SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

                                FORM 10-KSB
               FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
        SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                                 (Mark One)
            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                For the Fiscal Year Ended December 31, 1998
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

           For the transition period from __________ to __________

                      Commission file number 000-24203

                            GB&T Bancshares, Inc.
            (Exact name of Registrant as specified in its Charter)

               Georgia                           58-2400756
       (State of Incorporation)    (I.R.S. Employer Identification No.)

                       500 Jesse Jewell Parkway, S.E.
                        Gainesville, Georgia  30501
             (Address of principal office, including zip code)

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

     Securities Registered pursuant to Section 12(b) of the Act;  None
    Securities Registered pursuant to Section 12(g) of the Act:  Common
                              Stock, par value $5.00

     Indicate by check mark whether the registrant:  (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.  YES    X    NO 
            ----      ----

     Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statement incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  [ X ]

     The total revenues for the year ended December 31, 1998 was
$16,908,000.

     The aggregate market value of the voting stock and non-voting
common equity held by nonaffiliates of the Registrant at March 1,
1999, was $31,996,000 based on $25 per share, the average of the bid
and asked prices for the Registrant's Common Stock on The Nasdaq
National Market on March 1, 1999.

     The number of shares of the Registrant's Common Stock outstanding
at March 11, 1999, was 2,105,537 shares.<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Shareholders for the year ended
December 31, 1998, are incorporated by reference into Parts I and II
of this report.

     Portions of the Proxy Statement for the 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the Registrant's 1998 fiscal year end are
incorporated by reference into Part III of this report.


<PAGE>
                           TABLE OF CONTENTS
                           -----------------


ITEM NO.       CAPTION
----------------------

PART I
           1.  Description of Business


           2.  Description of Properties

           3.  Legal Proceedings


           4.  Submission of Matters to a Vote of Security Holders

PART II

           5.  Market for Common Equity and Related Stockholder Matters

           6.  Management's Discussion and Analysis of Financial Condition
                     and Results of Operations


           7.  Financial Statements

           8.  Changes in and Disagreements with Accountants on Accounting
                     and Financial Disclosures


PART III

           9.  Directors and Executive Officers

           10. Executive Compensation


           11. Security Ownership of Certain Beneficial Owners and Management

           12. Certain Relationships and Related Transactions


           13. Exhibits and Reports on Form 8-K

<PAGE>
 
                                  PART I
                                   -----

ITEM 1. BUSINESS


THE COMPANY

        GB&T Bancshares, Inc. (the "Company") was formed in 1998 as a
bank holding company existing under the laws of the State of Georgia. 
On April 24, 1998, GB&T Bancshares, Inc. acquired all of the
outstanding common stock of Gainesville Bank & Trust in exchange for
1,676,160 shares of $5 par value common stock.  The acquisition was
accounted for as a pooling of interests, and, accordingly, all prior
financial statements reflect the combination.  At December 31, 1998,
the Company had one wholly-owned subsidiary, Gainesville Bank & Trust
(the "Bank").

        The Company operates as a one bank holding company.  At
December 31, 1998 there were no other investments held by the Company. 
The Company's plans include investments in de novo banks in Georgia
and exploring opportunities through mergers and acquisitions. 
Currently, there are no employees of the Company.

        The Company's principal executive offices are located at 500
Jesse Jewell Parkway, S.E., Gainesville, Georgia 30501, and its
telephone number is (770) 532-1212.

GAINESVILLE BANK & TRUST

        Gainesville Bank & Trust, located in Gainesville, Georgia,
was incorporated under the laws of the State of Georgia on July 20,
1987 and commenced operations as a Georgia State-Chartered Bank on
February 1, 1988.  

        The Bank conducts business from its main office facility at
500 Jesse Jewell Parkway, Gainesville, Hall County, Georgia, which is
owned equally by the Bank and one of its directors.  The Bank
currently occupies sixty-five percent of this facility.  The remainder
of this facility is available for lease and approximately 10,000
square feet in the building is currently under lease to five tenants
unrelated to the Bank.  The Bank currently operates three branches in
Gainesville, Georgia and one branch in Oakwood, Georgia.  

        The Bank provides a full range of banking services to
customers within its primary market area of Hall County.  It offers
checking accounts, money market accounts, savings and time deposits,
commercial, small business, real estate mortgage, consumer, home
equity, automobile and credit card loans.  The Bank also offers a
variety of other traditional banking services to its customers,
including drive-up and night depository facilities, 24-hour automated
teller machines, PC banking, and limited trust services.

        The Bank has grown from its initial capital base of $7
million to a total asset base of approximately $196 million.  The
continued growth in total assets and loans was generated almost
exclusively from deposits obtained from the Hall County market area. 
The loan portfolio of $138 million as of year end is comprised of
commercial and industrial loans ($17 million), loans secured by real
estate ($107 million), and consumer and other loans ($14 million). 
The Bank is not currently engaged in any nonbanking activities.

<PAGE>
MARKET AREA AND COMPETITION

        The Bank competes primarily with ten other commercial banks,
NationsBank, N.A, Regions Bank, Georgia First Bank, Lanier National
Bank, Community Bank & Trust-Habersham, Premier Bank, Trust Company
Bank of Northeast Georgia, SouthTrust Bank, NBC Bank, FSB, and
Wachovia Bank, N.A.  In addition, the Bank competes with other
financial institutions, including two credit unions.  The banking
business is very competitive in the Gainesville, Hall County market. 
The banking industry continues to experience increased competition for
deposits from brokerage firms and money market funds.

        As a whole, the banking industry in Georgia is highly
competitive.  The Bank competes with institutions which have much
greater financial resources than the Bank, and which may be able to
offer more services to their customers.  In recent years, intense
market demands, economic pressures, and increased customer awareness
of products, services, and the availability of electronic services
have forced banks to diversify their services and become more cost
effective.  The Bank faces strong competition in attracting and
retaining deposits and loans.

        The most direct competition for deposits comes from other
commercial banks, savings banks, credit unions and issuers of
securities such as shares in money market funds.  Interest rates,
convenience, availability of products and services, and marketing are
all significant factors in the Bank's competition for deposits.

        Competition for loans comes from other commercial banks,
savings banks, insurance companies, consumer finance companies, credit
unions and other institutional lenders.  The Bank competes for loan
originations through the interest rates, loan fees they charge,
efficiency in closing and handling of loans, and the overall quality
of service.  Competition is affected by the general availability of
lendable funds, general and local economic conditions, current
interest rates, and other factors that are not readily predictable.

        Management expects that competition will continue to increase
in the future due to the fully phased-in statewide branching laws that
became effective in 1998 and the entry of additional bank and nonbank
competitors.  

                          LENDING ACTIVITIES
                          ------------------

        The Bank originates loans primarily secured by single family
real estate, residential construction, owner-occupied commercial
buildings, and other loans to small businesses and individuals.  In
addition, loans are made to small- and medium-sized commercial
businesses, as well as to consumers for a variety of purposes.

        The Bank originates secured and unsecured commercial and
consumer loans, principally to smaller business enterprises.  The Bank
also lends to a limited number of residential contractors and
developers in the Hall County area.

        The Bank's commercial lending includes loans to smaller
business ventures, credit lines for working capital and short-term
seasonal or inventory financing, as well as occasional letters of
credit.  Commercial borrowers typically secure their loans with assets


<PAGE>
of the business as well as personal guaranties of their principals,
often secured by second mortgages on their personal residences.

        The Bank provides commercial and consumer installment loans
to its customers.  Such loans are typically of multiple-year duration,
secured by the property financed and, if not variable rate, bear
interest at a rate tied to the Bank's cost of funds of equivalent
maturity.  Commercial installment loans generally finance commercial
equipment, while consumer installment loans typically finance
automobiles, consumer products, or home improvements.

        Risks associated with loans made by the Bank include, but are
not limited to, the real estate market in Hall County, fraud,
deteriorating or non-existing collateral, general economic conditions,
and deteriorating customer financial conditions.

        The Bank's Board of Directors establishes and periodically
reviews the Bank's lending policies and procedures.  State banking
regulations provide that no secured loan relationship may exceed 25%
of the Bank's statutory capital and no unsecured loan relationship may
exceed 15% of the Bank's statutory capital, except in very limited
circumstances.  The Bank occasionally sells participation interests in
loans to other lenders, primarily when a loan exceeds the Bank's legal
lending limits.

        In addition, the Bank originates loans to small businesses
secured by real estate and other collateral, which loans are in part
(up to 75% of each loan) guaranteed by the U.S. Small Business
Administration ("SBA").  


                               DEPOSITS
                               --------

        Checking, savings, money market accounts, and other time
deposit accounts are the primary sources of funds for investing in
loans and securities.  The Bank obtains most of its deposits from
individuals and businesses in its market area.

        The Bank does not solicit new or maturing deposits by
offering depositors rates of interest on certificates of deposit or
money market accounts significantly above rates paid by other local
competitors.  The Bank does not solicit brokered deposits.


                         INVESTMENT ACTIVITIES
                         ---------------------

        After establishing necessary cash reserves and funding loans,
the Bank invests its remaining liquid assets in securities allowed
under banking laws and regulations.  The Bank invests primarily in
obligations of the United States or obligations guaranteed as to
principal and interest by the United States, other taxable securities
and in certain obligations of states and municipalities.  The Bank
also invests excess funds in Federal funds with its correspondents and
primarily acts as a net seller of such funds.  The sale of Federal
funds amounts to a short term loan from the Bank to another bank. 
Risks associated with securities include, but are not limited to,
interest rate fluctuation, maturity, and concentration.


<PAGE>
                      ASSET/LIABILITY MANAGEMENT
                      --------------------------

        It is the objective of the Bank to manage its assets and
liabilities to provide a satisfactory and consistent level of
profitability within the framework of established cash, loan,
investment, borrowing and capital policies.  Certain officers of the
Bank are charged with the responsibility for developing and monitoring
policies and procedures that are designed to insure acceptable
composition of the asset/liability mix.  It is the overall philosophy
of management to support asset growth primarily through growth of core
deposits, which include deposits of all categories from individuals
and businesses.  Management of the Bank seeks to invest the largest
portion of the Bank's assets in loans.

        The Bank's asset-liability mix is monitored on a periodic
basis with a report reflecting interest-sensitive assets and interest-
sensitive liabilities being prepared and presented to the Bank's Board
of Directors on a monthly basis.  The objective of this policy is to
manage interest-sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on the Bank's
earnings.

EMPLOYEES

        As of December 31, 1998, the Bank had 79 full-time equivalent
employees.  The Bank is not a party to any collective bargaining
agreement and, in the opinion of management, the Bank enjoys
satisfactory relations with its employees.


                      SUPERVISION AND REGULATION

        The following discussion sets forth the material elements of
the regulatory framework applicable to banks and provides certain
specific information related to the Company.

GENERAL

        The Company is a bank holding company registered with the
Board of Governors of the Federal Reserve System (the "Federal
Reserve') and the Georgia Department of Banking and Finance (the
"Georgia Department") under the Bank Holding Company Act of 1956 ( the
"BHC Act") and the Georgia BHC Act, respectively.  As such, the
Company is subject to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the Federal
Reserve, and the Georgia BHC Act.

        The BHC Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before: (i) it may acquire
direct or indirect ownership or control of any voting shares of any
bank if, after such acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the voting
shares of the bank; (ii) it or any of its subsidiaries, other than a
bank, may acquire all or substantially all of the assets of any bank;
or (iii) it may merge or consolidate with any other bank holding
company.

        The BHC Act further provides that the Federal Reserve may not
approve any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt
to monopolize the business of banking in any section of the United
States, or the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the
country, or that in any other manner would be in restraint of trade,
<PAGE>
unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience
and needs of the communities to be served.  The Federal Reserve is
also required to consider the financial and managerial resources and
future prospects of the bank holding companies and banks involved and
the convenience and needs of the communities to be served.  Consideration
of financial resources generally focuses on capital adequacy, and
consideration of convenience and needs issues generally focuses on the
parties' performance under the Community Reinvestment Act of 1977.

        The BHC Act, as amended by the interstate banking provisions
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act"), which became effective on
September 29, 1995, repealed the prior statutory restrictions on
interstate acquisitions of banks by bank holding companies, such that
the Company and any other bank holding company located in Georgia, may
now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based
bank, regardless of state law to the contrary, in either case subject
to certain deposit-percentage, aging requirements, and other
restrictions.  The Interstate Banking Act also generally provides
that, as of June 1, 1997, national and state-chartered banks may
branch interstate through acquisitions of banks in other states. 

        In response to the Interstate Banking Act, the Georgia
General Assembly adopted the Georgia Interstate Banking Act which
became effective on July 1, 1995.  The Georgia Interstate Banking Act
provides that (i) interstate acquisitions by institutions located in
Georgia will be permitted in states which also allow national
interstate acquisitions, and (ii) interstate acquisitions of
institutions located in Georgia will be permitted by institutions
located in states which allow national interstate acquisitions.

        Additionally, on January 26, 1996, the Georgia General
Assembly adopted the Georgia Interstate Branching Act which permits
Georgia-based banks and bank holding companies owning or acquiring
banks outside of Georgia and all non-Georgia banks and bank holding
companies owning or acquiring banks in Georgia the right to merge any
lawfully acquired bank into an interstate branch network.  The Georgia
Interstate Branching Act also allows banks to establish de novo
branches on a limited basis beginning July 1, 1996.  Beginning July 1,
1998, the number of de novo branches which may be established was no
longer limited.

        The BHC Act generally prohibits a bank holding company from
engaging in activities other than banking or managing or controlling
banks or other permissible subsidiaries and from acquiring or
retaining direct or indirect control of any company engaged in any
activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.  In determining whether a
particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity reasonably can be expected
to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible
adverse effects, such as undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking
practices.  For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount
securities brokerage activities, performing certain data processing
services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities

<PAGE>
all have been determined by the Federal Reserve to be permissible
activities of bank holding companies.  The BHC Act does not place
territorial limitations on permissible non-banking activities of bank
holding companies.  Despite prior approval, the Federal Reserve has
the power to order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation
of such activity or such ownership or control constitutes a serious
risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.

        The Bank is a member of the Federal Deposit Insurance
Corporation ("FDIC"), and as such, its deposits are insured by the
FDIC to the maximum extent provided by law.  The Bank is also subject
to numerous state and federal statutes and regulations that affect its
business, activities, and operations, and it is supervised and
examined by one or more state or federal bank regulatory agencies.

        The Bank is subject to regulation, supervision, and
examination by the FDIC and the Georgia Department.  The FDIC and the
Georgia Department regularly examine the operations of the Bank, and
are given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions.  The
FDIC and the Georgia Department also have the power to prevent the
continuance or development of unsafe or unsound banking practices or
other violations of law.

PAYMENT OF DIVIDENDS

        The Company is a legal entity separate and distinct from its
banking subsidiary.  The principal source of cash flow of the Company,
including cash flow to pay dividends to its stockholders, is dividends
from the Bank.  There are statutory and regulatory limitations on the
payment of dividends by the Bank to the Company, as well as by the
Company to its stockholders.

        If, in the opinion of the federal banking regulators, a
depository institution under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which, depending on
the financial condition of the depository institution, could include
the payment of dividends), such authority may require, after notice
and hearing, that such institution cease and desist from such
practice.  The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an
inadequate level would be an unsafe and unsound banking practice. 
Under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a depository institution may not pay any dividend if
payment would cause it to become undercapitalized or if it already is
undercapitalized.  See "--Prompt Corrective Action."  Moreover, the
federal agencies have issued policy statements that provide that bank
holding companies and insured banks should generally only pay
dividends out of current operating earnings.

        The payment of dividends by the Company and the Bank may also
be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.


<PAGE>
CAPITAL ADEQUACY

        The Company and the Bank are required to comply with the
capital adequacy standards established by the Federal Reserve in the
case of the Company, and the FDIC in the case of the Bank.  There are
two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and
a leverage measure.  All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.

        The risk-based capital standards are designed to make
regulatory capital requirements more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-
balance-sheet exposure, and to minimize disincentives for holding
liquid assets.  Assets and off-balance-sheet items are assigned to
broad risk categories, each with appropriate weights.  The resulting
capital ratios represent capital as a percentage of total risk-
weighted assets and off-balance-sheet items.

        The minimum guideline for the ratio (the "Total Risk-Based
Capital Ratio") of total capital ("Total Capital") to risk-weighted
assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8%.  At least half of Total Capital must be
comprised of common stock, undivided profits, minority interests in
the equity accounts of consolidated subsidiaries and noncumulative
perpetual preferred stock, less goodwill and certain other intangible
assets (''Tier 1 Capital'').  The remainder may consist of subordinated
debt, other preferred stock, and a limited amount of loan loss reserves
("Tier 2 Capital").  At December 31, 1998, the Company's consolidated
Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio
(i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 11.76%
and 10.52%, respectively. 

        In addition, the Federal Reserve has established minimum
leverage ratio guidelines for bank holding companies.  These
guidelines provide for a minimum ratio (the "Leverage Ratio") of Tier
1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet certain
specified criteria, including those having the highest regulatory
rating.  All other bank holding companies generally are required to
maintain a Leverage Ratio of at least 3%, plus an additional one or
two percent.  The Company's Leverage Ratio at December 31, 1998 was
7.89%. The guidelines also provide that banks and bank holding
companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the
minimum supervisory levels without significant reliance on intangible
assets.  Furthermore, the Federal Reserve has indicated that it will
consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.

        The Bank is subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies.  The
Bank was in compliance with applicable minimum capital requirements as
of December 31, 1998.  Neither the Company nor the Bank have been
advised by any federal banking agency of any specific minimum capital
ratio requirement applicable to it.

        Failure to meet capital guidelines could subject a bank to a
variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a


<PAGE>
prohibition on the taking of brokered deposits, and certain other
restrictions on its business.  As described below, substantial
additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements.  See
"--Prompt Corrective Action."

        The federal bank regulators continue to indicate their desire
to raise capital requirements applicable to banking organizations
beyond their current levels.  In this regard, the Federal Reserve and
the FDIC have, pursuant to FDICIA, recently adopted final regulations
requiring regulators to consider interest rate risk (when the interest
rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off balance-sheet position) in
the evaluation of a bank's capital adequacy.  The bank regulatory
agencies have concurrently proposed a methodology for evaluating
interest rate risk which would require banks with excessive interest
rate risk exposure to hold additional amounts of capital against such
exposures.

SUPPORT OF SUBSIDIARY INSTITUTION

        Under Federal Reserve policy, the Company is expected to act
as a source of financial strength for, and to commit resources to
support, the Bank.  This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined to
provide such support.  In addition, any capital loans by a bank
holding company to its banking subsidiary are subordinate in right of
payment to deposits and to certain other indebtedness of such bank. 
In the event of a bank holding company's bankruptcy, any commitment by
a bank holding company to a federal bank regulatory agency to maintain
the capital of a banking subsidiary will be assumed by the bankruptcy
trustee and entitled to a priority of payment.

PROMPT CORRECTIVE ACTION

        FDICIA establishes a system of prompt corrective action to
resolve the problems of undercapitalized institutions.  Under this
system, which became effective in December 1992, the federal banking
regulators are required to establish five capital categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and to take certain
mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed.  Generally,
subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is
critically undercapitalized.  The federal banking agencies have
specified by regulation the relevant capital level for each category.

        Under the final agency rules implementing the prompt
corrective action provisions, an institution that (i) has a Total
Risk-Based Capital Ratio of 10% or greater, a Tier 1 Risk-Based
Capital Ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or
greater and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. 
An institution with a Total Risk-Based Capital Ratio of 8.0% or
greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater, and a
Leverage Ratio of 4.0% or greater is considered to be adequately
capitalized.  A depository institution that has a Total Risk-Based
Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital Ratio of
less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to


<PAGE>
be undercapitalized.  A depository institution that has a Total Risk-
Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital
Ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is
considered to be significantly undercapitalized, and an institution
that has a tangible equity capital to assets ratio equal to or less
than 2.0% is deemed to be critically undercapitalized.  For purposes
of the regulation, the term "tangible equity" includes core capital
elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus intangible assets
with certain exceptions.  A depository institution may be deemed to be
in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination
rating.

        An institution that is categorized as undercapitalized,
significantly undercapitalized, or critically undercapitalized is
required to submit an acceptable capital restoration plan to its
appropriate federal banking agency.  Under FDICIA, a bank holding
company must guarantee that a subsidiary depository institution will
meet its capital restoration plan, subject to certain limitations. 
The obligation of a controlling bank holding company under FDICIA to
fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements.  An undercapitalized institution is
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line
of business, except in accordance with an accepted capital restoration
plan or with the approval of the FDIC.  In addition, the appropriate
federal banking regulator is given authority with respect to any
undercapitalized depository institution to take any of the actions it
is required to or may take with respect to a significantly
undercapitalized institution as described below if it determines "that
those actions are necessary to carry out the purpose" of FDICIA.

        For those institutions that are significantly undercapitalized
or undercapitalized and either fail to submit an acceptable capital
restoration plan or fail to implement an approved capital restoration
plan, the appropriate federal banking agency must require the institution
to take one or more of the following actions:  (i) sell enough shares,
including voting shares, to become adequately capitalized; (ii) merge
with (or be sold to) another institution (or holding company), but only
if grounds exist for appointing a conservator or receiver; (iii) restrict
certain transactions with banking affiliates as if the "sister bank"
exception to the requirements of Section 23A of the Federal Reserve Act
did not exist; (iv) otherwise restrict transactions with Bank or non-Bank
affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi)
restrict asset growth or reduce total assets; (vii) alter, reduce, or
terminate activities; (viii) hold a new election of directors; (ix)
dismiss any director or senior executive officer who held office for more
than 180 days immediately before the institution became undercapitalized,
provided that in requiring dismissal of a director or senior executive
officer, the regulator must comply with certain procedural requirements,
including the opportunity for an appeal in which the director or officer
will have the burden of proving his or her value to the institution; (x)
employ "qualified" senior executive officers; (xi) cease accepting
deposits from correspondent depository institutions; (xii) divest certain
nondepository affiliates which pose a danger to the institution; or (xiii)
be divested by a parent holding company.  In addition, without the prior
approval of the appropriate federal banking regulator, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer, without
regulatory approval.

<PAGE>
        At December 31, 1998, the Bank had the requisite capital
levels to qualify as "well capitalized." 

SAFETY AND SOUNDNESS STANDARDS


        The FDIA, as amended by the FDICIA and the Riegle Community
Development and Regulatory Improvement Act of 1994, requires the
federal bank regulatory agencies to prescribe standards, by
regulations or guidelines, relating to internal controls, information
systems and internal audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, asset
quality, earnings, stock valuation and compensation, fees and
benefits, and such other operational and managerial standards as the
agencies deem appropriate.  The federal bank regulatory agencies
adopted, effective August 9, 1995, a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended.  The
guidelines establish general standards relating to internal controls
and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and
compensation and fees and benefits.  In general, the guidelines
require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the
guidelines.  The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as excessive
when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or
principal shareholder.  In addition, the agencies adopted regulations
that authorize, but do not require, an agency to order an institution
that has been given notice by an agency that it is not satisfying any
of such safety and soundness standards to submit a  compliance plan. 
If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to
implement an acceptable compliance plan, the agency must issue an
order directing action to correct the deficiency and may issue an
order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective
action" provisions of FDICIA.  See " Prompt Corrective Action." If an
institution fails to comply with such an order, the agency may seek to
enforce such order in judicial proceedings and to impose civil money
penalties.  The federal regulatory agencies also proposed guidelines
for asset quality and earnings standards.

ITEM 2. PROPERTIES

        The Bank's main office is owned jointly by the Bank and
Director Donald J. Carter.  The three story building is located in
downtown Gainesville at the intersection of Jesse Jewell Parkway and
Race Street.  The Bank occupies over two-thirds of the building, with
remaining space presently leased to other tenants.  The Bank's main
office also has a drive-in automated teller machine.

        The Bank has a branch banking facility in Oakwood, Georgia, a
Hall County town seven miles south of Gainesville.  This branch also
has an automated teller machine.

        The Bank has three branch locations in Gainesville, Georgia,
the first located in a leased shopping center facility at 2412 Old
Cornelia Highway, which is in a small community north of Gainesville,
the second located in a leased shopping center facility at 1210
Thompson Bridge Road, and the third located in a leased shopping
center facility at 475 Dawsonville Highway, all of which have an
automated teller machine.  

<PAGE>
        The Bank operates automated teller machines in a Gainesville-
based retail shopping center at 975 Dawsonville Road, at 6800 Aqualand
Marina, in Flowery Branch, Georgia and in a hospital atrium at 675
White Sulphur Road in Gainesville, Georgia.

ITEM 3.   LEGAL PROCEEDINGS

        The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceedings, other than
ordinary routine proceedings incidental to the business of the Bank,
nor to the knowledge of the management of the Company are any such
proceedings contemplated or threatened against the Company.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

<PAGE>
                                PART II

ITEM 5.   MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER
          MATTERS

(a)  The common stock of the Company and its predecessor entity was
     traded on the electronic bulletin board market under the symbol
     "GVLG" from September 26, 1996 through January 5, 1999. 
     Effective January 5, 1999, the Company began listing their stock
     on The NASDAQ Stock Market under the symbol "GBTB."   Prior to
     that date, the common stock was not traded on an established
     trading market.  The following table sets forth, for the
     indicated periods, the high and low closing sale prices for the
     Company's common stock, as reported on the electronic bulletin
     board market.  Historical stock prices have been adjusted to
     reflect the two-for-one common stock split in the form of a
     dividend declared July 14, 1997 and the five-for-four common
     stock split in the form of a dividend declared August 29, 1998. 
     The sales prices indicated reflect inter-dealer prices, without
     mark-up, mark-down or commission, and may not represent actual
     transactions.

                                                 SALES PRICE

                  CALENDAR PERIOD              LOW        HIGH
                 ----------------------------------------------

                 1997


                 First Quarter             $   8.70   $   9.40
                 Second Quarter                9.00       9.50
                 Third Quarter                 9.65      11.40
                 Fourth Quarter               11.40      16.00


                 1998


                 First Quarter             $  17.59   $  18.80
                 Second Quarter               18.80      21.59
                 Third Quarter                18.80      21.59
                 Fourth Quarter               21.50      23.00

(b)  As of March 11, 1999, there were approximately 569 holders of
     record of the Company's common stock.

(c)  The Company paid a $.16 and $.18 per share cash dividend on its
     common stock for the years ended December 31, 1998 and 1997,
     respectively.  The Company anticipates paying a quarterly
     dividend in the future.  Any declaration and payment of dividends
     will be based on the Company's earnings, economic conditions, and
     the Board of Directors' evaluation of other relevant factors. 
     The Company's ability to pay dividends will also be dependent on
     cash dividends paid to it by the Bank.  The ability of the Bank
     to pay dividends to the Company is restricted by applicable
     regulatory requirements.  See "Supervision and Regulation -
     Payment of Dividends."


<PAGE>
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS


GENERAL

        The purpose of this discussion is to focus on information
about the Company's financial condition and results of operations
which is not otherwise apparent from the financial statements included
in this Annual Report.  Reference should be made to those statements
and the selected financial data presented elsewhere in this report for
an understanding of the following discussion and analysis.  Historical
results of operations and any trends which may appear, are not
necessarily indicative of the results to be expected in future years.

FORWARD-LOOKING STATEMENTS

        This annual report contains certain forward-looking
statements which are based on certain assumptions and describe future
plans, strategies, and our expectations.  These forward-looking
statements are generally identified by use of the words "believe,"
"expect," "intend," "anticipate," "estimate," "project," or similar
expressions.  Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain.  Factors which
could have a material adverse effect on our operations include, but
are not limited to, changes in interest rates, general economic
conditions, legislation and regulation, monetary and fiscal policies
of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality or composition of our loan or
investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in our market area and
accounting principles and guidelines.  You should consider these risks
and uncertainties in evaluating forward-looking statements and should
not place undue reliance on such statements.  We will not publicly
release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.

SUMMARY

        During 1998 and 1997, the Company continued to experience
significant growth in interest-earning and total assets which was
funded by increases in deposits and the retention of net profits.  The
Company had net income of approximately $1,673,000 and $1,703,000 for
the years ended December 31, 1998 and 1997, respectively, increasing
total equity to approximately $15,306,000 at December 31, 1998.

BALANCE SHEETS

        Total assets of the Company increased approximately $23
million or 13.4% for the year ended December 31, 1998 compared to $41
million or 31.1% during 1997.  The increase in total assets consists
primarily of an increase in interest-earning assets of $22.4 million
or 14.3% compared to an increase of $37.0 million or 30.8% during
1997.


<PAGE>
        The Company's primary focus is to maximize earnings through
lending activities.  Any excess funds are invested according to the
Company's investment policy.  Total loans increased 14.0% or $17.0
million during the year ended December 31, 1998.  This compares to an
increase of 30.2% or $28.0 million during 1997.  The 1998 increase in
loans included a 15.5% increase in real estate loans, or $14.3
million, an increase in commercial loans of $1.0 million, and an
increase in consumer loans of $1.7 million.  Securities and federal
funds sold increased $5.5 million during 1998 compared to an overall
increase during 1997 of $8.9 million.  The continued growth in loans
and assets was consistent with management's expectations for 1998.  As
of December 31, 1998 and 1997, the Company's loan-to-deposit ratio was
78%.  The economy in Gainesville, and Georgia as a whole, continues to
be strong.  

        During 1998, total deposits grew by $20.8 million, or 13.4%. 
This increase consists of an increase in time deposits of $4.0 million
or 4.2%, an increase in savings and interest-bearing deposits of $9.4
million or 21.8%, and an increase of $7.5 million or 41.8% in non-
interest bearing accounts.  During 1997, the majority of the increase
was in higher yielding time deposits which increased $24.8 million. 
The significant increase in time deposits in 1997 was due to more
competitive rates offered by the Company in 1997 and the movement of
deposits from regional banks in the Gainesville area.  In 1996 and
1997, acquisitions of local community banks by regional banks
contributed to the significant growth in both deposits and loans.  The
1998 growth in non-interest bearing demand, interest-bearing demand,
and savings accounts is related to the decreasing interest rates
offered on longer term deposit accounts.

        The specific economic and credit risks associated with the
Company's loan portfolio, especially the real estate portfolio,
include, but are not limited to, a general downturn in the economy
which could affect unemployment rates in the Company's market area,
general real estate market deterioration, interest rate fluctuations,
deteriorated collateral, title defects, inaccurate appraisals, and
financial deterioration of borrowers.  Construction and development
lending can also present other specific risks to the lender such as
whether developers can find builders to buy lots for home construction,
whether the builders can obtain financing for the construction,
whether the builders can sell the home to a buyer, and whether the
buyer can obtain permanent financing.  Currently, real estate values
and employment trends in the Company's market area are stable with no
indications of a significant downturn in the general economy.
Additionally, the Company has risks associated with its loan portfolio
as it relates to the Year 2000 issue.  (See Year 2000 Disclosures.)

The Company attempts to reduce these economic and credit risks not
only by adherence to loan to value guidelines, but also by
investigating the creditworthiness of the borrower and monitoring the
borrower's financial position.  Also, the Company establishes and
periodically reviews its lending policies and procedures.  State
banking regulations limit exposure by prohibiting secured loan
relationships that exceed 25% of the Bank's statutory capital and
unsecured loan relationships that exceed 15% of the Bank's statutory
capital.


<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

        Liquidity management involves the matching of cash flow
requirements of customers who may be either depositors desiring to
withdraw funds or borrowers needing assurance that sufficient funds
will be available to meet their credit needs and the ability of the
Company to meet those needs.  The Company seeks to meet liquidity
requirements primarily through management of short-term investments
(principally Federal funds sold), monthly amortizing loans, maturing
single payment loans, and maturities of prepayments and securities. 
Also, the Company maintains relationships with correspondent banks
which could provide funds on short notice.

        The liquidity and capital resources of the Company are
monitored on a periodic basis by management and state and Federal
regulatory authorities.  At December 31, 1998, the Company's liquidity
ratio was 26.54% which was within the Company's target ratio of 25 to
30%.  Management reviews liquidity on a periodic basis to monitor and
adjust liquidity as necessary.  Management has the ability to adjust
liquidity by selling securities available-for-sale, selling
participations in loans generated by the Company and accessing
available funds through various borrowing arrangements.  The 
Company's short-term investments are adequate to cover any reasonably
anticipated immediate need for funds.

        At December 31, 1998, the Company's capital to asset ratios
were considered adequate based on guidelines established by the
regulatory authorities.  During 1998, the Company increased its
capital by retaining net earnings of approximately $1.3 million.  The
unrealized gains on securities available-for-sale increased by $92,000
as a result of a continued improvement in the bond market combined
with investment strategies employed by the Company.  At December 31,
1998, total capital of the Company amounted to approximately
$15,306,000 and is considered well-capitalized based on regulatory
requirements.  At December 31, 1998, the Company did not have any
significant amounts of commitments of capital for future expansion.  

        Except for uncertainties related to the Year 2000 issue (see
Year 2000 Disclosures), management is not aware of any other known
trends, events or uncertainties that will have or that are reasonably
likely to have a material effect on its liquidity, capital resources,
or operations.  Management is also not aware of any current
recommendations by the regulatory authorities which, if they were
implemented, would have such an effect.

EFFECTS OF INFLATION

        The impact of inflation on banks differs from its impact on
non-financial institutions.  Banks, as financial intermediaries, have
assets which are primarily monetary in nature and which tend to
fluctuate in concert with inflation.  A bank can reduce the impact of
inflation if it can manage its rate sensitivity gap.  This gap
represents the difference between rate sensitive assets and rate
sensitive liabilities.  The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage
the rate sensitivity gap, thereby seeking to minimize the potential
effects of inflation.  For information on the management of the
Company's interest rate sensitive assets and liabilities, see the
"Asset/Liability Management" section.


<PAGE>
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998

        The Company's profitability is determined by its ability to
effectively manage interest income and expense, to minimize loan and
security losses, to generate noninterest income, and to control
operating expenses.  Since interest rates are determined by market
forces and economic conditions beyond the control of the Company, the
Company's ability to generate net interest income is dependent upon
its ability to obtain an adequate net interest spread between the rate
paid on interest-bearing liabilities and the rate earned on interest-
earning assets.  The net yield on average interest-earning assets, or
net interest margin, decreased from 4.91% in 1997 to 4.65% in 1998. 
This 26 basis point decrease is attributable primarily to the decrease
in the interest earned on average interest-earning assets.  Interest-
earning assets and interest-bearing liabilities grew $27.7 million and
$24.4 million, respectively, for the year ended December 31, 1998.  In
1998, the average yield on interest-earning assets decreased from
9.61% in 1997 to 9.26% while the average yield on interest-bearing
liabilities decreased from 5.44% in 1997 to 5.32% in 1998.  Although
interest-earning assets increased in 1998 more than $3.3 million than
interest-bearing liabilities, the yield on interest-earning assets
decreased by 35 basis points compared to only a decrease of 12 basis
points in interest-bearing liabilities.  The spread between yields on
assets and rates paid on liabilities decreased by 23 basis points.

        Net interest income increased by $928,000 to $7,735,000 in
1998.  This is compared to an increase of $1,078,000 in 1997.  The
increase in both years is directly related to the increase in
interest-earning assets.  As shown in Table 1 and Table 2 which
follow, the change in net interest income for 1998 is primarily the
result of the increases in volume, net of a 35 basis point decrease in
the yield on interest-earning assets.

        Provisions for loan losses increased by $30,000 during 1998
compared to an increase of $198,000 during 1997.  The provision for
loan losses is the charge to operations which management feels is
necessary to fund the allowance for loan losses.  This provision is
based on the growth of the loan portfolio, the amount of net charge-
offs incurred and the general economy as well as the local economy. 
The allowance for loan loss was $1,773,000 or 1.28% of total loans at
December 31, 1998 compared to $1,433,000 or 1.18% of total loans at
December 31, 1997.  The Company incurred net charge-offs of $38,000
and $61,000 for the years ended December 31, 1998 and 1997,
respectively.  The percentage of net charge-offs to average loans
outstanding, .03% and .06%, respectively, is considered by management
as an acceptable level for both 1998 and 1997.  Due to the
insignificant level of net charge-offs for the year ended December 31,
1998, the increased provision for loan losses in 1998 is primarily
attributable to the increased volume in loans combined with increases
in nonaccrual and past due loans of $90,000 and $227,000,
respectively.  The Company's coverage ratio, the allowance for loan
loss as a percentage of nonaccrual loans, decreased during 1998 which
was the result of the increase in nonaccrual loans.  Nonaccrual loans
were $93,000 at December 31, 1998 compared to $3,000 at December 31,
1997.  The increase in non-accrual and past due loans is not
concentrated in any one type or group of borrowers.  In most
instances, the collateral securing these loans will prevent any
significant losses.  Based on management's evaluations, the allowance
for loan losses is adequate to absorb possible losses on existing
loans that may become uncollectible.


<PAGE>
        Other income increased during 1998 by $547,000 or 57.6%
compared to an increase of $135,000 or 16.6% during 1997.  The major
component of other income is service charges on deposit accounts which
increased only $15,000 during 1998 compared to an increase of $50,000
during 1997.  Changes in service charge income are primarily due to
changes in the volume of deposit transaction accounts and changes in
the fee structure for these accounts.  During 1998 and 1997, there was
both an increase in the volume of deposit transaction accounts due to
the opening of the new branches as well as an increase in NSF fees
charged by the Company.  The two major components of other income in
1998 were increases of $168,000 and $247,000 in mortgage origination
fees and gain on sale of loans, respectively.  The increase in
mortgage origination fees is due to the Company's development and
growth of the mortgage department coupled with the declining mortgage
rates in 1998.  The gain on sale of loans is primarily the gains
recognized from the sale of small business loans during 1998.  Other
operating income increased $132,000 during 1998 compared to $24,000
during 1997.  The two largest increases were an increase of $42,000 in
trust fees and an increase in cash surrender value of life insurance
of $37,000.  Trust services were first offered in 1997.  

        Other expenses of the Company increased $1.6 million or 33.4%
during 1998 compared to an increase of $1.1 million or 31.0% during
1997.  The majority of the increase is due to an increase in salaries
and employee benefits of $741,000 or 27.2%.  Base salaries increased
$592,000, related payroll taxes increased $41,000, and group insurance
increased $45,000 for the year ended December 31, 1998.  As discussed
earlier, a new branch was opened during 1997, the trust department was
staffed in 1997, and mortgage department personnel have increased with
the level of business in 1998.  Other changes include an increase in
equipment and occupancy expenses of $182,000 which is due to the
opening of two branches in the past two years.

        Income tax expense decreased $133,000 from $886,000 in 1997
to $753,000 in 1998.  The effective tax rate decreased to 31% in 1998
from 34% in 1997.  The decrease in income taxes is due to a decrease
in operating income and an increase in non-taxable income.

        Net income decreased slightly in 1998 by $30,000 as compared
to a decrease of $35,000 for the year ended December 31, 1997.  The
return on average assets was .93% in 1998 compared to 1.14% in 1997. 
The decrease in net income can be attributed to the opening of new
branches in 1997, shrinking interest margins, and costs related to the
formation of the holding company.  Management does not believe this
trend will continue in 1999.  

             SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

        The tables and schedules on the following pages set forth
certain financial information and statistical data with respect to: 
the distribution of assets, liabilities and stockholders' equity;
interest rates and interest differentials; interest rate sensitivity
gap ratios; the investment portfolio; the loan portfolio; including
types of loans, maturities and sensitivities to changes in interest
rates and information on nonperforming loans; summary of the loan loss
experience and allowance for loan losses; types of deposits; and the
return on equity and assets.


<PAGE>
        The following table sets forth the amount of the Company's
interest income or interest expense for each category of interest-
earning assets and interest-bearing liabilities and the average
interest yield/rate for total interest-earning assets and total
interest-bearing liabilities, net interest spread and net yield on
average interest-earning assets.

TABLE 1 -  DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
           EQUITY INTEREST RATES AND INTEREST DIFFERENTIALS

<TABLE>
<CAPTION>
                                                       1998                                          1997
                                                      ---------------------------------------------------
                                         Average       Income/         Yields/       Average       Income/    Yields/
                                       Balances <F1>   Expense          Rates      Balances <F1>   Expense     Rates
                                        --------       -------------------------------------      -------------------
                                                                        (Dollars in Thousands)
<S>                                      <C>           <C>             <C>           <C>           <C>        <C>
Taxable securities                        27,192        1,707           6.28          23,268        1,504      6.46
Nontaxable securities <F5>                 2,902          130           4.48           1,218           58      4.76
Unrealized gains (losses) 
   on securities                             159            -              -             (86)           -         -
Federal funds sold                        10,601          569           5.37           6,048          327      5.41
Loans <F2> <F4>                          125,769       13,006          10.34         108,203       11,449     10.58
Allowance for loan losses                 (1,644)           -                         (1,271)           -

Cash and due from banks                    5,653            -                          4,782            -
Other assets                               9,216            -                          7,420            -
                                         ----------------------------------------------------------------

     Total                               179,848       15,412                        149,582       13,338
                                         ================================================================

Total interest-earning assets            166,464                        9.26%        138,737                   9.61%
                                         ===================================         ==============================

Noninterest-bearing demand                18,913            -           -             14,615            -      -
Interest-bearing demand & savings         46,513        1,643           3.53          34,845        1,243      3.57
Time                                      95,388        5,916           6.20          83,669        5,221      6.24
                                         -------------------------------             --------------------------
     Total deposits                      160,814        7,559           4.70         133,129        6,464      4.86
Borrowings                                 2,437          118           4.84           1,470           67      4.56
Other liabilities                          2,111            -                          1,873           -
Stockholders' equity <F3>                 14,486            -                         13,110           -
                                         ----------------------------------------------------------------------

     Total                               179,848        7,677                        149,582        6,531
                                         ======================================================================

Total interest-bearing liabilities       144,338                        5.32%        119,982                   5.44%
                                         ===================================         ===============================
Net interest income                            -        7,735           -                           6,807
                                                        ================                            =============
Net interest spread                                                     3.94%                                  4.17%
                                                                        ====                                   ====
Net yield on average interest-earning assets                            4.65%                                  4.91%
                                                                        ====                                    ====
</TABLE>
___________
[FN]
<F1> Average balances were determined using daily average balances.
<F2> Average balances of loans include nonaccrual loans and are net of
     deferred interest and fees.
<F3> Average unrealized gains (losses) on securities available-for-sale, net
     of tax, have been included in stockholders' equity at $94,000 and
     $(54,000) for 1998 and 1997, respectively.
<F4> Interest and fees on loans include $1,146,000 and $976,000 of loan fee
     income for the years ended December 31, 1998 and 1997, respectively. 
<F5> Yields on nontaxable securities are not presented on a tax-equivalent
     basis.
</FN>

<PAGE>
TABLE 2 - RATE AND VOLUME ANALYSIS

        The following table describes the extent to which changes in
interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest income and
expense during the year indicated.  For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (1) change in volume (change in volume multiplied by old
rate); (2) change in rate (change in rate multiplied by old volume); and (3)
a combination of change in rate and change in volume.  The changes in
interest income and interest expense attributable to both volume and rate
have been allocated proportionately to the change due to volume and the
change due to rate.

                                                 Year Ended December 31,
                                               ---------------------------
                                                      1998 to 1997
                                               ---------------------------
                                                   Increase (decrease)
                                                    due to change in
                                                 Rate     Volume    Total
                                               -------- --------- --------
                                                 (Dollars in Thousands)
                                               ---------------------------
  Income from interest-earning assets:

   Interest and fees on loans                  $ (265)   $ 1,822   $ 1,557
   Interest on taxable securities                 (43)       246       203
   Interest on nontaxable securities               (3)        75        72
   Interest on Federal funds sold                  (2)       244       242
                                                -----     ------    ------
       Total interest income                     (313)     2,387     2,074
                                                -----     ------    ------

  Expense from interest-bearing
   liabilities:
   Interest on interest-bearing demand
     deposits and savings deposits                (16)       416       400
   Interest on time deposits                      (33)       728       695
   Interest on other borrowings                     4         47        51
                                                -----     ------    ------
       Total interest expense                     (45)     1,191     1,146
                                                -----     ------    ------

       Net interest income                     $ (268)   $ 1,196   $   928
                                                =====     ======     =====


ASSET/LIABILITY MANAGEMENT

        The Company's objective is to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the
framework of established cash, loan, investment, borrowing and capital
policies.  Certain officers are charged with the responsibility for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix.  It is the overall philosophy of
management to support asset growth primarily through growth of core deposits
of all categories deposited by individuals, partnerships and corporations in
the Company's primary market area.


<PAGE>
        The Company's asset/liability mix is monitored on a regular basis
and a report evaluating the interest rate sensitive assets and interest rate
sensitive liabilities is prepared and presented to the Board of Directors on
a quarterly basis.  The objective of this policy is to monitor interest rate
sensitive assets and liabilities so as to minimize the impact of substantial
movements in interest rates on earnings.  An asset or liability is
considered to be interest rate-sensitive if it will reprice or mature within
the time period analyzed, usually one year or less. The interest rate-
sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period.  A gap is considered positive when the amount of interest rate-
sensitive assets exceeds the amount of interest rate-sensitive liabilities. 
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets.  During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in
net interest income. Conversely, during a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income,
while a positive gap would tend to adversely affect net interest income.  If
the Bank's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on
net interest income would be minimal.

        A simple interest rate "gap" analysis by itself may not be an
accurate indicator of how net interest income will be affected by changes in
interest rates.  Accordingly, the Company also evaluates how the repayment
of particular assets and liabilities is impacted by changes in interest
rates.  Income associated with interest-earning assets and costs associated
with interest-bearing liabilities may not be affected uniformly by changes
in interest rates.  In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income.  For
example, although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates.  Interest rates on certain types of assets and
liabilities fluctuate in advance of changes in general market rates, while
interest rates on other types may 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 interest rates.  Prepayment and early
withdrawal levels also could deviate significantly from those assumed in
calculating the interest rate gap.  The ability of many borrowers to service
their debts also may decrease during periods of rising interest rates.

        Changes in interest rates also affect the Company's liquidity
position.  The Company currently prices deposits in response to market rates
and it is management's intention to continue this policy.  If deposits are
not priced in response to market rates, a loss of deposits could occur which
would negatively affect the Company's liquidity position.

        At December 31, 1998 the Company's cumulative one year interest rate
sensitivity gap ratio was 87%.  The Company's targeted ratio is 80% to 120%
in this time horizon.  This indicates that the Company's interest-earning
assets will reprice during this period at a rate slower than the Company's
interest-bearing liabilities.



<PAGE>
        The following table sets forth the distribution of the repricing of
the Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998, the interest rate sensitivity gap (i.e., interest rate
sensitive assets less interest rate sensitive liabilities), the cumulative
interest rate sensitivity gap, the interest rate sensitivity gap ratio
(i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities) and the cumulative interest rate sensitivity gap ratio.

        The table also sets forth the time periods in which interest-earning
assets and interest-bearing liabilities will mature or may reprice in
accordance with their contractual terms.  However, the table does not
necessarily indicate the impact of general interest rate movements on the
net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of the
Company's customers.  In addition, various assets and liabilities indicated
as repricing within the same period may in fact reprice at different times
within such period and at different rates.

<TABLE>
<CAPTION>
                                                                   After
                                                                   Three         After
                                                                   Months       One Year
                                                     Within          But           But
                                                     Three         Within         Within         After
                                                     Months       One Year      Five Years     Five Years       Total
                                                   ----------    ----------   -------------   ------------    --------
                                                                            (Dollars in Thousands)
                                                   ---------------------------------------------------------------------
<C>                                                 <C>           <C>             <C>          <C>            <C>
Interest-earning assets:
   Interest-bearing deposits                        $      254    $               $            $              $      254
   Federal funds sold                                    9,693                                                     9,693
   Securities                                            1,524        3,538          22,547          3,635        31,244
   Loans                                                60,503       36,064          41,656              -       138,223
                                                      --------      -------         -------        -------      --------

            Total interest earning assets               71,974       39,602          64,203          3,635       179,414
                                                      --------      -------         -------        -------      --------

Interest-bearing liabilities:
   Interest-bearing demand                              48,740                                                    48,740
   Savings                                               3,815                                                     3,815
   Time deposits                                        34,737       39,268          24,514                       98,519
   Other borrowings                                      2,212           52             154                        2,418
                                                      --------      -------         -------        -------      --------

            Total interest-bearing liabilities          89,504       39,320          24,668              -       153,492
                                                      --------      -------         -------        -------      --------

Interest rate sensitivity gap                       $  (17,530)   $     282       $  39,535    $     3,635    $   25,922
                                                      ========      =======         =======        =======      ========

Cumulative interest rate sensitivity gap            $  (17,530)   $ (17,248)      $  22,287    $    25,922
                                                      ========      =======         =======        =======

Interest rate sensitivity gap ratio                       0.80         1.01            2.60              -
                                                      ========      =======         =======        =======

Cumulative interest rate sensitivity gap ratio            0.08         0.87            1.15           1.17
                                                      ========      =======         =======        =======
</TABLE>

<PAGE>
        The  Company actively manages the mix of asset and liability
maturities to control the effects of changes in the general level of
interest rates on net interest income. Except for its effect on the general
level of interest rates, inflation does not have a material impact on the
Company due to the rate variability and short-term maturities of its earning
assets.  In particular, approximately 58% of the loan portfolio is comprised
of loans which have variable rate terms or mature within one year.  Most
mortgage loans are made on a variable rate basis with rates being adjusted
every one to five years.

                            SECURITIES PORTFOLIO

        The carrying value of securities at the dates indicated are as
follows:

                                                         December 31,
                                                   -----------------------
                                                      1998         1997
                                                   ---------     ---------
                                                    (Dollars in Thousands)
                                                   -----------------------

    U. S. Treasury and U. S. government agencies   $  23,691    $  16,960
       and corporations
    Mortgage-backed securities                         3,426        5,376
    State and municipal securities                     3,608        2,173

    Equity securities <F1>                               519          396
                                                    --------     --------
                                                   $  31,244    $  24,905
                                                    ========     ========
[FN]
<F1> Equity securities consist of Federal Home Loan Bank stock.  For
     presentation purposes, the Federal Home Loan Bank stock is not included
     in the maturity table below because it has no contractual maturity date.
[FN]

MATURITIES

     The amounts of securities as of December 31, 1998 are shown in the
following table according to contractual maturities classified as; (1) one
year or less; (2) after one year through five years; (3) after five years
through ten years; and (4) after ten years.

                                   U. S. Treasury
                                     and U. S.
                                 Government Agencies          State and
                                   and Corporations     Municipal Securities

                                          Yield                     Yield
                                Amount     <F1>      Amount        <F1><F2>
                               --------  -------   ----------   --------------
                                            (Dollars in Thousands)
                               -----------------------------------------------
MATURITY:
  One year or less             $   1,361   6.12 %   $      -          - %
  After one year through five     22,331   6.06        1,839       4.19
  After five years through ten     2,400   6.16        1,769       4.93
  After ten years                  1,025   5.90            -          -
                                 -------              ------
                               $  27,117   6.07 %   $  3,608       4.55 %
                                 =======              ======

[FN]
<F1> Yields were computed using coupon interest rates, including discount
     accretion and premium amortization.  The weighted average yield for
     each maturity range was computed using the carrying value of each
     security in that range.
<F2> Yields on municipal securities are not stated on a tax-equivalent
     basis.
</FN>


<PAGE>
                               LOAN PORTFOLIO

TYPES OF LOANS

        Loans by type of collateral are presented below: 

                                                        December 31,
                                                  ----------------------
                                                      1998        1997
                                                  -----------------------
                                                   (Dollars in Thousands)

    Commercial                                     $  16,880   $  15,884
    Real estate - construction                        27,200      25,447
    Real estate - mortgage <F1>                       79,478      66,895
    Consumer                                          12,935      10,934
    Other                                              1,730       2,050
                                                    --------    --------
                                                     138,223     121,210
    Less allowance for loan losses                   (1,773)     (1,433)
                                                    --------    --------
           Net loans                               $ 136,450   $ 119,777
                                                    --------    --------

<F1> Real estate-mortgage loans are net of $22,000 and $25,000, of deferred
     loan fees for the years ended December 31, 1998 and 1997, respectively.

MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES

        Total loans as of December 31, 1998 are shown in the following table
according to repricing opportunities (1) one year or less, (2) after one
year through five years, and (3) after five years.
                                                             (Dollars in
                                                              Thousands)
                                                            -------------
Maturity:
  One year or less                                          $    80,052
  After one year through five years                              50,975
  After five years                                                7,196
                                                              ---------
                                                            $   138,223
                                                              =========

        The following table summarizes loans at December 31, 1998 with the
due dates after one year for predetermined and floating or adjustable
interest rates.

                                                             (Dollars in
                                                              Thousands)
                                                            -------------

Predetermined interest rates                                $   16,900
Floating or adjustable interest rates                           41,271
                                                             ---------
                                                            $   58,171
                                                             =========

        Records were not available to present the above two tables by
category and could not be reconstructed without undue burden or cost to the
Company.


<PAGE>
RISK ELEMENTS

        The following table presents the aggregate of nonperforming loans
for the categories indicated.

                                                        December 31,
                                                   ----------------------
                                                      1998        1997
                                                   ----------  ----------

                                                   (Dollars in Thousands)
                                                   ----------------------

    Loans accounted for on a nonaccrual basis       $     93    $     3


    Installment loans and term loans contractually
    Loans, the term of which have been
    Loans now current about which there are
                                                         408        181


        The reduction in interest income associated with nonaccrual loans as
of December 31, 1998 is as follows:



                                                          (ACTUAL DOLLARS)

     Interest income that would have been recorded
     on nonaccrual loans under original terms                $  20,615
                                                              ========

     Interest income that was recorded on                    $   9,873
                                                              ========


        As of December 31, 1998 and 1997, management included nonaccrual
loans as impaired loans as determined by Financial Accounting Standards
Board Statement Numbers 114 and 118.

        The Company's policy is to discontinue the accrual of interest
income when, in the opinion of management, collection of such interest
becomes doubtful.  This status is determined when; (1) there is a
significant deterioration in the financial condition of the borrower and
full repayment of principal and interest is not expected; and (2) the
principal or interest is more than ninety days past due, unless the loan is
both well-secured and in the process of collection.  Accrual of interest on
such loans is resumed when, in management's judgment, the collection of
interest and principal becomes probable.  Loans classified for regulatory
purposes as loss, doubtful, substandard, or special mention that have not


<PAGE>
been included in the table above do not represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources.  These classified
loans do not represent material credits about which management is aware and
which causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms.  In the event of non-
performance by the borrower, these loans have collateral pledged which would
prevent the recognition of substantial losses.

COMMITMENTS AND LINES OF CREDIT


        The Company will, in the normal course of business, commit to extend
credit in the form of letters of credit or lines of credit. The amount of
outstanding loan commitments and letters of credit at December 31, 1998 and
1997 was $38,195,000 and $25,754,000, respectively.  These commitments are
recorded in the financial statements when funds are disbursed or the
financial instruments become payable.  The Company uses the same credit and
collateral policies for these off balance sheet commitments as it does for
financial instruments that are recorded in the financial statements. 
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitment
amounts expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.


<PAGE>
                       SUMMARY OF LOAN LOSS EXPERIENCE

        The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in the
allowance for loan losses arising from loans charged off and recoveries on
loans previously charged off; additions to the allowance which have been
charged to expense; and the ratio of net charge-offs during the year to
average loans.

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          ---------------------------------
                                                                              1998                1997
                                                                          -------------        ------------
                                                                                (Dollars in Thousands)
                                                                          ---------------------------------
   <S>                                                                     <C>                <C>
   Average amount of loans outstanding                                     $   125,769        $    108,203
                                                                              ========           =========
   Balance of allowance for loan losses at beginning
     of year                                                               $     1,433        $      1,146
                                                                              --------           ---------
   Loans charged off:
     Real estate                                                                   (39)                  -
     Commercial                                                                     (6)                (37)
     Installment                                                                   (19)                (48)
     Credit cards                                                                   (6)                 (3)
                                                                              --------           ---------
                                                                                   (70)                (88)
                                                                              --------           ---------
   Recoveries of loans previously charged off:
     Real estate                                                                     8                   -
     Installment                                                                    13                  26
     Commercial                                                                     11                   1
                                                                                    32                  27
                                                                              --------           ---------

     Net loans charged off during the year                                         (38)                (61)
                                                                              --------           ---------

     Additions to allowance charged to expense during year                         378                 348
                                                                              --------           ---------

     Balance of allowance for loan losses at end of year                   $     1,773        $      1,433
                                                                              ========           =========

     Ratio on net loans charged off during the year to average
       loans outstanding                                                          0.03%               0.06%
                                                                              ========           =========
</TABLE>


<PAGE>
ALLOWANCE FOR LOAN LOSSES

        The allowance for loan losses is created by direct charges to
income.  Losses on loans are charged against the allowance in the year
in which such loans, in management's opinion, become uncollectible. 
Recoveries during the year are credited to this allowance.  The
factors that influence management's judgment in determining the amount
charged to income are past loan loss experience, composition of the
loan portfolio, evaluation of trends and possible losses, current
economic conditions and other relevant factors.  The Company's
allowance for loan losses was approximately $1,773,000 at December 31,
1998, representing 1.28% of total loans, compared with $1,433,000 at
December 31, 1997, which represented 1.18% of total loans.  The
allowance for loan losses is evaluated and adjusted periodically based
on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic
business conditions.  Management considers the allowance for loan
losses adequate to cover possible losses at December 31, 1998.


                               DEPOSITS

        Average amounts of deposits and average rates paid thereon,
classified as to noninterest-bearing demand deposits, interest-bearing
demand and savings deposits and time deposits, are presented below. <F1>

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                  ----------------------------------------
                                                            1998              1997
                                                  -------------------  -------------------
                                                     Amount    Rate      Amount     Rate
                                                  ---------- --------  ---------- --------
                                                            (Dollars in Thousands)
                                                  ----------------------------------------
<S>                                                <C>         <C>       <C>        <C>
Noninterest-bearing demand deposits                $  18,913      - %    $ 14,615      - %

Interest-bearing demand and savings deposits          46,513   3.53        34,845   3.57

Time deposits                                         95,388   6.20        83,669   6.24
                                                     -------              -------
       Total deposits                              $  160,81             $ 133,12
</TABLE>

[FN]
<F1>  Average balances were determined using the daily average balances.
</FN>

        The amounts of time certificates of deposit issued in amounts
of $100,000 or more as of December 31, 1998 are shown below by
category, which is based on time remaining until maturity or repricing
of (1) three months or less, (2) over three through twelve months, and
(3) over twelve months.
                                                           (Dollars in
                                                            Thousands)
                                                           ------------
      Three months or less                                  $    4,055

      Over three through twelve months                          11,198

      Over  twelve months                                        5,101
                                                              --------
             Total                                          $   20,354
                                                              ========<PAGE>
                      RETURN ON EQUITY AND ASSETS

        The following rate of return information for the periods
indicated is presented below.

                                            Year Ended December
                                          -----------------------
                                              1998       1997
                                          ----------  -----------

      Return on assets <F1>                   0.93 %     1.14 %

      Return on equity <F2>                  11.55      12.99

      Dividend payout ratio <F3>             21.33      22.22

      Equity to assets ratio (4)              8.05       8.76

[FN]
<F1>    Net income divided by average total assets.
<F2>    Net income divided by average equity.
<F3>    Dividends declared per share divided by diluted earnings per share.
<F4>    Average equity divided by average total assets.


CAPABILITY OF THE COMPANY'S PROCESSING SOFTWARE TO ACCOMMODATE THE
YEAR 2000

The Situation:  As the end of this century draws near, there is
-------------
worldwide concern that the year 2000 technology problems may wreak
havoc on global economies.  No country, government, business or person
is immune from the potential effects of year 2000 problems.  The year
2000 problem arose because many existing computer systems and software
programs use a two-digit year field.  Because of this, some computers
will not properly recognize the turn of the century.  A computer with
a two-digit year field may recognize the year 2000 as 1900.  If not
corrected, many computer applications could fail or miscalculate data
creating erroneous results.

For a bank, year 2000 problems could be devastating if loan or deposit
interest accruals are not calculated properly.  A year 2000 caused
system crash could result in a disruption of business, which in turn
could cause the bank to lose a significant portion of its customer
base.  Either of these situations could result in material adverse
consequences for the bank.

To address the year 2000 problem, the Company formed a "Year 2000
Committee" made up of key employees and directors.  This Committee has
been charged with the responsibility of assessing the problem and
overseeing corrective action, as well as testing the year 2000
readiness of all equipment, software and applications after upgrades
have been made.

Readiness:  Critical systems, hardware and software have received
---------
priority attention.  As of February 28, 1999, all critical systems
have been upgraded or replaced.  The related software has been
upgraded to meet year 2000 standards and has been tested to ensure
proper functioning in a year 2000 environment.  These critical systems
include the Bank's core bank processing hardware and software
and its automated new accounts and loan document preparation software
as well as its document retrieval system.  The Bank has upgraded its

<PAGE>
personal computers with year 2000 compliant hardware and software to
bring this area up to year 2000 standards.  Several other software
systems have been upgraded to be year 2000 compliant.  The Company
believes that there are no remaining key information technology
systems to be upgraded. The Company has also evaluated its non-
information technology systems, which include microcontrollers and
other embedded computers, and notes no significant issues to date.

Since the Bank is heavily reliant on outside vendors for many services
such as electricity, phone service, water, gas, ATM processing, bond
accounting and bank related forms, the Bank has developed a year 2000
questionnaire to help it determine a vendors' state of year 2000
readiness.  All critical vendors contacted by the Bank have responded. 
Responses to date have indicated adequate readiness.  No significant
weaknesses in a critical vendor have been discovered.  Major borrowers
of the Bank also have been required to complete a questionnaire to
assess year 2000 readiness.  Approximately 75% of such borrowers have
responded, and the Bank notes no significant issues to date.

Cost:  After the Bank's assessment phase to determine the extent of
----
its year 2000 problem, the Board of Directors approved a budget in the
amount of $274,000 to address the year 2000 issue and to purchase new
equipment upgrades which included new item processing equipment.  In
order to ensure that adequate funds are provided to resolve year 2000
issues, including those that may not be presently known, the Company's
year 2000 budget is subject to continuous review and amendment. 
Management does not expect the cost of remediation to vary
significantly from the present budget, although there can be no
assurances in this regard.

As of February 28, 1999, the Company has incurred $270,000 in year
2000 expenditures.  The capitalized expenditures included $243,000 for
hardware (the majority consisting of item processing equipment and new
personal computers) and $17,000 for software.  Expensed items included
$8,000 to service providers for assessment and testing and
approximately $2,000 on customer awareness and education.  No other
significant expenditures are expected.

The Company does not anticipate that the related overall costs will be
material to the financial condition of the Company for any single year
or quarter.  The Company has not used any independent verification and
validation processes to assure the reliability of year 2000 cost
estimates.

Risks of the Bank's Year 2000 Issues:  The Company believes that all
------------------------------------
significant remediations with respect to the Company's information
technology and non-information technology systems are complete. 
However, no assurance can be given that the Company will not be
exposed to potential losses resulting from system problems associated
with the change in date.  There can also be no assurance that the
Company's systems that have been designed to be year 2000 compliant
contain all of the necessary date code changes and that systems have
been correctly modified, or will be correctly modified in
contemplation of the year 2000.

        In addition to year 2000 compliance in the Bank's internal
systems, the impact of year 2000 non-compliance by outside parties
with whom the Bank may transact business cannot be accurately gauged. 
The year 2000 issue may have a material impact on the financial
condition of the Bank if borrowers of the Bank become insolvent and
are, therefore, unable to repay loans as they become due as a result
of the borrowers' year 2000 non-compliance.  
<PAGE>
        The Company is not aware of any critical third party
relationships whose year 2000 non-compliance could result in a
material adverse effect on the Company's results of operations,
liquidity and financial condition due to the date change.

The Bank's Contingency Plans:  The Company believes that at worst,
----------------------------
the Company's computer software and hardware would not contain the
necessary date code change and, therefore, would cease operating or
malfunction when the date change occurs.  In that case, the Company's
contingency plan contemplates conversion to a manual entry system. 
Management of the Company believes that the Company would be able to
continue to operate in that manner without significant loss.  However,
the Company believes that its computer software and hardware systems
are substantially year 2000 compliant.

        If the "worst case scenario" includes extended loss of power
and telecommunications or did not provide for continued external
transaction processing and limited hours of operation, revenue will be
impacted by reduction in generation of service charges and other
product and service fees as well as reduced investment revenue due to
the inability to properly manage liquidity, although the Company
cannot quantify any such potential losses.

Long Term Projects:  Year 2000 projects have not caused the Company to
------------------
defer other long term projects.

<PAGE>
ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Consolidated Balance Sheets - December 31, 1998 and 1997

     Consolidated Statements of Income - Years Ended December
       31, 1998 and 1997

     Consolidated Statements of Comprehensive Income - Years
       Ended December 31, 1998 and 1997

     Consolidated Statements of Stockholders' Equity - Years
       Ended December 31, 1998  and 1997

     Consolidated Statements of Cash Flows - Years Ended
       December 31, 1998 and 1997

     Notes to Consolidated Financial Statements


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE

     Not applicable.


<PAGE>
                               PART III


ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS

     The information set forth under the caption "Election of
Directors" and "Executive Officers" in the Proxy Statement used in
connection with the Company's 1999 Annual Shareholders Meeting is
incorporated herein by reference.  


ITEM 10.  EXECUTIVE COMPENSATION

     The information set forth under the caption "Executive
Compensation" in the Proxy Statement used in connection with the
Company's 1999 Annual Shareholders Meeting is incorporated herein by
reference.  


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     The information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement used in connection with the Company's 1999 Annual
Shareholders Meeting is incorporated herein by reference.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information set forth under the caption "Certain
Transactions" in the Proxy Statement used in connection with the
Company's 1999 Annual Shareholders Meeting is incorporated herein by
reference.


ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON
          FORM 8-K

     (a)  Contents:

          1.   Consolidated financial statements:

               (a)  GB&T Bancshares, Inc. and Subsidiary

                    (i)    Consolidated Balance Sheets - December 31,
                             1998 and 1997

                    (ii)   Consolidated Statements of Income - Years Ended
                             December 31,1998 and 1997

                    (iii)  Consolidated Statements of Comprehensive Income -
                             Years Ended December 31, 1998 and 1997

                    (iv)   Consolidated Statements of Stockholders' Equity -
                             Years Ended December 31, 1998 and 1997

                    (v)    Consolidated Statements of Cash Flows - Years Ended
                             December 31, 1998 and 1997

                    (v)    Notes to Consolidated Financial Statements
<PAGE>

          2.   Financial statement schedules:

               All schedules are omitted as the required information is
               inapplicable or the information is presented in the financial
               statements or related notes.
 
     (b)  Reports of Form 8-K:


          The Company did not file a report on Form 8-K during the
          last quarter of 1998.

     (c)  Exhibits:


          Exhibit
            No.                          Description
          -------      ---------------------------------------------------------

            3.1        Articles of Incorporation of the Registrant (incorporated
                       herein by reference to the Registrant's Registration
                       Statement on Form S-3, filed on September 24, 1998).

            3.2        By-Laws of the Registrant (incorporated herein by
                       reference to the Registrant's Registration Statement on
                       Form S-3, filed on September 24, 1998).

            4.1        See Exhibits 3.1 and 3.2 herein for provisions of the
                       Registrant's Articles of Incorporation and By-Laws which
                       define the rights of the holders of Common Stock of the
                       Registrant.

           10.1        Dividend Reinvestment and Share Purchase Plan of the
                       Registrant (incorporated herein by reference to the
                       Registrant's Registration Statement on Form S-3, filed
                       on September 24, 1998).

           21.1        Subsidiary of the Registrant.

           23.1        Consent of Mauldin & Jenkins, LLC.

           27.1        Financial Data Schedule (for SEC use only).
<PAGE>


                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY

                         CONSOLIDATED FINANCIAL REPORT
                               DECEMBER 31, 1998
------------------------------------------------------------------------------

                               TABLE OF CONTENTS
                               -----------------

INDEPENDENT AUDITOR'S REPORT........................       1

CONSOLIDATED FINANCIAL STATEMENTS

  Consolidated balance sheets.......................       2
  Consolidated statements of income.................       3
  Consolidated statements of comprehensive income...       4
  Consolidated statements of stockholders' equity...       5
  Consolidated statements of cash flows............. 6 and 7
  Notes to consolidated financial statements........    8-32
 



<PAGE>
 
                         INDEPENDENT AUDITOR'S REPORT
------------------------------------------------------------------------------


To the Board of Directors
GB&T Bancshares, Inc. and Subsidiary
Gainesville, Georgia


          We have audited the accompanying consolidated balance sheets of GB&T
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the years then ended.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.


          We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


          In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of GB&T
Bancshares, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

                                         /s/ MAULDIN & JENKINS, LLC.



Atlanta, Georgia
February 12, 1999



                                     F-1
<PAGE>
                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY
 
                          CONSOLIDATED BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

                       Assets                            1998            1997
                                                     ------------   ------------
                                                     
Cash and due from banks                              $  9,406,508   $  9,087,972
Interest-bearing deposits in banks                        254,060        338,665
Securities available-for-sale                          31,244,047     24,904,865
Federal funds sold                                      9,693,000     10,525,000
                                                     
Loans                                                 138,223,283    121,210,035
Less allowance for loan losses                          1,773,187      1,432,957
                                                     ------------   ------------
          Loans, net                                  136,450,096    119,777,078
                                                     ------------   ------------
                                                     
Premises and equipment                                  4,521,824      4,331,237
Other assets                                            4,592,051      4,033,257
                                                     ------------   ------------
                                                     
          Total assets                               $196,161,586   $172,998,074
                                                     ============   ============
                                                     
        Liabilities and Stockholders' Equity         
                                                     
Deposits                                             
    Noninterest-bearing demand                       $ 25,374,358   $ 17,892,024
    Interest-bearing demand                            48,739,521     40,174,853
    Savings                                             3,814,887      2,979,325
    Time, $100,000 and over                            20,354,310     19,921,815
    Other time                                         78,164,269     74,642,968
                                                     ------------   ------------
          Total deposits                              176,447,345    155,610,985
Other borrowings                                        2,417,784      1,429,630
Other liabilities                                       1,990,794      2,156,516
                                                     ------------   ------------
          Total liabilities                           180,855,923    159,197,131
                                                     ------------   ------------
                                                     
Commitments and contingent liabilities               
                                                     
Stockholders' equity                                 
    Common stock, par value $5; 10,000,000 shares    
        authorized, 2,099,148 and 1,676,160 shares   
        issued and outstanding, respectively           10,495,740      8,380,800
    Capital surplus                                        64,559      2,002,750
    Retained earnings                                   4,594,107      3,357,703
    Accumulated other comprehensive income                151,257         59,690
                                                     ------------   ------------
                                                     
          Total stockholders' equity                   15,305,663     13,800,943
                                                     ------------   ------------
                                                     
          Total liabilities and stockholders' 
              equity                                 $196,161,586   $172,998,074
                                                     ============   ============

See Notes to Consolidated Financial Statements.


                                     F-2<PAGE>
 
                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
                                                     1998             1997
                                                 -----------      -----------
Interest income                                                    
    Loans                                        $13,006,457      $11,449,287
    Taxable securities                             1,652,410        1,457,573
    Nontaxable securities                            129,773           57,724
    Federal funds sold                               568,761          327,279
    Deposits in banks                                 54,876           46,156
                                                 -----------      -----------
          Total interest income                  $15,412,277       13,338,019
                                                 -----------      -----------
                                                                   
Interest expense                                                   
    Deposits                                       7,558,396        6,463,793
    Other borrowings                                 118,361           67,108
                                                 -----------      -----------
          Total interest expense                   7,676,757        6,530,901
                                                 -----------      -----------
                                                                   
          Net interest income                      7,735,520        6,807,118
Provision for loan losses                            378,000          348,000
                                                 -----------      -----------
          Net interest income after provision                      
              for loan losses                      7,357,520        6,459,118
                                                 -----------      -----------
                                                                   
Other income                                                       
    Service charges on deposit accounts              492,680          507,654
    Other service charges and fees                    22,525           22,023
    Security transactions, net                            -           (15,657)
    Mortgage origination fees                        304,754          137,200
    Gain on sale of loans                            276,001           29,255
    Other operating income                           400,009          268,347
                                                 -----------      -----------
          Total other income                       1,495,969          948,822
                                                 -----------      -----------
                                                                   
Other expense                                                      
    Salaries and employee benefits                 3,463,700        2,722,259
    Equipment expenses                               480,422          396,535
    Occupancy expenses                               461,764          363,262
    Other operating expenses                       2,022,151        1,337,091
                                                 -----------      -----------
          Total other expenses                     6,428,037        4,819,147
                                                 -----------      -----------
                                                                   
          Income before income taxes               2,425,452        2,588,793
                                                                   
Income tax expense                                   752,517          885,500
                                                 -----------      -----------
                                                                   
          Net income                             $ 1,672,935      $ 1,703,293
                                                 ===========      ===========
                                                                   
Basic earnings per common share                  $      0.80      $      0.81
                                                 ===========      ===========
                                                                   
Diluted earnings per common share                $      0.75             0.81
                                                 ===========      ===========



See Notes to Consolidated Financial Statements.

                                     F-3<PAGE>
 
                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                 1998         1997
                                                             -----------   -----------
<S>                                                          <C>           <C> 
Net income                                                   $ 1,672,935   $ 1,703,293
                                                             -----------   -----------
Other comprehensive income:

    Unrealized gains on securities available-for-sale:

        Unrealized holding gains arising during period,
            net of tax of $56,122 and $68,694, respectively       91,567       112,079

         Reclassification adjustment for losses realized
            in net income, net of tax of $- and $5,950,
            respectively                                              -          9,707
                                                             -----------   -----------

Other comprehensive income                                        91,567       121,786
                                                             -----------   -----------

Comprehensive income                                         $ 1,764,502   $ 1,825,079
                                                             ===========   ===========

</TABLE> 
See Notes to Consolidated Financial Statements.



                                      F-4
<PAGE>
 
                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                              Accumulated
                                       Common Stock                                             Other            Total
                                  ------------------------       Capital        Retained     Comprehensive    Stockholders'
                                    Shares       Par Value       Surplus        Earnings     Income (Loss)       Equity
                                  ----------     ---------      ---------      ---------     -------------    ------------
<S>                                 <C>          <C>            <C>            <C>             <C>             <C> 
Balance, December 31, 1996          836,980      4,184,900      4,185,050      4,039,684      (62,096)        12,347,538 
    Net income                            -              -              -      1,703,293            -          1,703,293
    Options exercised                 2,100         10,500          3,100              -            -             13,600
    Transfer to capital surplus           -              -      2,000,000     (2,000,000)           -                  -
    Stock dividend                  837,080      4,185,400     (4,185,400)             -            -                  -
    Dividends declared,                                                                                   
        $.18 per share                    -              -              -       (385,274)           -           (385,274)
    Other comprehensive income            -              -              -              -      121,786            121,786
                                   ---------   -----------     ----------     ----------     --------        -----------
Balance, December 31, 1997        1,676,160      8,380,800      2,002,750      3,357,703       59,690         13,800,943
    Net income                            -              -              -      1,672,935            -          1,672,935
    Options exercised                    13             65             75              -            -                140
    Stock dividend                  419,011      2,095,055     (2,002,750)       (92,920)           -               (615)
    Dividends reinvested              3,964         19,820         64,484              -            -             84,304
    Dividends declared,                                                                                   
        $.16 per share                    -              -              -       (343,611)           -           (343,611)
    Other comprehensive income            -              -              -              -       91,567             91,567
                                   ---------     ---------      ---------      -----------   --------        ----------- 
Balance, December 31, 1998         2,099,148   $10,495,740      $  64,559     $4,594,107     $151,257        $15,305,663
                                   =========   ===========      =========     ==========     ========        ===========
</TABLE> 
See Notes to Consolidated Financial Statements.

                                     F-5

<PAGE>
 
                              GB&T BANCSHARES, INC. 
                                AND SUBSIDIARY

                     CONSOLDIATED STATEMENTS OF CASH FLOWS   
                    YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                               1998           1997
                                                           ------------   ------------
<S>                                                        <C>            <C> 
OPERATING ACTIVITIES
    Net income                                             $  1,672,935   $  1,703,293
    Adjustments to reconcile net income to
        net cash provided by operating activities:
        Depreciation                                            411,359        324,226
        Provision for loan losses                               378,000        348,000
        Provision for other real estate owned                   289,000             -
        Loss on sale of securities available-for-sale                -          15,657
        Loss on sale of other real estate owned                   8,224          2,049
        Deferred income taxes                                  (246,827)      (126,944)
        Increase in interest receivable                         (55,285)      (274,467)
        Increase (decrease) in interest payable                (208,447)       510,824
        Other operating activities                             (297,339)      (310,161)
                                                           ------------   ------------

           Net cash provided by operating activities          1,951,620      2,192,477
                                                           ------------   ------------

INVESTING ACTIVITIES
    Decrease in interest-bearing deposits in banks               84,606         36,501
    Purchases of securities available-for-sale              (21,551,745)   (10,558,936)
    Proceeds from maturities of securities 
        available-for-sale                                   14,460,252      6,267,593
    Proceeds from sales of securities available-for-sale        900,000      3,282,109
    Net (increase) decrease in Federal funds sold               832,000     (7,725,000)
    Net increase in loans                                   (17,783,403)   (28,177,505)
    Purchase of premises and equipment                         (601,946)    (1,406,558)
    Proceeds from sale of other real estate owned               462,421          5,184
                                                           ------------   ------------

           Net cash used in investing activities            (23,197,815)   (38,276,612)
                                                           ------------   ------------

FINANCING ACTIVITIES
    Net increase in deposits                                 20,836,359     38,604,035
    Net increase in other borrowings                            988,154        553,500
    Options exercised                                               140         13,600
    Dividends reinvested                                         84,304             -
    Dividends paid                                             (344,226)      (452,100)
                                                           ------------   ------------

         Net cash provided by financing activities           21,564,731     38,719,035
                                                           ------------   ------------
</TABLE>

                                     F-6<PAGE>
 
                             GB&T BANCSHARES, INC.
                                AND SUBSIDIARY
                                             
                   CONSOLDIATED STATEMENTS OF CASH FLOWS
                   YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------------------------------------------------

                                                      1998            1997
                                                   ------------    -----------
                                                                   
Net increase in cash and due from banks            $   318,536     $ 2,634,900
                                                                   
Cash and due from banks at beginning of year         9,087,972       6,453,072
                                                   ------------    -----------
                                                                   
Cash and due from banks at end of year             $ 9,406,508     $ 9,087,972
                                                   ===========     =========== 
                                                                   
SUPPLEMENTAL DISCLOSURES                                           
    Cash paid for:                                                 
        Interest                                   $ 7,885,204     $ 6,020,077
                                                                   
        Income taxes                               $   968,718     $ 1,146,220
                                                                   
NONCASH TRANSACTIONS                                               
    Unrealized gains on securities                                 
        available-for-sale                         $  (147,689)    $  (196,430)
                                                                   
    Principal balances of loans transferred                        
        to other real estate                       $   732,385     $        -



See Notes to Consolidated Financial Statements.

                                     F-7<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Nature of Business

           GB&T Bancshares, Inc. (the "Company") is a bank holding company whose
           business is conducted by its wholly-owned subsidiary, Gainesville
           Bank & Trust (the "Bank").  The Bank is a commercial bank located in
           Gainesville, Hall County, Georgia with three branches located in
           Gainesville, Georgia and one branch located in Oakwood, Georgia.  The
           Bank provides a full range of banking services to individual and
           corporate customers in its primary market area of Hall County and
           surrounding counties.

          Basis of Presentation

           The consolidated financial statements include the accounts of the
           Company and its subsidiary.  Significant intercompany transactions
           and accounts are eliminated in consolidation.

           The preparation of financial statements in conformity with generally
           accepted accounting principles requires management to make estimates
           and assumptions that affect the reported amounts of assets and
           liabilities and disclosures of contingent assets and liabilities at
           the date of the consolidated financial statements and the reported
           amounts of revenues and expenses during the reporting period.  Actual
           results could differ from those estimates.

          Cash and Due from Banks

           Cash on hand, cash items in process of collection and amounts due
           from banks are included in cash and due from banks.

           The Company maintains amounts due from banks which, at times, may
           exceed Federally insured limits.  The Company has not experienced any
           losses in such accounts.

          Securities

           Securities are classified based on management's intention on the date
           of purchase.  Securities which management has the intent and ability
           to hold to maturity would be classified as held-to-maturity and
           reported at amortized cost.  All other securities are classified as
           available-for-sale and carried at fair value with net unrealized
           gains and losses included in stockholders' equity net of tax.  Equity
           securities without a readily determinable fair value are included in
           securities available-for-sale and carried at cost.


                                      F-8<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
          Securities (Continued)

           Interest and dividends on securities, including amortization of
           premiums and accretion of discounts, are included in interest income.
           Realized gains and losses from the sales of securities are determined
           using the specific identification method.

          Loans

           Loans are carried at their principal amounts outstanding less
           unearned income and the allowance for loan losses. Interest income on
           loans is credited to income based on the principal amount
           outstanding.

           Loan origination fees and costs incurred in origination of loans are
           recognized at the time the loan is recorded.  Because net origination
           loan fees and costs are not material, the results of operations are
           not materially different than the results which would be obtained by
           accounting for loan fees and costs in accordance with generally
           accepted accounting principles.

           The allowance for loan losses is maintained at a level that
           management believes to be adequate to absorb potential losses in the
           loan portfolio.  Management's determination of the adequacy of the
           allowance is based on an evaluation of the portfolio, past loan loss
           experience, current economic conditions, volume, growth, composition
           of the loan portfolio, and other risks inherent in the portfolio.
           This evaluation is inherently subjective as it requires material
           estimates that are susceptible to significant change including the
           amounts and timing of future cash flows expected to be received on
           impaired loans.  In addition, regulatory agencies, as an integral
           part of their examination process, periodically review the Company's
           allowance for loan losses, and may require the Company to record
           additions to the allowance based on their judgment about information
           available to them at the time of their examinations.

           The accrual of interest on loans is discontinued when, in
           management's opinion, the borrower may be unable to meet payments as
           they become due.  When accrual of interest is discontinued, all
           unpaid accrued interest is reversed.  Interest income is subsequently
           recognized only to the extent cash payments are received.

                                      F-9<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
          Loans (Continued)

           A loan is considered to be impaired when it is probable the Company
           will be unable to collect all principal and interest payments due in
           accordance with the terms of the loan agreement.  Individually
           identified impaired loans are measured based on the present value of
           payments expected to be received, using the contractual loan rate as
           the discount rate.  Alternatively, measurement may be based on
           observable market prices or, for loans that are solely dependent on
           the collateral for repayment, measurement may be based on the fair
           value of the collateral.  If the recorded investment in the impaired
           loan exceeds the measure of fair value, a valuation allowance is
           established as a component of the allowance for loan losses.  Changes
           to the valuation allowance are recorded as a component of the
           provision for loan losses.

          Other Real Estate Owned

           Other real estate owned represents properties acquired through
           foreclosure.  Other real estate owned is held for sale and is
           recorded at the lower of the recorded amount of the loan or fair
           value of the properties less estimated selling costs.  Any write-down
           to fair value at the time of transfer to other real estate owned is
           charged to the allowance for loan losses.  Subsequent gains or losses
           on sale and any subsequent adjustments to the value are recorded in
           current income from operations.

          Premises and Equipment

           Premises and equipment are stated at cost less accumulated
           depreciation. Depreciation is computed principally by the straight-
           line method over the estimated useful lives of the assets.

          Sale of Loans

           The Company originates and sells participations in certain loans.
           Gains are recognized at the time the sale is consummated.  The amount
           of gain recognized on the sale of a specific loan is equal to the
           percentage resulting from determining the fair value of the portion
           of the loan sold relative to the fair value of the entire loan.
           Losses are recognized at the time the loan is identified as held for
           sale and the loan's carrying value exceeds its fair value.

                                      F-10<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Income Taxes

           Income tax expense consists of current and deferred taxes.  Current
           income tax provisions approximate taxes to be paid or refunded for
           the applicable year.  Deferred income tax assets and liabilities are
           determined using the balance sheet method.  Under this method, the
           net deferred tax asset or liability is determined based on the tax
           effects of the differences between the book and tax bases of the
           various balance sheet assets and liabilities and gives current
           recognition to changes in tax rates and laws.

           Recognition of deferred tax balance sheet amounts is based on
           management's belief that it is more likely than not that the tax
           benefit associated with certain temporary differences, tax operating
           loss carryforwards and tax credits will be realized.  A valuation
           allowance would be recorded for those deferred tax items for which it
           is more likely than not that realization would not occur.

           The Company and the Bank file a consolidated income tax return.  Each
           entity provides for income taxes based on its contribution to income
           taxes (benefits) of the consolidated group.

          Earnings Per Common Share

           Basic earnings per common share are computed by dividing net income
           by the weighted-average number of shares of common stock outstanding.
           Diluted earnings per share are computed by dividing net income by the
           sum of the weighted-average number of shares of common stock
           outstanding and potential common shares.  Potential common shares
           consist of stock options.

                                      F-11<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Comprehensive Income

           In 1998, the Company adopted Statement of Financial Standards
           ("SFAS") No. 130, "Reporting Comprehensive Income".  This statement
           establishes standards for reporting and display of comprehensive
           income and its components in the financial statements.  This
           statement requires that all items that are required to be recognized
           under accounting standards as components of comprehensive income be
           reported in a financial statement that is displayed in equal
           prominence with the other financial statements.  The Company has
           elected to report comprehensive income in a separate financial
           statement titled "Consolidated Statements of Comprehensive Income".
           SFAS No. 130 describes comprehensive income as the total of all
           components of comprehensive income including net income.  This
           statement uses other comprehensive income to refer to revenues,
           expenses, gains and losses that under generally accepted accounting
           principles are included in comprehensive income but excluded from net
           income.  Currently, the Company's other comprehensive income consists
           of items previously reported directly in equity under SFAS No. 115,
           "Accounting for Certain Investments in Debt and Equity Securities".
           As required by SFAS No. 130, the financial statements for the prior
           year have been reclassified to reflect application of the provisions
           of this statement.  The adoption of this statement did not affect the
           Company's financial position, results of operations or cash flows.

          Recent Accounting Pronouncements

           In June 1998, the Financial Accounting Standards Board issued SFAS
           No. 133, "Accounting for Derivative Instruments and Hedging
           Activities".  This statement is required to be adopted for fiscal
           years beginning after June 15, 1999.  However, the statement permits
           early adoption as of the beginning of any fiscal quarter after its
           issuance.  The Company expects to adopt this statement effective
           January 1, 2000.  SFAS No. 133 requires the Company to recognize all
           derivatives as either assets or liabilities in the balance sheet at
           fair value.  For derivatives that are not designated as hedges, the
           gain or loss must be recognized in earnings in the period of change.
           For derivatives that are designated as hedges, changes in the fair
           value of the hedged assets, liabilities, or firm commitments must be
           recognized in earnings or recognized in other comprehensive income
           until the hedged item is recognized in earnings, depending on the
           nature of the hedge.  The ineffective portion of a derivative's
           change in fair value must be recognized in earnings immediately.
           Management has not yet determined what effect the adoption of SFAS
           No. 133 will have on the Company's earnings or financial position.


                                     F-12<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

 
NOTE 2.  SECURITIES

         The amortized cost and fair value of securities are summarized as
         follows:
<TABLE>
<CAPTION>
                                                                  Gross            Gross
                                                 Amortized      Unrealized       Unrealized        Fair 
                                                    Cost           Gains            Losses         Value
                                                -----------     ----------      -----------     -----------
<S>                                             <C>             <C>              <C>              <C>
          Securities Available-for-Sale
            December 31, 1998:
            U. S. Government and agency
              securities                        $23,559,084      $160,353         $(28,611)      $23,690,826
            State and municipal securities        3,512,190        96,111             (284)        3,608,017
            Mortgage-backed securities            3,409,908        33,993          (17,597)        3,426,304
            Equity securities                       518,900            -                -            518,900
                                                -----------      --------         --------       -----------  
                                                $31,000,082      $290,457         $(46,492)      $31,244,047
                                                ===========      ========         ========       ===========  

           December 31, 1997:
           U. S. Government and agency
             securities                        $16,893,069        $ 76,988        $  (9,801)     $16,960,256
           State and municipal securities        2,139,005          34,476             (512)       2,172,969
           Mortgage-backed securities            5,380,418          46,554          (51,432)       5,375,540
           Equity securities                       396,100              -                -           396,100
                                               -----------        --------         --------      ----------- 
                                               $24,808,592        $158,018         $(61,745)     $24,904,865
                                               ===========        ========         ========      ===========
</TABLE>

         The amortized cost and fair value of securities as of December 31, 1998
         by contractual maturity are shown below. Maturities may differ from
         contractual maturities of mortgage-backed securities because the
         mortgages underlying the securities may be called or prepaid without
         penalty. Therefore, these securities and equity securities are not
         included in the maturity categories in the following summary.
<TABLE>
<CAPTION>
 
                                             Securities Available-for-Sale
                                             -----------------------------
                                              Amortized           Fair 
                                                Cost              Value
                                             -----------       -----------
<S>                                          <C>              <C>
         Due within one year                $   998,445        $ 1,007,500
         Due from one year to five years     23,370,995         23,519,192
         Due from five years to ten years     2,701,834          2,772,151
         Mortgage-backed securities           3,409,908          3,426,304
         Equity securities                      518,900            518,900
                                            -----------        -----------
                                            $31,000,082        $31,244,047
                                            ===========        ===========
                                                        
</TABLE>                                                

                                     F-13<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
     
     
NOTE 2.  SECURITIES (Continued)
     
         Securities with a carrying value of $7,332,475 and $9,605,176 at
         December 31, 1998 and 1997, respectively, were pledged to secure
         public deposits and for other purposes.

         The Company incurred gross losses of $15,657 on sales of securities
         for the year ended December 31, 1997. There were no sales of
         securities for the year ended December 31, 1998.


NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES

         The composition of loans is summarized as follows:

                                                       December 31,
                                               ---------------------------
                                                    1998          1997
                                               ------------   ------------

         Commercial                            $ 16,880,000   $ 15,884,000
         Real estate - construction              27,200,000     25,447,000
         Real estate - mortgage                  79,500,000     66,920,000
         Consumer                                12,935,000     10,934,000
         Other                                    1,730,166      2,049,703
                                               ------------   ------------
                                                138,245,166    121,234,703
         Unearned income                            (21,883)       (24,668)
         Allowance for loan losses               (1,773,187)    (1,432,957)
                                               ------------   ------------
         Loans, net                            $136,450,096   $119,777,078
                                               ============   ============
 
         Changes in the allowance for loan losses for the years ended December
         31 are as follows:

                                                    1998             1997
                                                ----------       ----------
 
         Balance, beginning of year             $1,432,957       $1,146,284
         Provision for loan losses                 378,000          348,000
         Loans charged off                         (69,015)         (88,323)
         Recoveries                                 31,245           26,996
                                                ----------       ----------
         Balance, end of year                   $1,773,187       $1,432,957
                                                ==========       ========== 

                                     F-14<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 3.  LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

         The total recorded investment in impaired loans was $92,804 and $3,000
         at December 31, 1998 and 1997, respectively. There were no impaired
         loans at December 31, 1998 or 1997 in which there had been a specific
         reserve determined in accordance with generally accepted accounting
         principles. The average recorded investment in impaired loans for 1998
         and 1997 was $262,938 and $1,194, respectively. Interest income of
         $9,873 was recognized on impaired loans for the year ended December
         1998. No interest income was recognized on impaired loans for the year
         ended 1997.

         The Company has granted loans to certain related parties, including
         executive officers, directors and their related entities. The interest
         rates on these loans were substantially the same as rates prevailing at
         the time of the transaction and repayment terms are customary for the
         type of loan involved. Changes in related party loans for the year
         ended December 31, 1998 are as follows:
         
         Balance, beginning of year                       $ 3,634,485
           Advances                                         2,535,601
           Repayments                                      (2,521,653)
           Transactions due to change in related parties       (4,130)
                                                          -----------
         Balance, end of year                             $ 3,644,303
                                                          ===========  

NOTE 4.  PREMISES AND EQUIPMENT

         Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
 
                                                                  December 31,
                                                           -------------------------
                                                               1998         1997
                                                           ------------  -----------
<S>                                                       <C>           <C>
         Land                                               $  770,228   $   770,228
         Buildings                                           1,348,871     1,335,554
         Leasehold improvements                              1,698,040     1,529,370
         Furniture and equipment                             3,006,264     2,679,678
         Computer installation/construction in progress        215,720       152,622
                                                           -----------   -----------
                                                             7,039,123     6,467,452
         Accumulated depreciation                           (2,517,299)   (2,136,215)
                                                           -----------   -----------
                                                           $ 4,521,824   $ 4,331,237
                                                           ===========   ===========

</TABLE>

                                      F-15<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 4.  PREMISES AND EQUIPMENT (Continued)

         At December 31, 1998, the Company's 50% interest in the main office
         banking facility with a carrying value (including land) of $1,714,284
         was pledged to a bank to secure a $1,200,000 borrowing of a director
         who is the owner of the remaining 50% interest in the building.

         At December 31, 1998, in progress consisted of equipment related to a
         new imaging system and network. Total estimated costs to complete the
         imaging system and network were approximately $200,000. At December 31,
         1997, in progress consisted of costs incurred in constructing a fifth
         branch. Total estimated costs to complete the project were
         approximately $150,000.

NOTE 5.  DEPOSITS

         Aggregate maturities of time deposits at December 31, 1998 are as
         follows:

                          1999               $74,004,426
                          2000                19,085,820
                          2001                 3,687,022
                          2002                 1,741,311
                                             -----------
                                             $98,518,579
                                             ===========
 
NOTE 6.  OTHER BORROWINGS
 
         Other borrowings consist of the following:
<TABLE>       
<CAPTION>
                                                                                    December 31,
                                                                             -------------------------
                                                                                 1998          1997
                                                                             -----------   -----------
<S>                                                                         <C>           <C> 
         FHLB advance, interest payable semi-annually at 6.33%,              
           principal due in semi-annual instalments of $25,714.
           Advance matures on November 13, 2002.  Advances
           are secured by securities with a carrying value of $505,155.       $  205,714   $  257,143
         Securities sold under repurchase agreements                           1,234,984      362,200
         Treasury, tax and loan note option account due on demand,
           bearing interest equal to the 90 day Treasury bill rate.              977,086      810,287
                                                                              ----------   ----------
                                                                              $2,417,784   $1,429,630
                                                                              ==========   ==========
</TABLE>

                                     F-16<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 6.  OTHER BORROWINGS (Continued)

         Aggregate maturities required on FHLB advances at December 31, 1998
         are as follows:

                 1999                           $ 51,428
                 2000                             51,428
                 2001                             51,428
                 2002                             51,430
                                                --------
                                                $205,714
                                                ========


NOTE 7.  EMPLOYEE BENEFIT PLAN

         Profit Sharing Plan

         The Company has a 401(k) Employee Profit-Sharing Plan available to
         all eligible employees, subject to certain minimum age and service
         requirements. The contributions expensed were $69,154 and $56,590 for
         the years ended December 31, 1998 and 1997, respectively.

         Deferred Compensation Plan

         The Company has a deferred compensation plan providing for death and
         retirement benefits for certain officers. The estimated amounts to be
         paid under the compensation plan are being funded through the purchase
         of life insurance policies on the officers. Accrued deferred
         compensation of $33,456 and $- is included in other liabilities as of
         December 31, 1998 and 1997, respectively. Cash surrender values of
         $1,680,562 and $1,604,459 on the insurance policies is included in
         other assets at December 31, 1998 and 1997, respectively.

         Dividend Reinvestment and Share Purchase Plan

         In 1998, the Company adopted a dividend reinvestment and share purchase
         plan. Under the plan, all holders of record of common stock are
         eligible to participate in the plan. Participants in the plan may
         direct to the plan administrator to invest cash dividends declared with
         respect to all or any portion of the stock dividend. Participants may
         also make optional cash payments which will be invested through the
         plan. All cash dividends paid to the plan administrator are invested
         within 30 days of cash dividend payment date. Cash dividends and
         optional cash payments will be used to purchase common stock of the
         Company in the open market, from newly-issued shares, from shares held
         in treasury, in negotiated transactions, or in any combination of the
         foregoing. The purchase price of the shares of common stock is based on
         the average market price. All administrative costs are borne by the
         Company. For the year ended December 31, 1998, 3,964 shares were
         purchased under the plan.

                                     F-17<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 8.  LEASES

         The Company leases its main office banking facility under a
         noncancelable operating lease agreement from 400 Church Street
         Properties, a partnership that is 50% owned by the Bank and 50% owned
         by a director. The lease has an initial lease term of 10 years with
         four five-year renewal options.

         The Company also leases its Thompson Bridge and East Hall branches
         under noncancelable operating leases with an initial lease term of 5
         years with three five year renewal options and its Dawsonville Highway
         branch under a noncancelable operating lease with an initial term of 10
         years with three five-year renewal options.

         Rental expense under all operating leases amounted to $364,470 and
         $309,298, for the years ended December 31, 1998 and 1997, respectively.

         Future minimum lease payments on noncancelable operating leases are
         summarized as follows:
 
                        1999                          $248,289
                        2000                            89,750
                        2001                            80,688
                        2002                            46,250
                        2003                            52,320
                        Thereafter                     219,399
                                                      --------
                                                      $736,696
                                                      ======== 

NOTE 9.  STOCK OPTIONS

         The Company has a 1992 stock option plan for key employees. Option
         prices reflect the fair market value of the Company's common stock on
         the dates the options are granted. These options expire five years from
         the grant date.

         In 1997, the Board of Directors approved a stock option plan reserving
         325,000 shares of common stock for the granting of options to
         directors, officers, and employees. Option prices reflect the fair
         market value of the Company's common stock on the dates the options are
         granted. The options may be exercised over a period of ten years in
         accordance with a ten year vesting schedule.

                                     F-18
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 9.  STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
                                                   1998                      1997
                                        -----------------------     -----------------------
                                                     Weighted-                    Weighted-
                                                     Average                       Average
                                                     Exercise                     Exercise
                                        Number        Price          Number         Price
                                       --------     -----------     --------     ----------
<S>                                    <C>          <C>            <C>           <C>
     Under option, beginning of year   270,250        $10.38          10,000       $ 6.05
       Granted                               -                       264,250        10.58
       Exercised                           (13)        10.80          (2,750)        4.94
       Terminated                       (5,625)         9.02          (1,250)       10.80
                                       -------                       -------
     Under option, end of year         264,612         10.64         270,250        10.38
                                       =======                       ======= 
<CAPTION>
                                                                    Weighted-          Weighted-
                                                      Range          Average            Average
                                                       of           Exercise           Remaining
                                       Number        Prices           Price         Contractual Life
                                      --------    ------------     ------------     ----------------
<S>                                   <C>         <C>               <C>                   <C>
     Under option, end of year          12,250     $6.40-9.00         $ 7.38               2.5
                                       252,362          10.80          10.80               8.8
                                       -------
                                       264,612
                                       =======

     Exercisable, end of year            4,600     $6.40-9.00           6.94               2.1
                                         2,524          10.80          10.80               8.8
                                      --------
                                         7,124
                                      ========
</TABLE>
           As permitted by SFAS No. 123, "Accounting for Stock-Based
           Compensation", the Company recognizes compensation cost for stock-
           based employee compensation awards in accordance with APB Opinion No.
           25, "Accounting for Stock Issued to Employees". The Company
           recognized no compensation cost for stock-based employee compensation
           awards for the years ended December 31, 1998 and 1997. If the Company
           had recognized compensation cost in accordance with SFAS No. 123, net
           income and earnings per share would have been reduced as follows:

                                     F-19<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 9.  STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
                                                      December 31,
                                   ---------------------------------------------------
                                            1998                      1997
                                   -----------------------   -------------------------
                                                  Diluted                     Diluted
                                                  Earnings                    Earnings
                                                    Per                         Per
                                   Net Income      Share      Net Income       Share
                                   ----------   ----------    ----------     ----------
<S>                                <C>          <C>           <C>           <C>
 
     As reported                   $1,672,935    $ 0.75       $1,703,293       $0.81
     Stock-based compensation,
      net of related tax effect       (21,405)    (0.01)          (9,308)         -
                                   ----------    ------       ----------       -----
     As adjusted                   $1,651,530    $ 0.74       $1,693,985       $0.81
                                   ==========    ======       ==========       ===== 
</TABLE>

         The per share weighted-average value of stock options granted during
         1997 was $3.57 using the Black Scholes option pricing model and the
         following assumptions:
<TABLE> 
<CAPTION> 
                                                                               1997
                                                                              ------ 
<S>                                                                           <C> 
         Risk-free interest rate                                               5.97%
         Expected life of the options                                            10
         Expected dividends (as a percent of the fair value of the stock)      1.40%
         Volatility                                                           12.96%
</TABLE> 
  
NOTE 10. INCOME TAXES

         The components of income tax expense are as follows:
 
                                 Year Ended December 31,
                                -------------------------   
                                    1998          1997
                                ----------    -----------
         Current                $ 999,344     $1,012,444
         Deferred                (246,827)      (126,944)
                                ---------     ----------
            Income tax expense  $ 752,517     $  885,500
                                =========     ==========
 
                                     F-20<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 10. INCOME TAXES (Continued)

         The Company's income tax expense differs from the amounts computed by
         applying the Federal income tax statutory rates to income before
         income taxes.  A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
                                                          December 31, 
                                          -----------------------------------------
                                                 1998                   1997
                                          -------------------    ------------------
                                           Amount     Percent     Amount    Percent
                                          --------    -------    --------   -------
<S>                                       <C>        <C>         <C>       <C> 
         Tax provision at statutory rate  $824,654      34 %     $880,190     34 %
           Tax-exempt interest             (43,618)     (2)       (19,595)    (1)
           Disallowed interest               8,313       -          3,563      -
           Life insurance                  (26,745)     (1)       (14,224)     -
           State income taxes                5,594       -         37,928      1
           Other                           (15,681)      -         (2,362)     -
                                          --------      --       --------     --
         Income tax expense               $752,517      31 %     $885,500     34 %
                                          ========      ==       ========     ==
</TABLE>

         The components of deferred income taxes are as follows:
<TABLE>
<CAPTION> 
                                                    1998        1997
                                                 --------     --------
 <S>                                             <C>        <C>
         Deferred tax assets:
            Loan loss reserves                   $593,575     $445,560
            Other real estate write-down          141,568       21,248
            Other                                   1,153        1,153
                                                 --------     --------
                                                  736,296      467,961
                                                 --------     --------

          Deferred tax liabilities:
            Depreciation                           83,122       59,714
            Accretion of discount on securities     5,531        7,431
            Securities available-for-sale          92,706       36,584
                                                 --------     --------
                                                  181,359      103,729
                                                 --------     -------- 

          Net deferred tax assets                $554,937     $364,232
                                                 ========     ========
</TABLE>
                                     F-21<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 11. EARNINGS PER COMMON SHARE

         Presented below is a summary of the components used to calculate basic
         and diluted earnings per share for the years ended December 31, 1998
         and 1997.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                     ------------------------
                                                                        1998           1997
                                                                     ----------    ----------
<S>                                                                   <C>           <C>
         Basic Earnings Per Share:
           Weighted average common shares outstanding                 2,095,661     2,093,489
                                                                     ==========    ==========

           Net income                                                $1,672,935    $1,703,293
                                                                     ==========    ==========
 
           Basic earnings per share                                  $     0.80    $     0.81
                                                                     ==========    ==========
         Diluted Earnings Per Share:
           Weighted average common shares outstanding                 2,095,661     2,093,489
           Net effect of the assumed exercise of stock
            options based on the treasury stock method
            using average market price for the year                     127,937         4,896
                                                                     ----------    ----------
           Total weighted average common shares and
            common stock equivalents outstanding                      2,223,598     2,098,385
                                                                     ==========    ==========

           Net income                                                $1,672,935    $1,703,293
                                                                     ==========    ==========
 
           Diluted earnings per share                                $     0.75    $     0.81
                                                                     ==========    ========== 
</TABLE>
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES

         In the normal course of business, the Company has entered into off-
         balance-sheet financial instruments which are not reflected in the
         financial statements. These financial instruments include commitments
         to extend credit and standby letters of credit. Such financial
         instruments are included in the financial statements when funds are
         disbursed or the instruments become payable. These instruments involve,
         to varying degrees, elements of credit risk in excess of the amount
         recognized in the balance sheet.

                                     F-22<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

         The Company's exposure to credit loss in the event of nonperformance by
         the other party to the financial instrument for commitments to extend
         credit and standby letters of credit is represented by the contractual
         amount of those instruments. A summary of the Company's commitments is
         as follows:
 
                                               December 31,
                                         ------------------------
                                            1998          1997
                                         -----------  -----------
 
         Commitments to extend credit    $32,552,000  $21,098,000
         Standby letters of credit         2,257,348    2,458,148
         Credit card commitments           3,386,000    2,198,000
                                         -----------  ----------- 
                                         $38,195,348  $25,754,148
                                         ===========  ===========

         Commitments to extend credit generally have fixed expiration dates or
         other termination clauses and may require payment of a fee. Since many
         of the commitments are expected to expire without being drawn upon, the
         total commitment amounts do not necessarily represent future cash
         requirements. The credit risk involved in issuing these financial
         instruments is essentially the same as that involved in extending loans
         to customers. The Company evaluates each customer's creditworthiness on
         a case-by-case basis. The amount of collateral obtained, if deemed
         necessary by the Company upon extension of credit, is based on
         management's credit evaluation of the customer. Collateral held varies
         but may include real estate and improvements, marketable securities,
         accounts receivable, inventory, equipment and personal property.

         Credit card commitments are granted on an unsecured basis.

                                     F-23<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

         Standby letters of credit are conditional commitments issued by the
         Company to guarantee the performance of a customer to a third party.
         Those guarantees are primarily issued to support public and private
         borrowing arrangements. The credit risk involved in issuing letters of
         credit is essentially the same as that involved in extending loans to
         customers. Collateral held varies as specified above and is required in
         instances which the Company deems necessary.

         In the normal course of business, the Company is involved in various
         legal proceedings. In the opinion of management, any liability
         resulting from such proceedings would not have a material effect on the
         Company's financial statements.

         Year 2000

         The Year 2000 issue is the result of computer programs being written
         using two digits rather than four to define the applicable year.
         Systems that do not properly recognize the year "2000" could generate
         erroneous data or cause systems to fail. The Company is heavily
         dependent on computer processing and telecommunication systems in the
         daily conduct of business activities. In addition, the Company must
         rely on intermediaries, vendors and customers to appropriately modify
         their systems in order that all may continue normal operations and
         operate without significant disruptions. The Company has conducted a
         review of its computer systems to identify the systems that could be
         affected by the Year 2000 issue. The Company presently believes that,
         with modifications to its computer systems and conversions to new
         systems, the Year 2000 issue will not pose significant operational
         problems for the Company or have a material adverse effect on future
         operating results. However, absolute assurance cannot be given that;
         (1) the modifications and conversions will remedy all deficiencies, (2)
         failure of any of the Company's systems will not have a material impact
         on operations, or (3) failure of any other companies' systems with whom
         the Company conducts business will not have a material impact on
         operations.


NOTE 13. CONCENTRATIONS OF CREDIT

         The Company originates primarily commercial, residential and consumer
         loans to customers in Hall County and surrounding counties. The ability
         of the majority of the Bank's customers to honor their contractual
         obligations is dependent on the local and metropolitan Atlanta, Georgia
         economies.

                                     F-24<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13.  CONCENTRATIONS OF CREDIT (Continued)

          Seventy-seven percent of the Company's loan portfolio is concentrated
          in loans secured by real estate.  A substantial portion of these loans
          are in the Company's primary market area.  In addition, a substantial
          portion of the other real estate owned is located in those same
          markets.  Accordingly, the ultimate collectibility of the Company's
          loan portfolio and recovery of the carrying amount of other real
          estate owned are susceptible to changes in market conditions in the
          Company's market area.  The other significant concentrations of credit
          by type of loan are set forth in Note 3.

          The Company, as a matter of policy, does not generally extend credit
          to any single borrower or group of related borrowers in excess of 25%
          of statutory capital, or approximately $2,596,000.


NOTE 14.  REGULATORY MATTERS

          The Bank is subject to certain restrictions on the amount of dividends
          that may be declared without prior regulatory approval.  At December
          31, 1998, approximately $874,000 of retained earnings were available
          for dividend declaration without regulatory approval.

          The Company and the Bank are subject to various regulatory capital
          requirements administered by the Federal banking agencies.  Failure to
          meet minimum capital requirements can initiate certain mandatory, and
          possibly additional discretionary actions by regulators that, if
          undertaken, could have a direct material effect on the financial
          statements.  Under capital adequacy guidelines and the regulatory
          framework for prompt corrective action, the Company and the Bank must
          meet specific capital guidelines that involve quantitative measures of
          the assets, liabilities, and certain off-balance-sheet items as
          calculated under regulatory accounting practices.  The Company's and
          the Bank's capital amounts and classification are also subject to
          qualitative judgments by the regulators about components, risk
          weightings, and other factors.

          Quantitative measures established by regulation to ensure capital
          adequacy require the Company and the Bank to maintain minimum amounts
          and ratios of Total and Tier I capital to risk-weighted assets and of
          Tier I capital to average assets.  Management believes, as of December
          31, 1998, the Company and the Bank meet all capital adequacy
          requirements to which they are subject.

                                     F-25<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 14.  REGULATORY MATTERS (Continued)

          As of December 31, 1998, the most recent notification from the FDIC
          categorized the Bank as well capitalized under the regulatory
          framework for prompt corrective action.  To be categorized as well
          capitalized, the Bank must maintain minimum Total risk-based, Tier I
          risk-based, and Tier I leverage ratios as set forth in the following
          table.  There are no conditions or events since that notification that
          management believes have changed the Bank's category.

          The Company and Bank's actual capital amounts and ratios are presented
          in the following table.
<TABLE>
<CAPTION>
                                                                                                                To Be Well
                                                                                    For Capital             Capitalized Under
                                                                                     Adequacy               Prompt Corrective
                                                           Actual                    Purposes               Action Provisions
                                                    -------------------         -------------------         -----------------
                                                    Amount        Ratio         Amount        Ratio         Amount      Ratio
                                                    ------        -----         ------        -----         ------      ----- 
                                                                               (Dollars in Thousands)
<S>                                                 <C>           <C>            <C>          <C>           <C>         <C>
     As of December 31, 1998:
     Total Capital (to Risk Weighted Assets):
       Consolidated                                 $16,928       11.76%          $11,516      8%            $14,394     10%
       Bank                                         $16,421       11.42%          $11,505      8%            $14,381     10%
     Tier I Capital (to Risk Weighted Assets):
       Consolidated                                 $15,154       10.52%          $ 5,762      4%            $ 8,643      6%
       Bank                                         $14,648       10.19%          $ 5,753      4%            $ 8,629      6%
     Tier I Capital (to Average Assets):
       Consolidated                                 $15,154        7.89%          $ 7,683      4%            $ 9,603      5%
       Bank                                         $14,648        7.65%          $ 7,662      4%            $ 9,578      5%
 
     As of December 31, 1997:
       Total Capital (to Risk Weighted Assets)      $15,174       11.92%          $10,178      8%            $12,722     10%
       Tier I Capital (to Risk Weighted Assets)     $13,741       10.80%          $ 5,089      4%            $ 7,633      6%
       Tier I Capital (to Average Assets)           $13,741        8.25%          $ 6,656      4%            $ 8,320      5%
</TABLE>

                                     F-26
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

          The following methods and assumptions were used by the Company in
          estimating its fair value disclosures for financial instruments.  In
          cases where quoted market prices are not available, fair values are
          based on estimates using discounted cash flow models.  Those models
          are significantly affected by the assumptions used, including the
          discount rates and estimates of future cash flows.  In that regard,
          the derived fair value estimates cannot be substantiated by comparison
          to independent markets and, in many cases, could not be realized in
          immediate settlement of the instrument.  The use of different
          methodologies may have a material effect on the estimated fair value
          amounts.  Also, the fair value estimates presented herein are based on
          pertinent information available to management as of December 31, 1998
          and 1997.  Such amounts have not been revalued for purposes of these
          financial statements since those dates and, therefore, current
          estimates of fair value may differ significantly from the amounts
          presented herein.

          Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal
          Funds Sold:

           The carrying amounts of cash, due from banks, interest-bearing
           deposits in banks and Federal funds sold approximate their fair
           value.

          Securities:

           Fair values for securities are based on available quoted market
           prices.  The carrying values of equity securities with no readily
           determinable fair value approximate fair values.

          Loans:

           For variable-rate loans that reprice frequently and have no
           significant change in credit risk, fair values are based on carrying
           values.  For other loans, the fair values are estimated using
           discounted cash flow models, using current market interest rates
           offered for loans with similar terms to borrowers of similar credit
           quality.  Fair values for impaired loans are estimated using
           discounted cash flow models or based on the fair value of the
           underlying collateral.

                                     F-27<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 15.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

          Deposits:

           The carrying amounts of demand deposits, savings deposits, and
           variable-rate certificates of deposit approximate their fair values.
           Fair values for fixed-rate certificates of deposit are estimated
           using discounted cash flow models, using current market interest
           rates offered on certificates with similar remaining maturities.

          Other Borrowings:

           The fair values of the Company's fixed rate other borrowings are
           estimated using discounted cash flow models based on the Company's
           current incremental borrowing rates for similar types of borrowing
           arrangements.  The carrying amounts of all other variable rate
           borrowings approximate their fair values.

          Accrued Interest:

           The carrying amounts of accrued interest approximate their fair
           values.

          Off-Balance Sheet Instruments:

           Fair values of the Company's off-balance sheet financial instruments
           are based on fees charged to enter into similar agreements.  However,
           commitments to extend credit and standby letters of credit do not
           represent a significant value to the Company until such commitments
           are funded.  The Company has determined that these instruments do not
           have a distinguishable fair value and no fair value has been
           assigned.

                                     F-28<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



NOTE 15.  FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

          The carrying value and estimated fair value of the Company's financial
          instruments were as follows:
<TABLE>
<CAPTION>
 
                                               December 31, 1998                   December 31, 1997
                  
                                            Carrying              Fair           Carrying             Fair 
                                             Amount              Value            Amount             Value
                                          -------------      -------------    -------------      ------------
<S>                                       <C>                <C>             <C>                <C>
     Financial assets:
     Cash, due from banks,
     interest-bearing deposits in
     banks and Federal funds
     sold                                 $ 19,353,568       $ 19,353,568     $ 19,951,637       $ 19,951,637
     Securities                             31,244,047         31,244,047       24,904,865         24,904,865
     Loans                                 136,450,096        138,403,535      119,777,078        119,467,618
     Accrued interest receivable             1,316,439          1,316,439        1,261,154          1,261,154
 
     Financial liabilities:
     Deposits                              176,447,345        176,953,478      155,610,985        156,628,222
     Other borrowings                        2,417,784          2,420,969        1,429,630          1,432,471
     Accrued interest payable                1,659,099          1,659,099        1,867,546          1,867,546
</TABLE>
NOTE 16.  STOCK DIVIDEND

          On July 14, 1997 and August 29, 1998, the Company effected a two-for-
          one and a five-for-four stock split, respectively, both in the form of
          a stock dividend.  Stockholders of record as of July 25, 1997 and
          August 31, 1998 received one additional share of common stock for
          every share they owned and one additional share of common stock for
          every four shares they owned on those dates, respectively.  Share and
          per share data for all periods presented herein have been adjusted to
          give effect to both splits.

NOTE 17.  BUSINESS COMBINATION

          On April 24, 1998, GB&T Bancshares, Inc. acquired all of the
          outstanding common stock of Gainesville Bank & Trust in exchange for
          1,676,160 shares of $5 par value common stock.  The acquisition has
          been accounted for as a pooling of interests, and, accordingly, all
          prior financial statements have been restated to reflect the
          combination.  Income of the subsidiary prior to acquisition on April
          24, 1998 was $523,580, which was included in the consolidated
          statement of income.

                                     F-29<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 18. SUPPLEMENTAL FINANCIAL DATA

         Components of other operating expenses in excess of 1% of total
         revenue are as follows:
 
                                               December 31,
                                            ------------------ 
                                              1998      1997
                                            --------  -------- 
         Advertising                        $195,904  $121,245
         Stationery, forms, and supplies     157,209   174,115
 
NOTE 19. PARENT COMPANY FINANCIAL INFORMATION

         The following information presents the condensed balance sheet,
         statement of income and cash flows of GB&T Bancshares, Inc. as of and
         for the period ended December 31, 1998:
 
                               CONDENSED BALANCE SHEET

                                                     1998
                                                 ----------- 
         Assets
           Cash                                  $   423,937
           Investment in subsidiary               14,798,707
           Other assets                               83,019
                                                 ----------- 
            Total assets                         $15,305,663
                                                 =========== 
        
         Stockholders' equity                    $15,305,663
                                                 ===========

                                     F-30
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (Continued)

 
 
                        CONDENSED STATEMENTS OF INCOME


                                                                       1998
                                                                    ----------
         Income
           Dividends from subsidiary                                $  742,207
 
         Expenses, other                                               122,643
 
           Income before income tax benefit and equity
             in undistributed income of subsidiary                     619,564
 
         Income tax benefit                                            (46,604)
 
           Income before equity in undistributed income
             of subsidiary                                             666,168
 
         Equity in undistributed income of subsidiary                  483,187
 
           Net income                                               $1,149,355
 

                                      F-31<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 19. PARENT COMPANY FINANCIAL INFORMATION (Continued)

                      CONDENSED STATEMENTS OF CASH FLOWS

                                                                   1998
                                                                ---------- 
         OPERATING ACTIVITIES
           Net income                                           $1,149,355
           Adjustments to reconcile net income to net
             cash provided by operating activities:
             Undistributed income of subsidiary                   (483,187)
             Amortization                                            6,426
             Other operating activities                            (89,446)

              Net cash provided by operating activities            583,148

         FINANCING ACTIVITIES
           Dividends paid                                         (243,655)
           Proceeds from issuance of common stock                      140
           Dividends reinvested                                     84,304

              Net cash used in financing activities               (159,211)

         Net increase in cash                                      423,937

         Cash at beginning of period                                     -

         Cash at end of year                                    $  423,937






                                      F-32

<PAGE>
                                 SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.


GB&T BANCSHARES, INC.


/s/ Richard A. Hunt                            DATE   3/29/99
______________________________________
Richard A. Hunt, President, Chief
  Executive Officer and Director


/s/ Gregory L. Hamby                          DATE    3/29/99
______________________________________
Gregory L. Hamby, Senior Vice President
  and Senior Operations Officer


/s/ F. Abit Massey                            DATE    3/29/99
________________________________________
F. Abit Massey, Chairman and Director


________________________________________      DATE ____________________
Philip A. Wilheit, Vice-Chairman and
  Director


/s/ Samuel L. Oliver
________________________________________      DATE    3/29/99
Samuel L. Oliver, Secretary and Director


________________________________________      DATE ____________________
Donald J. Carter, Director


/s/ J. Grady Coleman
________________________________________      DATE    3/29/99
J. Grady Coleman, Director


/s/ Dr. John W. Darden
________________________________________      DATE    3/29/99
Dr. John W. Darden, Director

<PAGE>
/s/ Bennie E. Hewett
________________________________________      DATE    3/29/99
Bennie E. Hewett, Director



_______________________________________      DATE ____________________
John E. Mansfield, Sr., Director


/s/ Alan A. Wayne
_______________________________________      DATE     3/29/99
Alan A. Wayne, Director