                    |       | 174,715          |       |
|                                                                                                                                                                      |       |                       |       |             |       |
| **Total liabilities and stockholders’ equity**                                                                                                                       |       | $                          | 1,532,935  |             | $          | 1,274,136 |   |

 

See accompanying notes to consolidated financial statements.

 

3

----

 

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

**Consolidated Statements of Income**

**(Unaudited)**

 
| ** **                                                               | ** ** | **Three months ended**                               | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------|------------|
| ** **                                                               | ** ** | **June 30,**                                         | ** ** | **June 30,**         | ** ** |
| ** **                                                               | ** ** | **2005**                                             | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                               | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| Interest income:                                                         |       |                                                 |       |                 |       |   |   |   |   |
| Loans, including fees                                                    |       | $                                                    | 20,024     |                 | $          | 11,903 |   | $ | 36,983 |   | $ | 23,548 |   |
| Taxable securities                                                       |       | 1,777                                                |       | 1,040                |       | 3,476 |   | 2,025 |   |
| Nontaxable securities                                                    |       | 165                                                  |       | 186                  |       | 330 |   | 370 |   |
| Federal funds sold                                                       |       | 57                                                   |       | 33                   |       | 103 |   | 60 |   |
| Interest-bearing deposits in banks                                       |       | 6                                                    |       | 7                    |       | 16 |   | 8 |   |
| Total interest income                                                    |       | 22,029                                               |       | 13,169               |       | 40,908 |   | 26,011 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Interest expense:                                                        |       |                                                 |       |                 |       |   |   |   |   |
| Deposits                                                                 |       | 6,268                                                |       | 3,005                |       | 10,899 |   | 5,908 |   |
| Federal funds purchased and securities sold  under repurchase agreements |       | 153                                                  |       | 45                   |       | 308 |   | 93 |   |
| Federal Home Loan Bank advances                                          |       | 991                                                  |       | 801                  |       | 1,865 |   | 1,601 |   |
| Other borrowings                                                         |       | 497                                                  |       | 208                  |       | 970 |   | 413 |   |
| Total interest expense                                                   |       | 7,909                                                |       | 4,059                |       | 14,042 |   | 8,015 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Net interest income                                                      |       | 14,120                                               |       | 9,110                |       | 26,866 |   | 17,996 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Provision for loan losses                                                |       | 3,822                                                |       | 325                  |       | 4,304 |   | 609 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Net interest income after provision for  loan losses                     |       | 10,298                                               |       | 8,785                |       | 22,562 |   | 17,387 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Other income:                                                            |       |                                                 |       |                 |       |   |   |   |   |
| Service charges on deposit accounts                                      |       | 1,652                                                |       | 1,487                |       | 3,164 |   | 2,881 |   |
| Mortgage origination fees                                                |       | 658                                                  |       | 511                  |       | 1,123 |   | 971 |   |
| Insurance commissions                                                    |       | 146                                                  |       | 157                  |       | 293 |   | 301 |   |
| Gain on sale of securities                                               |       | —                                               |       | 346                  |       | 1 |   | 609 |   |
| Other operating income                                                   |       | 450                                                  |       | 441                  |       | 1,082 |   | 1,079 |   |
| Total other income                                                       |       | 2,906                                                |       | 2,942                |       | 5,663 |   | 5,841 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Other expense:                                                           |       |                                                 |       |                 |       |   |   |   |   |
| Salaries and employee benefits                                           |       | 6,566                                                |       | 4,940                |       | 12,881 |   | 9,873 |   |
| Occupancy and equipment expenses, net                                    |       | 1,578                                                |       | 1,204                |       | 3,017 |   | 2,426 |   |
| Other operating expenses                                                 |       | 3,129                                                |       | 2,331                |       | 5,970 |   | 4,524 |   |
| Total other expense                                                      |       | 11,273                                               |       | 8,475                |       | 21,868 |   | 16,823 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Income before income taxes                                               |       | 1,931                                                |       | 3,252                |       | 6,357 |   | 6,405 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Income tax expense                                                       |       | 543                                                  |       | 1,019                |       | 1,958 |   | 1,942 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Net income                                                               |       | $                                                    | 1,388      |                 | $          | 2,233 |   | $ | 4,399 |   | $ | 4,463 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Earnings per share:                                                      |       |                                                 |       |                 |       |   |   |   |   |
| Basic                                                                    |       | $                                                    | 0.11       |                 | $          | 0.26 |   | $ | 0.36 |   | $ | 0.52 |   |
| Diluted                                                                  |       | $                                                    | 0.11       |                 | $          | 0.26 |   | $ | 0.35 |   | $ | 0.52 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Weighted average shares                                                  |       |                                                 |       |                 |       |   |   |   |   |
| Basic                                                                    |       | 12,686                                               |       | 8,556                |       | 12,380 |   | 8,533 |   |
| Diluted                                                                  |       | 13,078                                               |       | 8,700                |       | 12,756 |   | 8,667 |   |
|                                                                     |       |                                                 |       |                 |       |   |   |   |   |
| Cash dividends per common share                                          |       | $                                                    | 0.085      |                 | $          | 0.076 |   | $ | 0.161 |   | $ | 0.148 |   |

 

See accompanying notes to consolidated financial statements.

 

4

----

 

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

**Consolidated Statements ofComprehensive Income**

 
| ** **                                                                           | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                           | ** ** | **(Dollars in thousands)**       | ** ** |
| ** **                                                                           | ** ** | **(unaudited)**                  | ** ** |
|                                                                                 |       |                             |       |                           |       |   |   |   |   |
| **Net Income**                                                                       |       | $                                | 1,388      |                           | $          | 2,233 |   | $ | 4,399 |   | $ | 4,463 |   |
|                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Unrealized holding gains  (losses) arising during period,  net of tax (benefit) |       | 1,284                            |       | (1,808                         | )          | (663 | ) | (1,077 | ) |
|                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Reclassification adjustment for  gains realized in  net  income, net of taxes   |       | —                           |       | (215                           | )          | (1 | ) | (378 | ) |
|                                                                                 |       |                             |       |                           |       |   |   |   |   |
| Other comprehensive income  (loss)                                                   |       | 1,284                            |       | (2,023                         | )          | (664 | ) | (1,455 | ) |
|                                                                                 |       |                             |       |                           |       |   |   |   |   |
| **Comprehensive income**                                                             |       | $                                | 2,672      |                           | $          | 210 |   | $ | 3,735 |   | $ | 3,008 |   |

 

See accompanying notes to consolidated financial statements.

 

### **Consolidated Statementsof Stockholders’ Equity**

### **Six Months Ended June30, 2005**

 
| ** **                                                                     | ** ** | **(Dollars in thousands)****(unaudited)** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                     | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | ** **                                | ** ** | **Capital** | ** ** | **Retained** | ** ** | **Other****Comprehensive** | ** ** | **Total****Stockholders’** | ** ** |
| ** **                                                                     | ** ** | **Shares**                                | ** ** | **Stock** | ** ** | **Earnings** | ** ** | **Loss** | ** ** | **Equity** | ** ** |
| Balance, December 31, 2004                                                     |       | 11,772                                    |       | $ | 139,207 |   | $ | 35,550 |   | $ | (42 | ) | $ | 174,715 |   |
| Net income                                                                     |       | —                                    |       | — |   | 4,399 |   | — |   | 4,399 |   |
| Options exercised                                                              |       | 115                                       |       | 609 |   | — |   | — |   | 609 |   |
|                                                                           |       |                                      |       |   |   |   |   |   |   |   |   |
| Dividends declared  $0.161 per share                                           |       | —                                    |       | — |   | (1,973 | ) | — |   | (1,973 | ) |
| Purchase of FNBG Bancshares,  Inc.                                             |       | 845                                       |       | 24,216 |   | — |   | — |   | 24,216 |   |
| Payment for fractional shares  in  connection with business  combinations |       | —                                    |       | (3 | ) | — |   | — |   | (3 | ) |
| Tax benefit of nonqualified  stock  options                               |       | —                                    |       | (30 | ) | — |   | — |   | (30 | ) |
| Other comprehensive loss                                                       |       | —                                    |       | — |   | — |   | (664 | ) | (664 | ) |
|                                                                           |       |                                      |       |   |   |   |   |   |   |   |   |
| Balance, June 30, 2005                                                         |       | 12,732                                    |       | $ | 163,999 |   | $ | 37,976 |   | $ | (706 | ) | $ | 201,269 |   |

 

See accompanying notes to consolidated financial statements.

 

5

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

**Condensed Consolidated Statements of Cash Flows**

**(Unaudited)**

 
| ** **                                                                               | ** ** | **Six months ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                               | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| ** **                                                                               | ** ** | **(Dollars in thousands)**     | ** ** |
| **Operating Activities**                                                                 |       |                           |       |   |   |
| Net income                                                                               |       | $                              | 4,399      |   | $ | 4,463 |   |
| Adjustments to reconcile net income to net  cash Provided by operating activities:       |       |                           |       |   |   |
| Depreciation                                                                             |       | 1,361                          |       | 1,055 |   |
| Provision for loan losses                                                                |       | 4,304                          |       | 609 |   |
| Amortization and (accretion), net                                                        |       | 642                            |       | 612 |   |
| Gain on sale of securities                                                               |       | (1                             | )          | (609 | ) |
| Net (increase) decrease in other assets                                                  |       | (831                           | )          | 29 |   |
| Net increase (decrease) in other  liabilities                                            |       | (327                           | )          | 284 |   |
| Net cash provided by operating activities                                                |       | 9,547                          |       | 6,443 |   |
|                                                                                     |       |                           |       |   |   |
| **Investing Activities**                                                                 |       |                           |       |   |   |
| Purchases of securities available for sale                                               |       | (12,899                        | )          | (46,223 | ) |
| Proceeds from sales of securities available  for sale                                    |       | 1,106                          |       | 2,474 |   |
| Proceeds from maturities of securities available  for sale                               |       | 17,748                         |       | 28,156 |   |
| Net increase in restricted equity  securities                                            |       | (1,777                         | )          | (806 | ) |
| Net increase in interest-bearing deposits  in banks                                      |       | (5,149                         | )          | (426 | ) |
| Net increase in federal funds sold                                                       |       | (8,720                         | )          | (3,097 | ) |
| Net increase in loans                                                                    |       | (99,639                        | )          | (36,627 | ) |
| Net cash acquired in business combinations                                               |       | 11                             |       | — |   |
| Proceeds from sale of other real estate  owned                                           |       | 637                            |       | 359 |   |
| Purchase of premises and equipment                                                       |       | (3,399                         | )          | (1,696 | ) |
| Proceeds from sale of premises and  equipment                                            |       | 7                              |       | — |   |
| Net cash used in investing activities                                                    |       | (112,074                       | )          | (57,886 | ) |
|                                                                                     |       |                           |       |   |   |
| **Financing Activities**                                                                 |       |                           |       |   |   |
| Net increase in deposits                                                                 |       | 120,663                        |       | 49,735 |   |
| Net decrease in federal funds purchased and  securities sold under repurchase agreements |       | (18,918                        | )          | (55 | ) |
| Proceeds from other borrowings and Federal  Home Loan Bank advances                      |       | 20,202                         |       | 10,057 |   |
| Payments on other borrowings and Federal  Home Loan                                      |       |                           |       |   |   |
| Bank advances                                                                            |       | (6,842                         | )          | (6,368 | ) |
| Dividends paid                                                                           |       | (1,973                         | )          | (1,262 | ) |
| Payment for fractional shares                                                            |       | (3                             | )          | (14 | ) |
| Proceeds from exercise of stock options                                                  |       | 609                            |       | 856 |   |
| Net cash provided by financing activities                                                |       | 113,738                        |       | 52,949 |   |
|                                                                                     |       |                           |       |   |   |
| Net increase in cash and due from banks                                                  |       | 11,211                         |       | 1,506 |   |
|                                                                                     |       |                           |       |   |   |
| Cash and due from banks at beginning of  period                                          |       | 20,723                         |       | 17,584 |   |
|                                                                                     |       |                           |       |   |   |
| Cash and due from banks at end of period                                                 |       | $                              | 31,934     |   | $ | 19,090 |   |
|                                                                                     |       |                           |       |   |   |
| Supplemental disclosure of cash paid during  the period for:                             |       |                           |       |   |   |
| Interest                                                                                 |       | $                              | 13,147     |   | $ | 7,964 |   |
| Income taxes                                                                             |       | $                              | 2,778      |   | $ | 2,322 |   |
|                                                                                     |       |                           |       |   |   |
| Acquisition of subsidiary Capital stock  issued                                          |       | $                              | 24,216     |   | $ | — |   |
|                                                                                     |       |                           |       |   |   |   |   |
| **Assets acquired (liabilities assumed)**                                                |       |                           |       |   |   |
|                                                                                     |       |                           |       |   |   |
| Cash and due from banks, net of cash paid                                                |       | $                              | 11         |   | $ | — |   |
|                                                                                     |       |                           |       |   |   |
| 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                                                                                 |       | 19,342                         |       | — |   |
|                                                                                     |       |                           |       |   |   |
| Core deposit intangible                                                                  |       | 697                            |       | — |   |
|                                                                                     |       |                           |       |   |   |
| Other assets                                                                             |       | 1,451                          |       | — |   |
|                                                                                     |       |                           |       |   |   |
| Deposits                                                                                 |       | (109,628                       | )          | — |   |
|                                                                                     |       |                           |       |   |   |
| Other borrowings                                                                         |       | (7,150                         | )          | — |   |
|                                                                                     |       |                           |       |   |   |
| Other liabilities                                                                        |       | (508                           | )          | — |   |
|                                                                                     |       |                           |       |   |   |
|                                                                                     |       | $                              | 24,594     |   | $ | — |   |

 

See accompanying notes to consolidated financial statements.

 

6

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

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

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

 

Theunaudited consolidated financial statements include the accounts of GB&TBancshares, Inc. and its wholly-owned banking subsidiaries, Gainesville Bank& Trust, United Bank & Trust, Community Trust Bank, HomeTown Bank ofVilla Rica, First National Bank of the South and First National Bank ofGwinnett, and its consumer finance company, Community Loan Company(collectively, the “Company”). Significant intercompany transactions and balances have been eliminatedin consolidation.

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with U.S. generally accepted accounting principles for interimfinancial information and with the instructions for Form 10-Q.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal and recurringadjustments) considered necessary for a fair presentation have been included.The results of operations for the three and six-month periods ended June 30,2005 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2005.  Thesestatements should be read in conjunction with the consolidated financialstatements and related notes included in the Company’s Annual Report on Form10-K for the year ended December 31, 2004.

 

**NOTE 2.****               ****STOCK COMPENSATION PLANS**

 

TheCompany has a stock option plan for granting of options to directors, officersand employees.  The options may beexercised over a period of ten years in accordance with vesting schedulesdetermined by the Board of Directors. The Company accounts for the plan under the recognition and measurementprinciples of APB Opinion No. 25, *Accounting for**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, *Accountingfor Stock-Based Compensation*, to stock-based employee compensation.

 
| ** **                                                                                                                                    | ** ** | **Three months ended**     | ** ** | **Six months ended** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------|------------|
| ** **                                                                                                                                    | ** ** | **June 30,**               | ** ** | **June 30,**         | ** ** |
| ** **                                                                                                                                    | ** ** | **2005**                   | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                    | ** ** | **(Dollars in thousands)** | ** ** |
| Net income, as reported                                                                                                                       |       | $                          | 1,388      |                 | $          | 2,233 |   | $ | 4,399 |   | $ | 4,463 |   |
| Deduct: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |       | 95                         |       | 32                   |       | 138 |   | 61 |   |
| Pro forma net income                                                                                                                          |       | $                          | 1,293      |                 | $          | 2,201 |   | $ | 4,261 |   | $ | 4,402 |   |
| Earnings per share:                                                                                                                           |       |                       |       |                 |       |   |   |   |   |
| Basic - as reported                                                                                                                           |       | $                          | 0.11       |                 | $          | 0.26 |   | $ | 0.36 |   | $ | 0.52 |   |
| Basic - pro forma                                                                                                                             |       | $                          | 0.10       |                 | $          | 0.26 |   | $ | 0.35 |   | $ | 0.52 |   |
| Diluted - as reported                                                                                                                         |       | $                          | 0.11       |                 | $          | 0.26 |   | $ | 0.35 |   | $ | 0.52 |   |
| Diluted - pro forma                                                                                                                           |       | $                          | 0.10       |                 | $          | 0.25 |   | $ | 0.34 |   | $ | 0.51 |   |

 

7

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

 

Presentedbelow is a summary of the components used to calculate basic and dilutedearnings per share for the three and six-month periods ended June 30, 2005 and2004.

 
| ** **                                                                                                                          | ** ** | **Three months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                          | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Basic Earnings Per Share:                                                                                                           |       |                            |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,686                          |       | 8,556 |   |
|                                                                                                                                |       |                            |       |   |   |
| Net income                                                                                                                          |       | $                               | 1,388      |   | $ | 2,233 |   |
|                                                                                                                                |       |                            |       |   |   |
| Basic earnings per share                                                                                                            |       | $                               | 0.11       |   | $ | 0.26 |   |
|                                                                                                                                |       |                            |       |   |   |
| Diluted Earnings Per Share:                                                                                                         |       |                            |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,686                          |       | 8,556 |   |
| Net effect of the assumed  exercise of stock options based on the treasury stock method using average  market prices for the period |       | 392                             |       | 144 |   |
| Total weighted average common  shares and common stock equivalents outstanding                                                      |       | 13,078                          |       | 8,700 |   |
|                                                                                                                                |       |                            |       |   |   |
| Net income                                                                                                                          |       | $                               | 1,388      |   | $ | 2,233 |   |
|                                                                                                                                |       |                            |       |   |   |
| Diluted earnings per share                                                                                                          |       | $                               | 0.11       |   | $ | 0.26 |   |

 
| ** **                                                                                                                          | ** ** | **Six months ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                                          | ** ** | **2005**                      | ** ** | **2004** | ** ** |
| Basic Earnings Per Share:                                                                                                           |       |                          |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,380                        |       | 8,533 |   |
|                                                                                                                                |       |                          |       |   |   |
| Net income                                                                                                                          |       | $                             | 4,399      |   | $ | 4,463 |   |
|                                                                                                                                |       |                          |       |   |   |
| Basic earnings per share                                                                                                            |       | $                             | 0.36       |   | $ | 0.52 |   |
|                                                                                                                                |       |                          |       |   |   |
| Diluted Earnings Per Share:                                                                                                         |       |                          |       |   |   |
| Weighted average common shares  outstanding                                                                                         |       | 12,380                        |       | 8,533 |   |
| Net effect of the assumed  exercise of stock options based on the treasury stock method using average  market prices for the period |       | 376                           |       | 134 |   |
| Total weighted average common  shares and common stock equivalents outstanding                                                      |       | 12,756                        |       | 8,667 |   |
|                                                                                                                                |       |                          |       |   |   |
| Net income                                                                                                                          |       | $                             | 4,399      |   | $ | 4,463 |   |
|                                                                                                                                |       |                          |       |   |   |
| Diluted earnings per share                                                                                                          |       | $                             | 0.35       |   | $ | 0.52 |   |

 

8

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**NOTE 4.****               ****RECENT ACCOUNTING STANDARDS**

 

InDecember 2004, the Financial Accounting Standards Board (“FASB”) published FASBStatement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)” or the “Statement”).FAS 123(R) requires that the compensation cost relating to share-based paymenttransactions, including grants of employee stock options, be recognized infinancial statements. That cost will be measured based on the fair value of theequity or liability instruments issued. FAS 123(R) covers a wide range ofshare-based compensation arrangements including stock options, restricted shareplans, performance-based awards, share appreciation rights, and employee sharepurchase plans. FAS 123(R) is a replacement of FASB Statement No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related interpretiveguidance.

 

Theeffect of the Statement will be to require entities to measure the cost ofemployee services received in exchange for stock options based on thegrant-date fair value of the award, and to recognize the cost over the periodthe employee is required to provide services for the award. FAS 123(R) permitsentities to use any option-pricing model that meets the fair value objective inthe Statement.

 

TheCompany will be required to apply FAS 123(R) as of the beginning of its firstinterim period that begins after December 15, 2005, which will be the quarterending March 31, 2006.

 

FAS123(R) allows two methods for determining the effects of the transition: themodified prospective transition method and the modified retrospective method oftransition.  Under the modifiedprospective transition method, an entity would use the fair value basedaccounting method for all employee awards granted, modified, or settled afterthe effective date. As of the effective date, compensation cost related to thenonvested portion of awards outstanding as of that date would be based on thegrant-date fair value of those awards as calculated under the originalprovisions of Statement No. 123; that is, an entity would not re-measure thegrant-date fair value estimate of the unvested portion of awards granted priorto the effective date of FAS 123(R).  Anentity will have the further option to either apply the Statement to only thequarters in the period of adoption and subsequent periods, or apply theStatement to all quarters in the fiscal year of adoption. Under the modifiedretrospective method of transition, an entity would revise its previouslyissued financial statements to recognize employee compensation cost for priorperiods presented in accordance with the original provisions of Statement No.123.

 

TheCompany has not yet completed its study of the available transition methods ormade any decisions about how it will adopt FAS 123(R).   The impact of this Statement on the Companyin fiscal year 2006 and beyond will depend upon various factors, including ourfuture compensation strategy. The pro forma compensation costs presented in thetable above and in prior filings for the Company have been calculated using aBlack-Scholes option pricing model and may not be indicative of amounts whichshould be expected in future years. No decisions have been made as to whichoption-pricing model is most appropriate for the Company for future awards.

 

InDecember 2003 the American Institute of Certified Public Accountants issuedStatement of Position (“SOP”) 03-3, Accounting for Certain Loans or DebtSecurities Acquired in a Transfer.  ThisSOP addresses accounting for differences between contractual cash flows andcash flows expected to be collected from an investor’s initial investment inloans or debt securities (loans) acquired in a transfer if those differencesare attributable, at least in part, to credit quality. It includes such loansacquired in purchase business combinations. This SOP does not apply to loansoriginated by the entity. This SOP limits the yield that may be accreted(accretable yield) to the excess of the investor’s estimate of undiscountedexpected principal, interest, and other cash flows (cash flows expected atacquisition to be collected) over the investor’s initial investment in theloan. This SOP requires that the excess of contractual cash flows over cashflows expected to be collected (nonaccretable difference) not be recognized asan adjustment of yield, loss accrual, or valuation allowance. This SOPprohibits investors from displaying accretable yield and nonaccretabledifference in the balance sheet. Subsequent increases in cash flows expected tobe collected generally should be recognized prospectively through adjustment ofthe loan’s yield over its remaining life. Decreases in cash flows expected tobe collected should be recognized as impairment.

 

9

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ThisSOP prohibits “carrying over” or creation of valuation allowances in theinitial accounting of all loans acquired in a transfer that are within thescope of this SOP. The prohibition of the valuation allowance carryover appliesto the purchase of an individual loan, a pool of loans, a group of loans, andloans acquired in a purchase business combination.

 

TheCompany adopted SOP 03-3 as of January 1, 2005.

 

**NOTE 5.****               ****BUSINESS COMBINATIONS**

 

OnMarch 1, 2005, the Company completed the acquisition of FNBG Bancshares, Inc.the parent company of First National Bank of Gwinnett in Duluth, GwinnettCounty, Georgia, which resulted in First National Bank of Gwinnett becoming awholly owned subsidiary of the Company.  The Company issued 845,128 shares of its capital stock and approximately$3,830,502 in cash in exchange for all of the issued and outstanding commonshares of FNBG Bancshares, Inc.  Theacquisition was accounted for as a purchase resulting in estimated goodwill ofapproximately $19,342,000.  FirstNational Bank of Gwinnett’s results of operations from March 1, 2005 areincluded in the consolidated results of operations for the three and six monthsended June 30, 2005.  The results ofoperations for the three and six months ended June 30, 2004 do not include theresults of operations for First National Bank of Gwinnett.

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed at the date of acquisition. The Company obtained third-party valuations of the core depositintangible and fair value adjustments for loans and deposits.  In addition, the Company obtained independentappraisals of acquired premises.

 
| ** **                                | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-----------|------------|
| Cash and due from banks, net of cash paid |       | $         | 11         |   |
| Interest-bearing deposits in banks        |       | —    |       |
| 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                                  |       | 19,342    |       |
| Core deposit intangible                   |       | 697       |       |
| Other assets                              |       | 1,451     |       |
| Total assets acquired                     |       | $         | 141,880    |   |
|                                      |       |      |       |
| Deposits                                  |       | $         | 109,628    |   |
| Other borrowings                          |       | 7,150     |       |
| Other liabilities                         |       | 508       |       |
| Total liabilities assumed                 |       | $         | 117,286    |   |
|                                      |       |      |       |
| Net assets acquired                       |       | $         | 24,594     |   |

 

10

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Unauditedpro forma consolidated results of operations for the three and six months endedJune 30, 2005 and 2004 as though the companies had combined as of January 1,2005 and 2004 are as follows:

 
| ** **                 | ** ** | **Six months ended**       | ** ** |
|----------------------------|------------|----------------------------|------------|
| ** **                 | ** ** | **June 30,**               | ** ** |
| ** **                 | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| ** **                 | ** ** | **(Dollars in thousands)** | ** ** |
| ** **                 | ** ** | ** **                 | ** ** | ** ** | ** ** |
| Net interest income        |       | $                          | 27,727     |   | $ | 19,834 |   |
| Net income                 |       | 4,508                      |       | 4,690 |   |
| Basic earnings per share   |       | 0.36                       |       | 0.50 |   |
| Diluted earnings per share |       | 0.35                       |       | 0.49 |   |
|                            |            |                            |            |  |  |  |  |

 

**NOTE 6.****               ****RECLASSIFICATIONS**

 

Certainbalance sheet items as of June 30, 2005 have been reclassified with no effecton total assets to be consistent with classifications adopted for the periodended June 30, 2005.

 

**Item2.****          ****MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL****CONDITION AND RESULTS OF OPERATIONS**

 

Thefollowing is management’s discussion and analysis of certain significantfactors which have affected our financial position and operating resultsincluding our wholly-owned subsidiaries, Gainesville Bank & Trust (“GBT”),United Bank & Trust (“UBT”), Community Trust Bank (“CTB”), HomeTown Bank ofVilla Rica (“HTB”), First National Bank of the South (“FNBS”), First NationalBank of Gwinnett (“FNBG”) and Community Loan Company (“CLC”) during the periodsincluded in the accompanying consolidated financial statements.  This discussion should be read in conjunctionwith the accompanying consolidated financial statements and the notes theretoand the consolidated financial statements, related notes, and management’sdiscussion and analysis of financial condition and results of operations forthe year ended December 31, 2004 included in the Company’s 2004 Annual Reporton Form 10-K.

 

**Cautionary Notice Regarding Forward-LookingStatements**

 

Someof the statements of GB&T Bancshares, Inc. (the “Company”) contained orincorporated by reference in this Report, including, without limitation,matters discussed under the caption “Management’s Discussion and Analysis ofFinancial Condition and Results of Operation,” are “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995.Forward-looking statements include statements about the competitiveness of thebanking industry, potential regulatory obligations, our entrance and expansioninto other markets, our other business strategies and other statements that arenot historical facts. Forward-looking statements are not guarantees ofperformance or results. When we use words like “may,” “plan,” “contemplate,” “anticipate,”“believe,” “intend,” “continue,” “expect,” “project,” “predict,” “estimate,” “could,”“should,” “would,” “will,” and similar expressions, you should consider them asidentifying forward-looking statements, although we may use other phrasing.These forward-looking statements involve risks and uncertainties and are basedon our beliefs and assumptions, and on the information available to us at thetime that these disclosures were prepared. Factors that may cause actualresults to differ materially from those expressed or implied by suchforward-looking statements include, among others, the following possibilities:(1) competitive pressures among depository and other financial institutions mayincrease significantly; (2)

 

11

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changesin the interest rate environment may reduce margins; (3) general economicconditions may be less favorable than expected, resulting in, among otherthings, a deterioration in credit quality and/or a reduction in demand forcredit; (4) economic, governmental or other factors may prevent the projectedpopulation and commercial growth in the counties in which we operate;  (5) legislative or regulatory changes,including changes in accounting standards, may adversely affect the businessesin which we are engaged;  (6) costs ordifficulties related to the integration of our businesses may be greater thanexpected; (7) deposit attrition, customer loss or revenue loss followingacquisitions may be greater than expected; (8) competitors may have greaterfinancial resources and develop products that enable such competitors tocompete more successfully than we can; and (9) adverse changes may occur in theequity markets.  Many of these factorsare beyond our ability to control or predict, and readers are cautioned not toput undue reliance on such forward-looking statements. We do not intend to, andassume no responsibility to update or revise any forward-looking statementscontained in this Report, whether as a result of new information, future eventsor otherwise.

 

**Critical Accounting Policies**

 

We have adopted various accountingpolicies that govern the application of accounting principles generallyaccepted in the United States and general practices within the banking industryin the preparation of our financial statements. Our significant accountingpolicies are described in the notes to our audited financial statements as ofDecember 31, 2004. Certain accounting policies require management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reported period. Actual results could differ from those estimates.Estimates and assumptions are reviewed periodically and the effects ofrevisions are reflected in the consolidated financial statements in the periodthey are determined to be necessary.

 

*Allowance for Loan Losses*.    We believe that our determination of theallowance for loan losses is our most significant judgment and estimate used inthe preparation of our consolidated financial statements. The allowance forloan losses is an amount that management believes will be adequate to absorbestimated losses in the loan portfolio. The calculation is an estimate of theamount of loss in the loan portfolios of our subsidiary banks and financecompany. The allowance for loan losses is evaluated on a regular basis bymanagement and is based upon management’s periodic review of the collectibilityof the loans in light of historical experience, the nature and volume of theloan portfolio, adverse situations that may affect the borrower’s ability torepay, estimated value of any underlying collateral and prevailing economicconditions. This evaluation is inherently subjective as it requires estimatesthat are susceptible to significant revision as more information becomesavailable. In addition, regulatory agencies, as an integral part of theirexamination process, periodically review our allowance for loan losses, and mayrequire us to make additions to the allowance based on their judgment aboutinformation available to them at the time of their examinations.

 

We use an 8 point rating system for ourloans. Ratings of 1 to 4 are considered pass ratings, 5 is special mention, 6is substandard, 7 is doubtful, and 8 is loss. The originating officer rates allloans on this system. This rating is adjusted from time to time by the officerto accurately reflect the loan’s current status. These ratings are reviewed foraccuracy regularly by the loan committee of the respective bank subsidiary, anoutside independent loan review firm and by the applicable regulator.

 

“Pass” loans are separated intohomogeneous pools. Currently, these pools consist of real estate, commercial,consumer and credit card loans. Management assigns loss percentages to thesecategories of homogeneous pools of loans based on the greater of historic lossdata in each category or the minimum risk percentage for this category.Management tracks the last eight quarters moving average net losses for thehistoric loss percentage in each category. This historic loss percentage 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 the homogeneous pools,management has specified certain industry risks and applied loss percentages tothe specified industry risk categories. Recently, because of low losses in mostcategories, management has assigned minimum percentages to each category.

 

12

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For loans rated 4 (“pass/watch”), a losspercentage of 1% is used. For loans rated 5, a loss percentage of 5% is used.All significant loans rated 6 and 7 are individually analyzed and a specificreserve is assigned based on exposure or industry standards, whichever isgreater. These loans, their reserves, and action plans to resolve theircriticisms are reviewed monthly by the loan committee of each subsidiary bank.All other loans rated 6 and 7 are assigned loss percentages of 15% and 50%respectively. All loans rated 8 are assigned a specific reserve of 100%.

 

The remainder of the balance in thereserve for loan losses is unallocated. Management believes that the unallocated allowance is adequate toprovide for probable losses that are inherent in the loan portfolio and thathave not been fully provided for through the allocated allowance.  Factors considered in determining theadequacy of the unallocated allowance include the economic environment,experience level of lenders, concentration in commercial and consumer realestate loans, size of individual loans and the continued strong loan growth inour markets.  These factors are temperedby lending practices related to the real estate portfolio, the continuingpositive performance within this segment of our loan portfolio, the knowledgeand experience of our commercial lending staff, and the relationship bankingphilosophy maintained in our community banks.

 

*Goodwill*.    Our growth over the past several years hasbeen 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, we adoptedSFAS No. 141, “Business Combinations,” which allows only the use of thepurchase method of accounting. For purchase acquisitions, we are required torecord the assets acquired, including identified intangible assets, andliabilities assumed at their fair value, which in many instances involvesestimates based on third party valuations, such as appraisals, or internalvaluations 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, the required impairment testing of goodwill was performed and noimpairment 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**

 

Netincome for the three months ended June 30, 2005 was $1.4 million, down 37.84%from the same period a year ago.  Thisdecrease reflects an additional $2.9 million provision for loan loss taken inthe second quarter of 2005 due to the further impairment of an inherited singleloan relationship originated at HTB prior to the Company’s acquisition ofHTB.  Diluted earnings per share was$0.11 for the three months ended June 30, 2005, compared to $0.26 for the sameperiod a year ago.  The return on averageassets was 0.37% and the return on average equity was 2.76% for the three monthsended June 30, 2005.  This compares to areturn on average assets of 0.91% and a return on average equity of 9.05% forthe same period a year ago.

 

Netincome for the six months ended June 30, 2005 was $4.4 million, down 1.43% fromthe same period a year ago.  Thisdecrease reflects an additional $2.9 million provision for loan loss taken inthe second quarter of 2005 as discussed above. Diluted earnings per share was $0.35 for the six months ended June 30,2005, compared to $0.52 for the same period a year ago.  The return on average assets was 0.62% andthe return on average equity was 4.61% for the six months ended June 30,2005.  This compares to a return onaverage assets of 0.92% and a return on average equity of 9.09% for the sameperiod a year ago.

 

FNBGbecame part of the Company effective March 1, 2005.  The merger was accounted for as a purchasetransaction; therefore, results of operations for FNBG since March 1, 2005 havebeen included in the Company’s results of operations for the three and six-monthperiods ended June 30, 2005, but are not included in the results of operationsfor the three and six-month periods ended June 30, 2004.  Also included in the results of operationsfor the three and six-months ended June 30, 2005, are

 

13

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theresults of operations related to the acquisitions of Southern Heritage Bank (“SHB”)and Lumpkin County Bank (“LCB”) both of which were completed in August 2004 andbecame divisions of GBT, which are not included in the results of operationsfor the periods ended June 30, 2004.

 

**Balance Sheets**

 

Ourtotal assets increased $258.8 million to $1.5 billion at June 30, 2005, or20.31% compared to December 31, 2004. The increase consists primarily of an increase in total loans of $196.9million, or 20.59%, an increase in securities of $5.7 million, an increase infederal funds sold of $13.6 million and an increase in goodwill and intangibleassets of $19.6 million. Excluding the acquisition of FNBG, total assets increased$117.0 million or 9.18% during this same period.  Also excluding the acquisition, total loansincreased $96.7 million, securities decreased $5.9 million and federal fundssold increased $8.7 million.

 

Totaldeposits increased $230.5 million to $1.2 billion at June 30, 2005, or 24.82%compared to December 31, 2004. Noninterest-bearing deposits increased $30.8 million to $156.5 millionand interest-bearing deposits increased $199.7 million to $1.0 billion duringthe same period.   Deposit growthoutpaced loan growth resulting in a loan to deposit ratio of 99.45% at June 30,2005 compared to 102.94% at December 31, 2004.  Excluding the acquisition of FNBG discussed above, total depositsincreased $120.9 million, or 13.02%.

 

Totalstockholders’ equity increased $26.6 million to $201.3 million at June 30,2005, or 15.20% compared to December 31, 2004. This increase consisted primarily of net income of $4.4 million, theacquisition of FNBG of $24.2 million partially offset by the payment ofdividends of $2.0 million.

 

**Asset Quality**

 

Theallowance for loan losses at June 30, 2005 was $14.6 million or 1.26% of totalloans compared to 1.16% at December 31, 2004. The increase in the allowance relates to the additional provision forloan loss of $2.9 million taken in the second quarter of 2005 at HTB asdiscussed above.  Management previouslyidentified this impaired loan relationship and views this impairment andadditional charge as an isolated event at HTB and it is not representative ofHTB’s loan portfolio or our Company’s loan portfolio as a whole.  Management believes that the Company’sbusiness fundamentals remain strong and that the allowance is adequate toabsorb any potential loan losses at June 30, 2005.  The allowance for loan losses acquired inprior periods related to acquisitions has been sufficient to absorb estimateduncollectible nonperforming loans acquired in addition to any net write-offsrelated to nonperforming loans acquired. The allowance for loan losses is evaluated monthly and adjusted to reflectthe risk in the portfolio.

 

Theanalysis below indicates an increase of $1.7 million in net charge-offs for thesix months ended June 30, 2005 as compared to the same period in 2004.  The increase in net charge-offs is primarilyattributable to loans partially charged off at HTB totaling $1.1 millionassociated with the deteriorating loan relationship discussed above.  Also, CLC’s net charge-offs increased by$326,000 for the six months ended June 30, 2005 as compared to the same periodin 2004.

 

14

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Thefollowing table summarizes the allowance for loan losses for the six-monthperiods ended June 30, 2005 and 2004.

 
| ** **                                                            | ** ** | **Six months ended****June 30,** | ** **    |
|-----------------------------------------------------------------------|------------|----------------------------------|---------------|
| ** **                                                            | ** ** | **2005**                         | ** **    | **2004** | ** ** |
| ** **                                                            | ** ** | **(Dollars in thousands)**       | ** **    |
| **Average amount of loans  outstanding**                              | ** ** | **$**                            | **1,066,041** | ** ** | $ | 729,077 |   |
|                                                                  |       |                             | ** **    |   |   |
| **Allowance for loan losses  balance, beginning of period**           | ** ** | **$**                            | **11,061**    | ** ** | $ | 8,726 |   |
|                                                                  |       |                             | ** **    |   |   |
| **Less charge-offs**                                                  |       |                             | ** **    |   |   |
| Commercial loans                                                      | ** ** | **(527**                         | **)**         | (112 | ) |
| Real estate loans                                                     | ** ** | **(1,098**                       | **)**         | (118 | ) |
| Consumer loans                                                        | ** ** | **(721**                         | **)**         | (324 | ) |
| Total charge-offs                                                     | ** ** | **(2,346**                       | **)**         | (554 | ) |
|                                                                  |       |                             | ** **    |   |   |
| **Plus recoveries**                                                   |       |                             | ** **    |   |   |
| Commercial loans                                                      | ** ** | **87**                           | ** **    | 4 |   |
| Real estate loans                                                     | ** ** | **45**                           | ** **    | 10 |   |
| Consumer loans                                                        | ** ** | **161**                          | ** **    | 192 |   |
| Total recoveries                                                      | ** ** | **293**                          | ** **    | 206 |   |
| **Net charge-offs**                                                   | ** ** | **(2,053**                       | **)**         | (348 | ) |
|                                                                  |       |                             | ** **    |   |   |
| **Plus provision for loan  losses**                                   | ** ** | **4,304**                        | ** **    | 609 |   |
| **Plus allowance for loan  losses acquired in business combinations** | ** ** | **1,269**                        | ** **    | — |   |
|                                                                  |       |                             | ** **    |   |   |
| **Allowance for loan losses  balance, end of period**                 | ** ** | **$**                            | **14,581**    | ** ** | $ | 8,987 |   |
|                                                                  |       |                             | ** **    |   |   |
| **Net charge-offs to average  loans (annualized)**                    | ** ** | **0.388**                        | **%**         | 0.096 | % |

 

15

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Theprovision for loan losses increased $3,695,000 or 606.73% for the six monthsended June 30, 2005 compared to the same period in 2004.  The primary increase was at HTB where theadditional $2.9 million provision for loan loss was recorded in the secondquarter of 2005 as previously discussed. The remainder of the increase includes provision expense taken in 2005for SHB and LCB (divisions of GBT), and FNBG which were not part of the Companyin 2004 as well as an increased provision at CTB in 2005 as compared to 2004related to loan growth.

 

Thefollowing table is a summary of nonaccrual, past due loans and restructuredloans. The numbers indicate an increase of approximately $4.3 million in nonaccrualloans as of June 30, 2005 as compared to June 30, 2004.  This increase is the result of a combinationof an increase at GBT in nonaccrual loans of approximately $1.3 milliondirectly related to the acquisition of LCB; an increase at CTB of $237,000; andan increase at HTB of approximately $3.1 million, of which $2.9 million isrelated to the aforementioned deteriorating loan relationship.  Management believes the specific reserveagainst this loan relationship is adequate and anticipates no additionalprovision will be taken.  A significantportion of the consumer nonaccrual loan balance is related to Community LoanCompany which represents approximately 47.28%, or $174,000 of the consumerbalance.  In addition to nonaccrualloans, the Company also has other real estate. At June 30, 2005, the balance in other real estate was $3.0 millioncompared to $620,000 at December 31, 2004. This increase consists of approximately $1.0 million related to the loanrelationship at HTB discussed above, approximately $500,000 at CTB andapproximately $800,000 at FNBG.  Thetable presents a decrease of $970,000 in past due loans over 90 days.  The majority of the decrease consists of twoloans to the same customer totaling $552,000 located at CTB, which were classifiedas past due at June 30, 2004, and then subsequently moved to nonaccrualstatus.  CLC also reported a decrease inpast dues of approximately $406,000. Community Loan Company accounts for approximately 98.41%, or $124,000 ofthe consumer past due loan balance at June 30, 2005.  Due to the nature of the consumer financebusiness, we believe that the level of nonaccrual and past due loans over 90days for Community Loan Company is normal and will consistently remain higherthan those seen in our banking subsidiaries. Community Loan Company’s reserve for loan loss is also higher to coverthese higher levels of nonaccrual and past due loans.  The allowance for loan losses to total loansfor Community Loan Company was 5.65% for the period ended June 30, 2005 and9.37% for the period ended June 30, 2004. Management believes that all significant losses related to nonaccrualloans and other real estate have been identified.

 
| ** **        | ** ** | **June 30, 2005**          | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | ** **                 | ** ** | **Past Due** | ** ** | ** ** | ** ** |
| ** **        | ** ** | **Nonaccrual**             | ** ** | **90 Days** | ** ** | **Restructured** | ** ** |
| ** **        | ** ** | **Loans**                  | ** ** | **Still Accruing** | ** ** | **Debt** | ** ** |
| ** **        | ** ** | **(Dollars in thousands)** | ** ** |
|              |       |                       |       |   |   |   |   |
| Real estate loans |       | $                          | 5,960      |   | $ | — |   | $ | 29 |   |
| Commercial loans  |       | 483                        |       | — |   | — |   |
| Consumer loans    |       | 368                        |       | 126 |   | 8 |   |
| Total             |       | $                          | 6,811      |   | $ | 126 |   | $ | 37 |   |

 
| ** **        | ** ** | **June 30, 2004**          | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | ** **                 | ** ** | **Past Due** | ** ** | ** ** | ** ** |
| ** **        | ** ** | **Nonaccrual**             | ** ** | **90 Days** | ** ** | **Restructured** | ** ** |
| ** **        | ** ** | **Loans**                  | ** ** | **Still Accruing** | ** ** | **Debt** | ** ** |
| ** **        | ** ** | **(Dollars in thousands)** | ** ** |
|              |       |                       |       |   |   |   |   |
| Real estate loans |       | $                          | 1,845      |   | $ | 552 |   | $ | — |   |
| Commercial loans  |       | 186                        |       | — |   | — |   |
| Consumer loans    |       | 480                        |       | 544 |   | — |   |
| Total             |       | $                          | 2,511      |   | $ | 1,096 |   | $ | — |   |

 

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Ourbanking subsidiaries’ policy is to discontinue the accrual of interest incomewhen, in the opinion of management, collection of such interest becomesdoubtful.  This status is determinedwhen: (1) there is a significant deterioration in the financial condition ofthe borrower and full repayment of principal and interest is not expected; and(2) the principal or interest is more than 90 days past due, unless the loan isboth well-secured and in the process of collection.  Community Loan Company accrues interest untilmanagement determines that full repayment of principal and interest is notprobable, which in many cases exceeds 90 days past due.  Accrual of interest on such loans is resumedwhen, in management’s judgment, the collection of interest and principalbecomes probable.

 

Loansclassified for regulatory purposes as loss, doubtful, substandard, or specialmention that have not been included in the table above do not represent orresult from trends or uncertainties which management reasonably expects willmaterially impact future operating results, liquidity or capitalresources.  These classified loans do notrepresent material credits about which management is aware of any informationwhich causes management to have serious doubts as to the ability of suchborrowers to comply with their loan repayment terms, except as noted above.

 

**Liquidity and Capital Resources**

 

Liquiditymanagement involves the matching of the cash flow requirements of customers whomay be either depositors desiring to withdraw funds or borrowers needingassurance that sufficient funds will be available to meet their credit needsand our ability to meet those needs.  Weseek to meet liquidity requirements primarily through management of short-terminvestments, monthly amortizing loans, maturing single payment loans, andmaturities and prepayments of securities. Also, we maintain relationships with correspondent banks which couldprovide funds on short notice.

 

Ourliquidity and capital resources are monitored on a periodic basis bymanagement, and state and federal regulatory authorities.  Our liquidity ratio was 14.92% at June 30,2005, slightly below our policy minimum ratio of 15%.  Liquidity is measured by the ratio of netcash, Federal funds sold and securities to net deposits and short-termliabilities. In the event our subsidiary banks need to generate additionalliquidity, funding plans would be implemented as outlined in the liquiditypolicy of the subsidiary banks. Our subsidiary banks have lines of creditavailable to meet any unforeseen liquidity needs.  Also, our subsidiary banks have relationshipswith the Federal Home Loan Bank of Atlanta, which provides funding for loangrowth on an as needed basis.  Managementreviews liquidity on a periodic basis to monitor and adjust liquidity asnecessary.  Management has the ability toadjust liquidity by selling securities available for sale, sellingparticipations in loans we generate and accessing available funds throughvarious borrowing arrangements.  At June30, 2005, we had available borrowing capacity totaling approximately $196.3million through various borrowing arrangements and available lines ofcredit.  We believe our short-terminvestments and available borrowing arrangements are adequate to cover anyreasonably anticipated immediate need for funds.

 

17

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Asof June 30, 2005, our subsidiary banks were considered to be well-capitalizedas defined in the Federal Deposit Insurance Corporation Improvement Act andbased on regulatory minimum capital requirements.  The Company and the subsidiary banks’ capitalratios are presented in the following table.

 
| ** **                               | ** ** | ** **  | ** ** | **FOR CAPITAL** | ** ** | **TO BE**       | ** ** |
|------------------------------------------|------------|-------------|------------|-----------------|------------|-----------------|------------|
| ** **                               | ** ** | **CAPITAL** | ** ** | **ADEQUACY**    | ** ** | **WELL**        | ** ** |
| ** **                               | ** ** | **RATIOS**  | ** ** | **PURPOSES**    | ** ** | **CAPITALIZED** | ** ** |
|                                     |       |        |       |            |       |            |       |
| As of June 30, 2005                      |       |        |       |            |       |            |       |
| Total Capital to Risk Weighted  Assets:  |       |        |       |            |       |            |       |
| Consolidated                             |       | 14.39       | %          | 8.00            | %          | N\A             |       |
| Gainesville Bank & Trust             |       | 10.92       | %          | 8.00            | %          | 10.00           | %          |
| United Bank & Trust                  |       | 13.51       | %          | 8.00            | %          | 10.00           | %          |
| Community Trust Bank                     |       | 10.53       | %          | 8.00            | %          | 10.00           | %          |
| HomeTown Bank of Villa Rica              |       | 10.02       | %          | 8.00            | %          | 10.00           | %          |
| First National Bank of the  South        |       | 10.66       | %          | 8.00            | %          | 10.00           | %          |
| First National Bank of Gwinnett          |       | 11.21       | %          | 8.00            | %          | 10.00           | %          |
| Tier I Capital to Risk Weighted  Assets: |       |        |       |            |       |            |       |
| Consolidated                             |       | 13.17       | %          | 4.00            | %          | N\A             |       |
| Gainesville Bank & Trust             |       | 9.83        | %          | 4.00            | %          | 6.00            | %          |
| United Bank & Trust                  |       | 12.34       | %          | 4.00            | %          | 6.00            | %          |
| Community Trust Bank                     |       | 9.61        | %          | 4.00            | %          | 6.00            | %          |
| HomeTown Bank of Villa Rica              |       | 8.76        | %          | 4.00            | %          | 6.00            | %          |
| First National Bank of the  South        |       | 9.73        | %          | 4.00            | %          | 6.00            | %          |
| First National Bank of Gwinnett          |       | 10.09       | %          | 4.00            | %          | 6.00            | %          |
| Tier I Capital to Average  Assets:       |       |        |       |            |       |            |       |
| Consolidated                             |       | 11.06       | %          | 4.00            | %          | N\A             |       |
| Gainesville Bank & Trust             |       | 8.07        | %          | 4.00            | %          | 5.00            | %          |
| United Bank & Trust                  |       | 8.60        | %          | 4.00            | %          | 5.00            | %          |
| Community Trust Bank                     |       | 8.29        | %          | 4.00            | %          | 5.00            | %          |
| HomeTown Bank of Villa Rica              |       | 7.55        | %          | 4.00            | %          | 5.00            | %          |
| First National Bank of the  South        |       | 8.42        | %          | 4.00            | %          | 5.00            | %          |
| First National Bank of Gwinnett          |       | 9.20        | %          | 4.00            | %          | 5.00            | %          |

 

InJanuary 2005, the Company completed the construction of an operations centerfor the Company’s operations and data processing departments.  The cost of the building, includingfurniture, fixtures and equipment was approximately $2.7 million.

 

Alsoin January 2005, the Company began a major renovation project at the lead bank,GBT.  The estimated cost of this projectis $1.1 million and is expected to be completed in the third quarter of 2005.

 

Oursubsidiary banks are subject to certain restrictions on the amount of dividendsthat may be declared without prior regulatory approval.  At June 30, 2005, approximately $4.2 millionof retained earnings at our subsidiary banks were available for dividenddeclaration without regulatory approval.

 

**Net Interest Income and Earning Assets**

 

Ourprofitability is determined by our ability to effectively manage interestincome and expense, to minimize loan and security losses, to generatenoninterest income, and to control operating expenses.  Because interest rates are determined bymarket forces and economic conditions beyond our control, our ability to generatenet interest income depends upon our ability to obtain an adequate net interestspread between the rate paid on interest-bearing liabilities and the rateearned on interest-earning assets.  Thenet interest margin was 4.26% for the six months ended June 30, 2005, comparedto 4.10% for the same period in 2004, an increase of 16 basis points.  This increase resulted from a 57 basis pointincrease in the yield on earning assets partially offset by a 47 basis pointincrease in the effective cost of funds. The increased yield on earning assets was primarily

 

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dueto increased volumes and yields on loans and the increased effective cost offunds was due to higher average rates paid on time deposits and otherborrowings.  The Company continues toexperience growth in loans and deposits while maintaining its competitivepricing.

 

Netinterest income increased $5.0 million or 54.99% for the three months endedJune 30, 2005 compared to the same period in 2004.  The net increase consists of an increase ininterest income of $8.9 million, or 67.28%, less an increase in interestexpense of $3.9 million, or 94.85%, for the three-month period.  Net interest income increased $8.9 million or49.29% for the six months ended June 30, 2005 compared to the same period in2004.  The net increase consists of anincrease in interest income of $14.9 million, or 57.27%, less an increase ininterest expense of $6.0 million, or 75.20%, for the six-month period.  These increases reflect the continuedincrease in interest-earning assets during the first half of 2005 compared tothe first half of 2004.  The change innet interest income resulted from increases in net volume and an increase in interestrates.  These variances include theimpact of the acquisition of FNBG in March 2005 as well as the acquisitions ofSHB and LCB in August 2004.

 

**Other Income**

 

Otherincome for the three months ended June 30, 2005, decreased by $36,000 or 1.22%compared to the same period in 2004. Service charges increased by $165,000 and mortgage origination feesincreased by $147,000, which were offset by a decrease in gain on sale ofsecurities of $346,000 for the three-month period.  Other income for the six months ended June30, 2005, decreased by $178,000 or 3.05% compared to the same period in2004.  Service charges increased by$283,000 and mortgage origination fees increased by $152,000, which were offsetby a decrease in gain on sale of securities of $608,000 for the six-monthperiod, which represented a sale of restricted equity securities during theperiod ended June 30, 2004.

 

**Other Expense**

 

Otherexpenses increased by approximately $2.8 million or 33.01% for the three monthsended June 30, 2005 compared to the same period in 2004.  The increase is due primarily to an increasein salaries and employee benefits expense of $1,626,000.  Net occupancy and equipment expensesincreased $374,000.  Included in theincrease in other operating expenses for the three month period were increasesin ATM and data processing expenses of $178,000, supplies, postage andtelephone of $106,000, loan acquisition costs of $67,000, legal and collectionexpense of $54,000 and marketing and public relations of $55,000.  Other expenses increased by approximately$5.0 million or 29.99% for the six months ended June 30, 2005 compared to thesame period in 2004.  The increase isprimarily due to an increase in salaries and employee benefits expense of $3.0million.  Net occupancy and equipmentexpenses increased $591,000.  Included inthe increase in other operating expenses for the six month period ended June30, 2005 were increases in ATM and data processing expenses of $282,000,supplies, postage and telephone of $184,000, loan acquisition costs of $93,000,legal and collection expense of $141,000 and marketing and public relations of$99,000.  The increases in all of theabove categories can be partially attributed to the inclusion in 2005 of FNBG,SHB and LCB for three and six-month periods and the addition of 63 employees,related to these acquisitions.

 

**Income Tax Expense**

 

Incometax expense decreased by $476,000 for the three-month period ended June 30,2005, compared to the same period in 2004 primarily due to the additional loanloss provision recorded in the second quarter of 2005. Income tax expenseincreased by $16,000 for the six month period ended June 30, 2005 compared tothe same period in 2004.  The effectivetax rate for the six-month period ended June 30, 2005 was 30.80%, compared to30.32% for the same period in 2004.

 

**Net Income**

 

Netincome decreased by $845,000 or 37.84% for the three months ended June 30,2005, compared to the same period in 2004. Net income decreased by $64,000 or 1.43% for the six months ended June30, 2005 compared to the same period in

 

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2004.  These decreases are directly related to theincrease in the provision for loan loss recorded in the second quarter of 2005,which is partially offset by increases in net interest income as discussedabove.

 

Weare not aware of any other known trends, events or uncertainties, other thanthe effect of events as described above, that will have or that are reasonablylikely to have a material effect on its liquidity, capital resources oroperations.  We are not aware of anycurrent recommendations by the regulatory authorities, which, if they wereimplemented, would have such an effect, except as noted above.

 

**Off Balance Sheet Arrangements**

 

Ourfinancial statements do not reflect various commitments and contingentliabilities that arise in the normal course of business.  These off-balance sheet financial instrumentsinclude commitments to extend credit, standby letters of credit and credit cardcommitments.  Such financial instrumentsare included in the financial statements when funds are distributed or theinstruments become payable.  Our exposureto credit loss in the event of nonperformance by the other party to thefinancial instrument for commitments to extend credit, standby letters ofcredit and credit card commitments is represented by the contractual amount ofthose instruments.  We use the samecredit policies in making commitments as we do for on-balance sheetinstruments.  Although these amounts donot necessarily represent future cash requirements, a summary of ourcommitments as of June 30, 2005 and December 31, 2004 are as follows:

 
| ** **                          | ** ** | **June 30, 2005**          | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                          | ** ** | **(Dollars in thousands)** | ** ** |
|                                |       |                       |       |                  |       |
| Commitments to extend credit        |       | $                          | 242,330    |                  | $          | 192,294 |   |
| Financial standby letters of credit |       | 9,233                      |       | 7,354                 |       |
| Other standby letters of credit     |       | 1,446                      |       | 1,357                 |       |
| Credit card commitments             |       | 5,616                      |       | 5,235                 |       |
| Total                               |       | $                          | 258,625    |                  | $          | 206,240 |   |

 

 

**Item3.****   ****QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Our asset/liability mix is monitored on aregular basis and a report evaluating the interest rate sensitive assets andinterest rate sensitive liabilities is prepared and presented to the InvestmentCommittee of the holding company’s board of directors on a quarterly basis. Theobjective of this policy is to monitor interest rate sensitive assets andliabilities so as to minimize the impact of substantial movements in interestrates on earnings. An asset or liability is considered to be interest ratesensitive if it will reprice or mature within the time period analyzed, usuallyone year or less. The interest rate sensitivity gap is the difference betweenthe interest-earning assets and interest-bearing liabilities scheduled tomature or reprice within such time period. A gap is considered positive whenthe amount of interest rate sensitive assets exceeds the amount of interestrate sensitive liabilities. A gap is considered negative when the amount ofinterest rate sensitive liabilities exceeds the interest rate sensitive assets.During a period of rising interest rates, a negative gap would tend toadversely affect net interest income, while a positive gap would tend to resultin an increase in net interest income. Conversely, during a period of fallinginterest rates, a negative gap would tend to result in an increase in netinterest income, while a positive gap would tend to adversely affect netinterest income. If our assets and liabilities were equally flexible and movedconcurrently, the impact of any increase or decrease in interest rates on netinterest income would be minimal.

 

A simple interest rate “gap” analysis byitself may not be an accurate indicator of how net interest income will beaffected by changes in interest rates. Accordingly, we also evaluate how therepayment of particular assets and liabilities is impacted by

 

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changes in interest rates. Incomeassociated with interest-earning assets and costs associated withinterest-bearing liabilities may not be affected uniformly by changes ininterest rates. In addition, the magnitude and duration of changes in interestrates may have a significant impact on net interest income. For example,although certain assets and liabilities may have similar maturities or periodsof repricing, they may react in different degrees to changes in market interestrates. Interest rates on certain types of assets and liabilities fluctuate inadvance of changes in general market rates, while interest rates on other typesmay lag behind changes in general market rates. In addition, certain assets,such as adjustable rate mortgage loans, have features (generally referred to as“interest rate caps and floors”) which limit the amount of changes in interestrates. Prepayment and early withdrawal levels also could deviate significantlyfrom those assumed in calculating the interest rate gap. The ability of manyborrowers to service their debts also may decrease during periods of risinginterest rates.

 

Changes in interest rates also affect ourliquidity position. We currently price deposits in response to market rates andit is management’s intention to continue this policy. If deposits are notpriced in response to market rates, a loss of deposits could occur which wouldnegatively affect our liquidity position.

 

Management believes that gap analysis isa useful tool for measuring interest rate risk only when used in conjunctionwith its simulation model.  As of June30, 2005, the Company maintained an asset sensitive interest rate risk positionbased on its simulation model results. This positioning would be expected to result in an increase in netinterest income in a rising rate environment and a decrease in net interestincome in a declining rate environment. This is generally due to a greater proportion of interest earning assetsrepricing on a variable rate basis as compared to variable rate fundingsources. This asset sensitivity is indicated by selected results of netinterest income simulations.  The actualrealized change in net interest income would depend on several factors.  These factors include, but are not limitedto, actual realized growth in asset and liability volumes, as well as the mixexperienced over these time horizons. Market conditions and their resulting impact on loan, deposit, and fundingpricing would also be a primary determinant in the realized level of netinterest income.  The table below showsthe impact on net interest margins over a twelve-month period when subjected toan immediate 100 basis point increase and decrease in rate.

 

**Twelve-MonthNet Interest Income Sensitivity**

 

| **Change in Short-Term Interest  Rates (in basis points)** | ** ** | **Estimated Change in Net  Interest Income** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------------|------------|
|                                                       |       |                                         |       |
| +100                                                       |       | 7.27                                         | %          |
| Flat                                                       |       | —                                       |       |
| -100                                                       |       | 11.42                                        | %          |

 

 Weactively manage the mix of asset and liability maturities to control theeffects of changes in the general level of interest rates on net interestincome. Except for its effect on the general level of interest rates, inflationdoes not have a material impact on us due to the rate variability andshort-term maturities of our earning assets.

 

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**Item4.****   ****CONTROLS AND PROCEDURES**

 

**Disclosure Controls andProcedures**

 

As of the end of the period covered bythis report, 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**

 

As of the date of filing of this Form10-Q, the Company is not aware of any material weaknesses in its internalcontrol over financial reporting.  Nochange in our internal control over financial reporting occurred during thesecond quarter of 2005 that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

 

# **Item 4.**    SUBMISSIONOF MATTERS TO A VOTE OF SECURITIES HOLDERS

# ** **

Theannual meeting of the Stockholders of GB&T Bancshares, Inc. was held on May17,2005.  The meeting hadbeen called pursuant to written notice for (1) the purpose of considering andvoting upon the election of 13 directors to constitute the Board of Directorsto serve until the next annual meeting and until their successors are electedand qualified   and (2) to consider suchother business as might properly come before the Annual Meeting.  The results of the voting were as follows:

 
| **(1) Election of Directors** | ** ** | **FOR**   | ** ** | **WITHHELD** | ** ** |
|-------------------------------|------------|-----------|------------|--------------|------------|
|                          |       |      |       |         |       |
| Larry B. Boggs                |       | 8,865,942 |       | 23,253       |       |
| Lowell S. (Casey) Cagle       |       | 8,692,461 |       | 196,734      |       |
| Dr. John W. Darden            |       | 8,856,436 |       | 32,759       |       |
| William A. Foster, III        |       | 8,854,847 |       | 34,349       |       |
| Bennie E. Hewett              |       | 8,856,967 |       | 32,228       |       |
| Richard A. Hunt               |       | 8,191,076 |       | 698,120      |       |
| James L. Lester               |       | 8,867,817 |       | 21,378       |       |
| John E. Mansour               |       | 8,867,817 |       | 21,378       |       |
| Dr. T. Alan Maxwell           |       | 8,865,968 |       | 23,228       |       |
| James H. Moore                |       | 8,856,967 |       | 32,228       |       |
| Samuel L. Oliver              |       | 8,138,409 |       | 750,786      |       |
| Alan A. Wayne                 |       | 8,178,590 |       | 710,605      |       |
| Philip A. Wilheit             |       | 8,562,032 |       | 327,163      |       |

 

**Item 6.****   ****EXHIBITS**

 
| **Exhibits** | ** ** | ** **                                                   |
|--------------|------------|--------------------------------------------------------------|
| 31.1         |       | Rule 13a-14(a) Certification of Principal Executive Officer. |
| 31.2         |       | Rule 13a-14(a) Certification of Principal Financial Officer. |
| 32.1         |       | Section 1350 Certification of Principal Executive Officer.   |
| 32.2         |       | Section 1350 Certification of Principal Financial Officer.   |

 

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**SIGNATURES**

 

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

 

 

GB&T BANCSHARES,INC.

 

 
| DATE:  |  8/9/2005                                                       |   | BY: | /s/  Richard A. Hunt |   |
|--------|----------------------------------------------------------------------|--------|-----|----------------------|--------|
|   |      Richard  A. Hunt                       |
|   |      President  and Chief Executive Officer |

 

 
| DATE:  |  8/9/2005                                                |   | BY: | /s/  Gregory L. Hamby |   |
|--------|---------------------------------------------------------------|--------|-----|-----------------------|--------|
|   |      Gregory  L. Hamby               |
|   |      Executive  Vice President & |
|   |      Chief  Financial Officer        |

 

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