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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

|(Mark One)                                                   |                                                                                         
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                                            | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|For the Fiscal Year Ended December 31, 2002                 
|or                                                          
|o                                                            | Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the transition period
from                            to

Commission file number 0-24203

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

|Georgia(State or other jurisdiction of
incorporation or organization)                                 |  | 58-2400756(I.R.S. Employer Identification No.)
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia(Address of principal executive offices)           |  | 30501(Zip code)                               
|Registrant's telephone number, including area code(770) 532-1212                                     
|Securities registered pursuant to Section 12(b) of the Act:None                                      
|Securities registered pursuant to Section 12(g) of the Act: Name of each exchange on which registered
|(Title of class) Common Stock, No par value                                                          

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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 ý    No o

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 statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    ý

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

The
aggregate market value of the registrant's capital stock held by nonaffiliates as of June 30, 2002 was approximately $66,345,213. For this purpose, directors and executive
officers have been assumed to be affiliates.

As
of March 19, 2003, we had issued and outstanding 5,365,478 shares of the 20,000,000 authorized shares of its no par value common stock.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 2002 fiscal year end are incorporated by reference into Part III of this report.

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Some of the statements in this Report, including, without limitation, matters discussed under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation," GB&T Bancshares, Inc. (the "Company") are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements include
statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, our other business strategies and other statements that
are not historical facts. When we use words like "anticipate", "believe", "intend", "expect", "estimate", "could", "should", "will", and similar expressions, you should consider them as identifying
forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information
available to us at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements include,
among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate
environment may reduce margins; (3) general economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduction in
demand for credit; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which we are engaged; (5) costs or
difficulties related to the integration of our businesses, may be greater than expected; (6) deposit attrition, customer loss or revenue loss following acquisitions may be greater than
expected; (7) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than us; and (8) adverse changes may occur
in the equity markets.

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

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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, we acquired all of the outstanding common stock of Gainesville Bank & Trust ("GB&T") in exchange for 1,676,160 shares at $5 par value common stock. The acquisition was accounted for as a
pooling of interests. At December 31, 2002, we had four wholly-owned bank subsidiaries, GB&T, United Bank & Trust, Community Trust Bank, and HomeTown Bank of Villa Rica, collectively the
("Banks") and a consumer finance company, Community Loan Company.

We
operate as a multi-bank holding company. At December 31, 2002, we also held common stock in two de novo banks in Georgia, representing a less than 5% ownership in
each bank. Our current plans include aggressively exploring opportunities through mergers and acquisitions. Currently, there are 16 employees of the holding company.

Gainesville Bank & Trust

GB&T located in Gainesville, Hall County, 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.

GB&T
conducts business from its main office facility at 500 Jesse Jewell Parkway, Gainesville, Georgia, which is owned equally by GB&T and Donald J. Carter, a director of the Company.
GB&T occupies 90% of this facility. The remainder of this facility is available for lease and approximately 2,800 square feet in the building is currently under lease to one tenant unrelated to GB&T.
GB&T has four full-service and one limited service branch in Gainesville, Georgia, one branch in Oakwood, Georgia and one branch in Buford, Georgia.

GB&T
provides a full range of banking services to customers within its primary market area of Hall County and surrounding counties. GB&T offers checking accounts, money market accounts,
savings accounts, certificates of deposit, commercial, small business, real estate, consumer, home equity, automobile and credit card loans. GB&T also offers a variety of other traditional banking
services to its customers, including drive-up and night depository facilities, 24-hour automated teller machines, internet banking, telephone banking and limited trust
services.

United Bank & Trust

United Bank & Trust ("UB&T") is located in Rockmart, Polk County, Georgia and was also incorporated under the laws of the State of Georgia on
October 27, 1988 and commenced operations as a Georgia state-chartered bank on January 16, 1990. On February 29, 2000, UB&T was acquired by the Company in a business combination
accounted for as a pooling of interests.

UB&T
conducts business from its main office facility at 129 East Elm Street, Rockmart, Georgia. UB&T has branches in Cedartown and Cartersville, Georgia.

UB&T
provides a full range of banking services to customers within its primary market area of Polk County and surrounding counties. UB&T offers checking accounts, money market accounts,
savings accounts, certificates of deposit, commercial, small business, real estate, consumer, home equity and automobile loans. UB&T also offers a variety of other traditional banking services to its
customers, including drive-up and night depository facilities and 24-hour automated teller machine, internet banking and telephone banking.

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Community Trust Bank

Community Trust Bank ("CTB") is located in Hiram, Paulding County, Georgia and was also incorporated under the laws of the State of Georgia and commenced
operations as a Georgia state-
chartered bank in 1988. On June 30, 2001, CTB was acquired by the Company in a business combination accounted for as a pooling of interests.

CTB
conducts business from its main office facility at 3844 Atlanta Highway, Hiram, Georgia. CTB has branches in Dallas, Marietta, and Kennesaw, Georgia.

CTB
provides a full range of banking services to customers within its primary market areas of Paulding and Cobb Counties and surrounding counties. CTB offers checking accounts, money
market accounts, savings accounts, certificates of deposit, commercial, small business, real estate, consumer, home equity and automobile loans. CTB also offers a variety of other traditional banking
services to its customers, including drive-up and night depository facilities and 24-hour automated teller machine, internet banking and telephone banking.

HomeTown Bank of Villa Rica

HomeTown Bank of Villa Rica ("HTB") is located in Villa Rica, Carroll County, Georgia and was incorporated as a bank under the laws of the State of Georgia in
March 1997 and opened for business in October 1997. On November 30, 2002, HTB was acquired by the Company in a business combination accounted for as a purchase.

HTB
conducts business from its main office facility at 1849 Carrollton-Villa Rica Highway, Villa Rica, Georgia. HTB has branches in Villa Rica and Hiram, Georgia.

HTB
provides a full range of banking services to customers within its primary market areas of Carroll and Paulding Counties and surrounding counties. HTB offers checking accounts, money
market accounts, savings accounts, certificates of deposit, commercial, small business, real estate, consumer, home equity and automobile loans. HTB also offers a variety of other traditional banking
services to its customers, including drive-up and night depository facilities and 24-hour automated teller machine and telephone banking.

Community Loan Company

Community Loan Company ("CLC") was formed in 1995 as a consumer finance company. CLC operates eight offices located in the North Georgia cities of Woodstock,
Rockmart, Rossville, Gainesville, Dalton, Rome, Dahlonega and Cartersville.

GB&T Bancshares, Inc. Statutory Trust I

In 2002, the Company formed a wholly-owned grantor trust to issue cumulative trust preferred securities in a private placement offering. The grantor trust has
invested the proceeds of the trust preferred securities in subordinated debentures of the Company. The trust preferred securities can be redeemed, in whole or in part, from time to time, prior to
maturity at the option of the Company on or after October 30, 2007. The sole assets of the grantor trust are the Subordinated Debentures of the Company (the Debentures). The Debentures have the
same interest rate (5.1875%) as the trust preferred securities. The Company has the right to defer interest payments on the Debentures up to twenty consecutive quarterly periods (five years), so long
as the Company is not in default under the subordinated debentures. See the notes to the consolidated financial statements for further information on the trust.

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Market Area and Competition

Our Banks compete with local as well as with regional financial institutions in all of our markets. In addition, the banks compete with credit unions and various
other finance companies. The banking business continues to be competitive in the Hall, Gwinnett, Cobb, Polk, Paulding, Bartow and Carroll County markets. 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. We compete with institutions, some of which have much greater financial resources than our Banks, 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. Our Banks face strong competition in attracting and retaining deposits and loans.

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, products and services, and marketing are all significant factors in the competition for deposits.

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

Management
expects that competition will continue in the future due to statewide branching laws and the entry of additional bank and nonbank competitors.

Lending Activities

We originate 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. We also lend to residential contractors and
developers in the Hall, Gwinnett, Cobb, Polk, Paulding, Bartow and Carroll County areas.

In
addition, GB&T 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.

Our
commercial lending includes loans to smaller business ventures, credit lines for working capital and short-term seasonal or inventory financing, as well as letters of
credit. Commercial borrowers typically secure their loans with assets of the business, personal guaranties of their principals, and often secured by mortgages on their personal residences.

We
provide commercial and consumer installment loans to our customers. Such loans are typically of multiple-year duration and, if not variable rate, bear interest at a rate
tied to our cost of funds of equivalent maturity. Commercial installment loans generally finance commercial equipment and real estate, while consumer installment loans typically finance automobiles,
consumer products, or home improvements.

Risks
associated with loans made by us include, but are not limited to, the real estate markets in Hall, Gwinnett, Cobb, Polk, Carroll, Bartow and Paulding Counties, fraud, deteriorating
or non-existing collateral, general economic conditions, interest rate risk, and deteriorating borrower financial conditions.

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Our
Boards of Directors establishes and periodically review the Banks' lending policies and procedures. State banking regulations provide that no secured loan relationship may exceed 25%
of the Banks' statutory capital or net assets, as defined, and no unsecured loan relationship may exceed 15% of
statutory capital, except in limited circumstances. Our Banks occasionally sell participation interests in loans to other lenders, primarily when a loan exceeds the Banks' legal lending limits.

Deposits

Checking, savings, money market accounts, and certificates of deposit are the primary sources of funds for investing in loans and securities. We obtain most of
our deposits from individuals and businesses in our market areas. We do not solicit deposits by offering depositors rates of interest on certificates of deposit or money market accounts significantly
above rates paid by other local competitors. A secondary source of funding is through advances from the Federal Home Loan Bank of Atlanta and other borrowings which enable us to borrow funds at rates
and terms, which at times, are more beneficial to us.

Securities

After establishing necessary cash reserves and funding loans, we invest our remaining liquid assets in securities allowed under banking laws and regulations. We
invest 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. We also invest excess funds in Federal funds with our correspondents and primarily act as a net seller of such funds. The sale of Federal funds amounts to a short term loan from us to
another bank. Risks associated with securities include, but are not limited to, interest rate fluctuation, maturity, and concentration.

Asset/Liability Management

It is our objective to manage our assets and liabilities to provide a satisfactory and consistent level of profitability within the framework of established cash,
loan, securities, borrowing and capital policies. Certain officers 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 seeks to invest the largest portion of our assets in loans.

Our
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 each Bank
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
our earnings.

We
have grown from our initial capital base of $7 million to a total asset base of approximately $742 million. The continued growth in total assets and loans was generated
almost exclusively from deposits obtained from our market areas. The loan portfolio of $543 million as of December 31, 2002 is comprised of commercial loans ($43 million), loans
secured by real estate ($469 million), and consumer and other loans ($31 million).

Employees

As of December 31, 2002, we had 312 full-time equivalent employees, of which 113 were employed by GB&T, 43 were employed by UB&T, 68 were
employed by CTB, 24 were employed by CLC, 48 were employed by HTB, and 16 were employed by the Company. We are not a party to any collective bargaining agreement and, in the opinion of management, we
enjoy satisfactory relations with our employees.

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REGULATION AND SUPERVISION

We are subject to extensive state and federal banking laws and regulations that impose specific requirements or restrictions on and provide for general regulatory
oversight of virtually all aspects of our operations. These laws and regulations are generally intended to protect depositors, not shareholders. The following summary is qualified by reference to the
statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on our business and prospects. Beginning with the enactment of the Financial
Institutions Reform Recovery and Enforcement Act in 1989 and following with the FDIC Improvement Act in 1991, numerous additional regulatory requirements have been placed on the banking industry in
the past several years and additional changes have been proposed. Legislative changes and the policies of various regulatory authorities may significantly affect our operations. We cannot predict the
effect that fiscal or monetary policies, or new federal or state legislation may have on our business and earnings in the future.

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, as amended (the "BHC Act") and the Financial Institutions
Code of Georgia (the "FICG"), respectively.

The
Banks are state banks incorporated under the laws of Georgia and are subject to examination by the Georgia Department and the Federal Deposit Insurance Corporation ("FDIC"). The
Banks deposits are insured by the FDIC to the maximum extent provided by law. The FDIC and the Georgia Department regularly examine our operations and are given authority to approve or disapprove
mergers, consolidations, the establishment of branches, and similar corporate actions. The agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices
or other violations of law.

Acquisitions.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, 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.

Under
the Riegle-Neal Interstate Banking and Branching Efficiency Act, the restrictions on interstate acquisitions of banks by bank holding companies were repealed. As a
result, the Company, and any other bank holding company located in Georgia, is able to acquire a bank located in any other state, and a bank holding company located outside of Georgia can acquire any
Georgia-based bank, in either case subject to certain deposit percentage and other restrictions. The legislation provides that unless an individual state has elected to prohibit
out-of-state banks from operating interstate branches within its territory, adequately capitalized and managed bank holding companies are able to consolidate their multistate
banking operations into a single bank subsidiary and to branch interstate through

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acquisitions. De novo branching by an out-of-state bank is permitted only if it is expressly permitted by the laws of the host state. Georgia does not permit de novo branching
by an out-of-state bank. Therefore, the only method by which an out-of-state bank or bank holding company may enter Georgia is through an acquisition.
Georgia has adopted an interstate banking statute that removes the existing restrictions on the ability of banks to branch interstate through mergers, consolidations and acquisitions. However, Georgia
law prohibits a bank holding company from acquiring control of a financial institution until the target financial institution has been incorporated three years.

Activities.The BHC Act has generally prohibited 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 determined by the
Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act (the "GLB Act"), discussed below, have
expanded the permissible activities of a bank holding company that qualifies as a financial holding company. In determining whether a particular activity is permissible, the Federal Reserve must
consider whether the performance of such an activity can be reasonably expected to produce benefits to the public, such as a 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.

Gramm-Leach-Bliley Act.The GLB Act implemented major changes to the statutory framework for providing banking and other
financial services in the United States. The GLB Act, among other things, eliminated many of the restrictions on affiliations among banks and securities firms, insurance firms, and other financial
service providers. A bank holding company that qualifies as a financial holding company will be permitted to engage in activities that are financial in nature or incidental or
complimentary to a financial activity. The GLB Act specifies certain activities that are deemed to be financial in nature, including underwriting and selling insurance, providing financial and
investment advisory services, underwriting, dealing in, or making a market in securities, limited merchant banking activities, and any activity currently permitted for bank holding companies under
Section 4(c)(8) of the BHC Act.

To
become eligible for these expanded activities, a bank holding company must qualify as a financial holding company. To qualify as a financial holding company, each insured depository
institution controlled by the bank holding company must be well-capitalized, well-managed, and have at least a satisfactory rating under the Community Reinvestment Act. In
addition, the bank holding company must file declaration with the Federal Reserve of its intention to become a financial holding company.

The
GLB Act designates the Federal Reserve as the overall umbrella supervisor of the new financial services holding companies. The GLB Act adopts a system of functional regulation where
the primary regulator is determined by the nature of activity rather than the type of institution. Under this principle, securities activities are regulated by the Securities and Exchange Commission
and other securities regulators, insurance activities by the state insurance authorities, and banking activities by the appropriate banking regulator. As a result, to the extent that we engage in
non-banking activities permitted under the GLB Act, we will be subject to the regulatory authority of the SEC or state insurance authority, as applicable.

Payment of Dividends.The Company is a legal entity separate and distinct from its subsidiaries. Its principal source of cash
flow is dividends from its subsidiary banks. There are statutory and regulatory limitations on the payment of dividends by the subsidiary banks to the Company, as well as by the Company to its
shareholders.

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If,
in the opinion of the federal banking agencies, 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. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally pay dividends only out of
current operating earnings.

Capital Adequacy.We are required to comply with the capital adequacy standards established by the federal banking agencies.
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 profiles 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 of Total Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is
8.0%. Total Capital consists of Tier 1 Capital, which is 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, and Tier 2 Capital, which consists of subordinated debt, other preferred stock, and a limited amount of loan loss
reserves.

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 3.0% 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 3.0%, plus an additional cushion of 1.0% to 2.0%. The guidelines also provide that 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 indicators of capital strength
in evaluating proposals for expansion or new activities.

The
Banks are subject to risk-based and leverage capital requirements adopted by its federal banking regulators, which are substantially similar to those adopted by the
Federal Reserve for bank holding companies.

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

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The
federal bank agencies 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 that would require banks with excessive interest rate risk exposure to hold additional amounts of capital against such exposures.

Support of Subsidiary Institutions.Under Federal Reserve policy, we are expected to act as a source of financial strength
for, and to commit resources to support, the Banks. This support may be required at times when, absent such Federal Reserve policy, we may not be inclined to provide such support. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. 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 established a system of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized), and are required 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 the action will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must
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.

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. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The controlling
holding company's obligation to fund a capital restoration plan is limited to the lesser of 5.0% of an undercapitalized subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of
business, except under an accepted capital restoration plan or with FDIC approval. In addition, the appropriate federal banking agency may test an undercapitalized institution in the same manner as it
treats a significantly undercapitalized institution if it determines that those actions are necessary.

FDIC Insurance Assessments.The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories:
(i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories
described above, with the
"undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also
assigns an institution to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation that the
institution's primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit
insurance funds. The FDIC then determines an institution's insurance assessment rate based on the institution's capital

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category and supervisory category. Under the risk-based assessment system, there are nine combinations of capital groups and supervisory subgroups to which different assessment rates are
applied. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution's capital group and supervisory subgroup. The FDIC may terminate its insurance of deposits if it finds
that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC.

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 have adopted 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. 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.

Community Reinvestment Act.Under the Community Reinvestment Act ("CRA") the Banks, as FDIC insured institutions, have a
continuing and affirmative obligation to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking
practices. The CRA requires the appropriate federal regulator, in connection with its examination of an insured institution, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain applications, such as applications for a merger or the establishment of a branch. An unsatisfactory rating may be used as
the
basis for the denial of an application by the federal banking regulator. The Banks have received satisfactory ratings in its CRA examinations.

Privacy.The GLB Act also modified laws related to financial privacy. The new financial privacy provisions generally prohibit
a financial institution from disclosing nonpublic personal financial information about consumers to third parties unless consumers have the opportunity to "opt out" of the disclosure. A financial
institution is also required to provide its privacy policy annually to its customers. Compliance with the implementing regulations was mandatory effective July 1, 2001. The Banks implemented
the required financial privacy provisions by July 1, 2001.

Monetary Policy.The earnings of the Banks are affected by domestic and foreign conditions, particularly by the monetary and
fiscal policies of the United States government and its agencies. The

11

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Federal Reserve has had, and will continue to have, an important impact on the operating results of commercial banks through its power to implement monetary policy in order, among other things, to
mitigate recessionary and inflationary pressures by regulating the national money supply. The techniques used by the Federal Reserve include setting the reserve requirements of member banks and
establishing the discount rate on member bank borrowings. The Federal Reserve also conducts open market transactions in United States government securities.

USA Patriot Act of 2001.In October 2001, the USA Patriot Act of 2001 (the "Patriot Act") was enacted in response to
the terrorist attacks in New York, Pennsylvania, and Washington, D.C. that occurred on September 11, 2001. The Patriot Act impacts financial institutions in particular through its
anti-money laundering and financial transparency laws. The Patriot Act establishes regulations which, among others, set standards for identifying customers who open an account and
promoting cooperation with law enforcement agencies and regulators in order to effectively identify parties that may be associated with, or involved in, terrorist activities or money laundering.

Georgia Fair Lending Act.The Georgia Fair Lending Act (the "GFLA") became effective on October 1, 2002 and
establishes a number of prohibitions for loans that are "covered" by the statute. Generally, a loan is "covered" by the GFLA if it has an annual interest rate that exceeds the prime rate or comparable
yield on treasury securities by an amount specified by the statute or if its points and fees exceed a specified percentage of the total loan amount. The GFLA has a broad definition of points and fees.
Any creditor who violates the GFLA may be liable to the borrower for actual damages; statutory damages equal to two times the interest paid under the loan; forfeiture of interest; punitive damages;
costs; and/or reasonable attorney's fees. For any violation for which statutory damages may be awarded, the GFLA provides the borrower with a right of rescission.

The
GFLA is a controversial law because of provisions such as those creating potential liability for assignees and holders of "covered" loans. As a result, the GFLA was amended by the
Georgia legislature in February 2003 in an effort to address a number of those provisions. In addition, there are issues concerning federal preemption of the GFLA pending. The Office of the
Comptroller of the
Currency (the "OCC") has begun the process of issuing a determination or order regarding the preemption of GFLA. If the OCC determines that federal law preempts the GFLA, then banks operating under a
national charter will not be subject to the GFLA while banks operating under a state charter will be required to comply with the GFLA. Depending upon (i) the OCC's determination regarding
preemption, and (ii) the amendments to the GFLA passed by the Georgia legislature, state-chartered banks could be at a competitive disadvantage to banks operating pursuant to national charters
in certain segments of the lending market. We are monitoring developments in this area and, even though the Banks are state-chartered banks, we do not believe that we will be exposed to any
significant competitive disadvantage as a result of GFLA.

12

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ITEM 2.    PROPERTIES

GB&T's main office is owned jointly by GB&T and Carter Family Properties. Carter Family Properties is controlled by Donald J. Carter, a director of the Company.
The three-story building is located in downtown Gainesville at the intersection of Jesse Jewell Parkway and Race Street. GB&T occupies over 90% of the building, with remaining space presently leased
to one tenant. GB&T's main office also has a drive-in automated teller machine.

GB&T
has four full-service and one limited service locations in Gainesville, Georgia, the first located in a leased shopping center facility at 2412 Old Cornelia Highway, in
a small community just north of Gainesville, the second located in a leased shopping center facility at 475 Dawsonville Highway, the third located in a leased facility at 1403 Atlanta Highway, and the
fourth in a building owned by GB&T located at 3640 Thompson Bridge Road, all of which have an automated teller machine. The limited service branch is located in a leased shopping center facility at
1210 Thompson Bridge Road and also has an automated teller machine.

GB&T
has two other branch banking facilities, one in Oakwood, Georgia and one in Buford, Georgia. Both branches are owned by GB&T and located in Hall County south of Gainesville. Both
branches have automated teller machines.

GB&T
operates an automated teller machine in the hospital atrium at 675 White Sulphur Road in Gainesville, Georgia.

UB&T's
main office is located at 129 East Elm Street in Rockmart, Georgia. The main office is an office building owned by UB&T and contains approximately 8,000 square feet of finished
space used for UB&T offices and operations. This office also has an automated teller machine.

UB&T's
Cedartown branch is an office building owned by UB&T and contains approximately 4,700 square feet of finished space. The branch also has an automated teller machine.

UB&T's
Cartersville branch is a leased facility at 2 N. Dixie Avenue, Cartersville, Georgia containing approximately 2,300 square feet.

CTB's
main office is located at 3844 Atlanta Highway in Hiram, Georgia. The main office is an office building owned by CTB and contains approximately 16,000 square feet of finished
space. This office also has an automated teller machine.

CTB's
Dallas branch is an office building owned by CTB and contains approximately 4,000 square feet of space. The branch also has an automated teller machine.

CTB
leases space in shopping center facilities in Marietta and Kennesaw.

CLC
leases office space in the Georgia cities of Woodstock, Rockmart, Rossville, Gainesville, Dalton, Rome, Dahlonega and Cartersville.

HTB's
main office is located at 1849 Carrollton-Villa Rica Highway in Villa Rica, Georgia. The main office is an office building owned by HTB and contains approximately 13,000 square
feet of space. This office also has an automated teller machine.

HTB
has a branch located at 435 W. Bankhead Highway in Villa Rica, Georgia. This building is owned by HTB and contains approximately 4,800 square feet of space. The branch has an
automated teller machine. HTB also has a branch in Hiram, Georgia. The building is owned by HTB and contains approximately 6,000 square feet of space and an automated teller machine.

In
the opinion of management, all properties including improvements and furnishings are adequately insured.

13

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ITEM 3.    LEGAL PROCEEDINGS

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

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

There were no matters submitted to a vote of security holders during the fourth quarter of 2002.

14

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



Sales PriceCalendar PeriodLow

High2001First Quarter

$
14.88

$
19.50Second Quarter


15.00


19.25Third Quarter


13.65


18.45Fourth Quarter


14.00


17.002002First Quarter

$
13.40

$
16.20Second Quarter


15.25


18.75Third Quarter


15.41


17.75Fourth Quarter


15.95


18.90




Equity Compensation Plan Information

See "Item 12Security Ownership of Certain Beneficial Owners and ManagementEquity Compensation Plan Information" for disclosure regarding
the Company's equity compensation plans.

ITEM 6.    SELECTED FINANCIAL DATA

The following table presents selected historical consolidated financial information for us and our subsidiaries and is derived from the consolidated financial
statements and related notes included in this annual report. This information is only a summary and should be read in conjunction with our historical financial statements and related notes. The year
ended December 31, 2002 includes the

15

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acquisition of HTB which was accounted for as a purchase. See Results of Operations for further discussion on the acquisition of HTB.

|                              |                                     | As of and For the Year Ended December 31,
|----------------------------- | ----------------------------------- | -----------------------------------------
|
|
|Total Loans                   |                                     | $                                        
|Total Deposits                |                                     |                                          
|Total Borrowings              |                                     |                                          
|Total Assets                  |                                     |                                          
|Interest Income               |                                     |                                          
|Interest Expense              |                                     |                                          
|                              | Net Interest Income                 |                                          
|Provision for Loan Losses     |                                     |                                          
|                              | Net Interest Income After Provision |                                          
|Non-Interest Income           |                                     |                                          
|Non-Interest Expense          |                                     |                                          
|Income Before Income Taxes    |                                     |                                          
|Provision for Income Taxes    |                                     |                                          
|                              | Net Income                          |                                          
|Net Income Per Share:         |                                     |                                          
|                              | Basic                               |                                          
|                              | Diluted                             |                                          
|Cash Dividends Declared       |                                     |                                          
|Book Value Per Share          |                                     |                                          
|Tangible Book Value Per Share |                                     |                                          
|Weighted Average Shares:      |                                     |                                          
|                              | Basic                               |                                          
|                              | Diluted                             |                                          

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from the
consolidated 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.

During
2001, we completed our acquisition of Community Trust Financial Services Corporation which was accounted for as a pooling of interests. All prior financial information has been
restated to reflect the combination as of the earliest period presented. Our discussion and analysis reflects the combined performance and financial position for the periods presented.

During
2002, we completed our acquisition of HomeTown Bank of Villa Rica which was accounted for as a purchase. The results of operations related to HTB have been included since the date
of acquisition.

16

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Summary

During 2002 and 2001, we continued to experience moderate internal growth in interest-earning and total assets which was funded by increases in deposits,
borrowings, and the retention of net profits. During 2002, we experienced additional growth through the acquisition of HTB as explained below. We recorded net income of $6,528,000 and $3,970,000 for
the years ended December 31, 2002 and 2001, respectively. Total equity at December 31, 2002 increased to $60,777,000 from $44,774,000, or $16,003,000 from December 31, 2001. The
aforementioned acquisition of HTB accounted for $9,571,000 of this increase.

Balance Sheets

Our total assets increased $194.4 million or 35.5% for the year ended December 31, 2002 compared to $35.1 million or 6.9% for the same period
in 2001. The acquisition of HTB accounted for approximately $134.7 million of this increase. The increase in total assets for the year ended December 31, 2002, exclusive of HTB, consists
primarily of an increase in interest-earning assets of $61.9 million or 12.2% compared to an increase of $32.2 million or 6.8% during the same period in 2001. The overall growth in 2002
and 2001 is consistent with management's plans. The competition for deposits plays an important role in the overall growth of the Company.

Our
primary focus is to maximize earnings through lending activities. Any excess funds are invested according to our investment policy. Total loans increased 29.7% or
$124.2 million for the year ended December 31, 2002. Exclusive of HTB, which represented $91.2 million of this increase, total loans increased 7.9%. This increase is compared to
an increase of 8.8% or $34.0 million during 2001. The
economy in Gainesville, and Georgia as a whole, continues to grow despite the events of September 11, 2001. As of December 31, 2002, our loan-to-deposit ratio was
94% compared to 98% in 2001. At December 31, 2002 and 2001, we had total outstanding borrowings of $91.0 million and $70.2 million, respectively. These funds have been used to
fund loan growth. The utilization of borrowings to fund loan growth enables us to maintain a higher loan to deposit ratio and maintain an adequate liquidity ratio. Our
loan-to-funds ratio was 81% and 84% at December 31, 2002 and 2001, respectively.

During
2002, total deposits grew by $153.5 million, or 36.0%. Exclusive of HTB, which accounted for $113.3 million of this increase, total deposits grew
$40.2 million or 9.4% compared to an increase of $25.5 million or 6.3% in 2001. The increase in 2002, exclusive of HTB, consists primarily of an increase in interest-bearing deposits of
$45.4 million or 12.2% compared to an increase of $20.4 million or 5.8% during 2001.

The
specific economic and credit risks associated with our 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 our market areas, 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 our market areas have remained stable. The general economy and loan demand showed signs of declining slightly during the fourth quarter of 2000, and continued through 2001 and
2002. The events of September 11, 2001 have impacted our operations due to the continued cutting of interest rates. However, we have not realized significant losses to date in our loan
portfolio which can be directly attributed to September 11, 2001.

We
attempt to reduce these economic and credit risks not only by adherence to our lending policy, which includes loan to value guidelines, but also by investigating the creditworthiness
of the borrower

17

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and monitoring the borrower's financial position. Also, we periodically review our lending policies and procedures.

Liquidity and Capital Resources

Liquidity management involves the matching of the 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 our ability to meet those needs. We seek to meet liquidity requirements primarily through management of
short-term investments, monthly amortizing loans, maturing single payment loans, and maturities of securities and prepayments. Also, we maintain relationships with correspondent banks
which could provide funds on short notice. As of December 31, 2002, we had borrowed under Federal funds purchase lines and securities sold under repurchase
agreements $11.5 million compared to $19.7 million as of December 31, 2001. These borrowings typically mature within one to four business days.

The
following table sets forth certain information about contractual cash obligations as of December 31, 2002.

|                                |                                    | Payments Due after December 31, 2002
|------------------------------- | ---------------------------------- | ------------------------------------
|
|Long-term debt                  |                                    | $                                   
|Federal Home Loan Bank advances |                                    |                                     
|                                |                                    |                                     
|                                | Total contractual cash obligations |                                     
|                                |                                    |                                     

The
Company's operating leases represent short-term obligations, normally with maturities of one year or less. Many of the operating leases have thirty-day
cancellation provisions. The total contractual obligations for operating leases do not require a material amount of the Company's cash funds.

At
December 31, 2002, we had no binding commitments for capital expenditures.

Our
liquidity and capital resources are monitored on a periodic basis by management and state and Federal regulatory authorities. At December 31, 2002, our liquidity ratio was
22.34% which was above our target ratio of 20%. 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 and accessing available funds through various borrowing arrangements. At December 31, 2002, we had available borrowing capacity
totaling approximately $55.5 million through various borrowing arrangements and available lines of credit. Our short-term investments and available borrowing arrangements are
adequate to cover any reasonably anticipated immediate need for funds. We are not aware of any events or trends likely to result in a material change in liquidity.

At
December 31, 2002, our capital to asset ratios were considered well-capitalized, with the exception of HTB, based on guidelines established by the regulatory
authorities. Subsequent to December 31, 2002, the Company has injected sufficient capital into HTB to return HTB to well-capitalized status. At December 31, 2002, our total
capital to risk weighted assets ratio was 12.58%, our Tier 1 capital to risk weighted assets ratio was 11.33%, and our Tier 1 capital to average assets ratio was 10.15%. During 2002, we increased our
capital by retaining net earnings of $6.5 million. Also, the acquisition of HTB accounted for an increase in capital of $9.5 million.

Management
is not aware of any known trends, events or uncertainties, other than those discussed above, that will have or 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.

18

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The
Banks are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2002, approximately $3,105,000 of
retained earnings were available for dividend declaration without regulatory approval.

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. Through our asset-liability committees, we attempt 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 our interest rate sensitive assets and liabilities, see the "Asset/Liability Management" section in
Item 1 of this report.

Results of OperationsFor the Years Ended December 31, 2002, 2001 and 2000

Our profitability is determined by our ability to effectively manage interest income and expense, to minimize loan and security losses, to generate noninterest
income, and to control operating expenses. Because interest rates are determined by market forces and economic conditions beyond our control, our ability to generate net interest income depends upon
our ability to obtain an adequate net interest spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. The net yield on average interest-earning
assets increased to 4.39% in 2002 from 4.33% in 2001. This increase is attributable primarily to increases in volume. In 2002, the average yield on interest-earning assets decreased to 7.11% from
8.55% in 2001 while the average yield on interest-bearing liabilities decreased to 3.13% in 2002 from 4.85% in 2001. The overall change in the interest rate spread from 2001 to 2002 was an increase of
28 basis points. The increase in the net interest spread is a result of increases in volume, which is offset by continued decreases in rates. Total interest-earning assets increased by
$52.4 million, to $547,662,000 at December 31, 2002 from the same period of 2001 while interest-bearing liabilities only increased by $45.5 million, to $476,646,000 for the same
period.

The
net yield on average interest-earning assets decreased by 41 basis points to 4.33% from 4.74% for the year ended December 31, 2001 as compared to 2000. The decreased net yield
in 2001 was primarily attributable to the continued decrease in interest rates in 2001. During 2001, the prime interest rate decreased 475 basis points.

Net Interest Income.Net interest income increased by $2,603,000 to $24.1 million in 2002, compared to an increase of
$459,000 in 2001. The increase for both years continues to reflect the continued increase in interest-earning assets during 2002 and 2001. As shown in Table 1 and Table 2 included in this annual
report, the change in net interest income is the result of the increases in net volume versus changes in net interest rates.

Provision for Loan Loss.Provisions for loan losses decreased by $461,000 during 2002 compared to an increase of $157,000
during 2001. 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 historical net charge-offs incurred, consideration of peer group averages, and the general economy as well as the local economies. The allowance for loan loss was
$7,538,000 or 1.39% of total loans at December 31, 2002 compared to $5,522,000 or 1.32% of total loans at December 31, 2001. We incurred net charge offs of $670,000, $883,000 and
$268,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The percentage of net charge-offs to average loans outstanding was .15% and .22% for the years ended
December 31, 2002 and 2001. The decrease in the provision for loan losses in 2002 was due to decreases at two subsidiaries based on

19

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positive trends in the loan portfolio and recoveries. The decrease in net charge-offs of $213,000 is primarily a result of recoveries during 2002 at two of the subsidiaries of $171,000
and $107,000. The consumer related charge-offs consist of many smaller balance loans while the real estate charge-offs
consist of only a few larger balance loans. Real estate loans are normally secured by one to four family residences or other real estate with values exceeding the original loan balance, therefore
minimizing the risk of loss. Consumer loans, however, may be secured by consumer goods and automobiles, or may be unsecured, and therefore subject to greater loss in the event of
charge-off. During a recession, losses are more likely and the risk of loss is greater in the consumer portfolio. The allowance for loan losses as a percentage of nonaccrual loans at
December 31, 2002 was 136.9%, which was down significantly from 1167.4% in 2001. This decrease is due to nonaccrual loans increasing to $5,506,000 at December 31, 2002 from $473,000 at
December 31, 2001. This increase in nonaccrual loans was primarily attributable to the acquisition of HTB whose nonaccrual loan balance at December 31, 2002 was $3,846,000. Currently,
HTB's nonaccrual loan balance has decreased by approximately $2,678,000 representing loans which have been either brought current or brought to resolution. During the same period, other problem loans,
including past due loans greater than 90 days past due, increased by $1,618,000 compared to a decrease of $563,000 in 2001. The increase in past due loans is primarily attributable to one loan
at a bank subsidiary of $1,414,000. Based on management's evaluations, the allowance for loan losses is adequate to absorb potential losses on existing loans.

Other Income.Other income increased during 2002 by $1,733,000 compared to an increase of $1,967,000 in 2001. For the year
ended December 31, 2002, the most significant portion of the net increase consisted of an increase of $189,000 in service charges on deposit accounts, an increase of $445,000 in mortgage
origination fees and an increase in security transactions, net of $772,000. For the same period in 2001, service charges increased by $1,245,000 and mortgage origination fees increased by $611,000.
The increase in service charges was related to growth in transaction accounts and new service charge income related to a new product. The increase in mortgage origination fees is directly related to
the decrease in prime rate which also impacts the mortgage rates. In a decreasing rate environment, refinancing of mortgage loans has provided an excellent opportunity for us to generate other fee
income.

Other Expense.Other expense increased $1,195,000 and $2,712,000 for the years ended December 31, 2002 and 2001,
respectively. Increases in salaries and employee benefits represent the most significant portions of these increases, which increased by $1,197,000 and $1,219,000 for the years ended 2002 and 2001,
respectively. The number of full-time equivalent employees increased by 79 from December of 2001 to December of 2002, 48 of which related to the acquisition of HTB. In addition to the
additional salary expense related to new employees, we incurred increases due to increases in profit sharing contributions, health insurance costs, incentive compensation and normal salary increases
for the years ended December 31, 2002 and 2001. The increase in salaries and employee benefits in 2001 is related to one-time expenses incurred for salary continuation benefits
related to the acquisition of Community Trust Financial Services Corporation. Other operating expenses increased by $62,000 and $1,005,000, respectively, for the years ended December 31, 2002
and 2001. The increase in other operating expenses in 2001 included professional and merger related expenses of $618,678 which were recognized in other operating expenses due to the business
combination of Community Trust Financial Services Corporation being accounted for as a pooling of interests.

Income Tax Expense.Income tax expense increased $1,044,000 to $3,030,000 in 2002 from $1,986,000 in 2001. The effective tax
rate was 32% for the year ended December 31, 2002 and 33% for the year ended December 31, 2001.

20

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Net Income.Net income increased by $2,558,000 for the year ended December 31, 2002, or by 64.43%. The decrease in net
income for the same period in 2001 was $339,000, or 7.91%. The increase in net income in 2002 was the net of a combination of significant growth in interest-earning assets, moderate increases in other
expenses, a decrease in provision for loan losses and increased non-interest income. The decrease in net income in 2001 is due to a decrease in growth rate of interest-earning assets, an
overall decline in yields on interest-earning assets and one-time merger expenses recognized in connection with the aforementioned business combination.

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 securities 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.

The
following table sets forth the amount of our 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

|                                             |       | Years Ended December 31, |        
|-------------------------------------------- | ----- | ------------------------ | -------
|
|
|Taxable securities                           |       | 73,123                   |        
|Nontaxable securities(5)                     |       | 15,891                   |        
|Federal funds sold                           |       | 10,075                   |        
|Interest-bearing deposits in banks           |       | 2,055                    |        
|Loans(2)(4)                                  |       | 446,518                  |        
|                                             |       |                          |        
|Total interest-earning assets                |       | 547,662                  |        
|                                             |       |                          |        
|Unrealized gains (losses) on securities      |       | 2,327                    |        
|Allowance for loan losses                    |       | (5,779                   | )      
|Cash and due from banks                      |       | 14,639                   |        
|Other assets                                 |       | 28,221                   |        
|                                             |       |                          |        
|                                             | Total |                          | 587,070
|                                             |       |                          |        
|Interest-bearing demand & savings            |       | 147,969                  |        
|Time                                         |       | 251,887                  |        
|Borrowings                                   |       | 76,790                   |        
|                                             |       |                          |        
|Total interest-bearing liabilities           |       | 476,646                  |        
|                                             |       |                          |        
|Noninterest-bearing demand                   |       | 56,913                   |        
|Other liabilities                            |       | 5,644                    |        
|Stockholders' equity(3)                      |       | 47,867                   |        
|                                             |       |                          |        
|                                             | Total |                          | 587,070
|                                             |       |                          |        
|Net interest income                          |       |                          |        
|                                             |       |                          |        
|Net interest spread                          |       |                          |        
|Net yield on average interest-earning assets |       |                          |        

---

21

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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 our interest income and expense during the years 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.

|                                           |                                                                   | Years Ended December 31, |  
|------------------------------------------ | ----------------------------------------------------------------- | ------------------------ | -
|
|
|
|Income from interest-earning assets:       |                                                                   |                          |  
|                                           | Interest and fees on loans                                        |                          | $
|                                           | Interest on taxable securities                                    |                          |  
|                                           | Interest on nontaxable securities                                 |                          |  
|                                           | Interest on federal funds sold                                    |                          |  
|                                           | Interest on interest-bearing deposits in other banks              |                          |  
|                                           |                                                                   |                          |  
|                                           |                                                                   | Total interest income    |  
|                                           |                                                                   |                          |  
|Expense from interest-bearing liabilities: |                                                                   |                          |  
|                                           | Interest on interest-bearing demand deposits and savings deposits |                          |  
|                                           | Interest on time deposits                                         |                          |  
|                                           | Interest on borrowings                                            |                          |  
|                                           |                                                                   |                          |  
|                                           |                                                                   | Total interest expense   |  
|                                           |                                                                   |                          |  
|                                           |                                                                   | Net interest income      |  
|                                           |                                                                   |                          |  

Asset/Liability Management

Our 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 monthly 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 our assets and liabilities were equally flexible and moved

22

---

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, we also evaluate
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 our liquidity position. We currently price 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 our liquidity position.

At
December 31, 2002 our cumulative one year interest rate sensitivity gap ratio was .90%. Our targeted ratio is 80% to 120% in this time horizon. This indicates that our
interest-bearing liabilities will reprice during this period at a rate faster than our interest-earning assets.

The
following table sets forth the distribution of the repricing of our interest-earning assets and interest-bearing liabilities as of December 31, 2002, 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

23

---

the needs of our 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.

|                                               |                                                   | Within
Three
Months                |        | After
Three
Months
But
Within
One Year |         | After
One Year
But
Within
Five Years |         | After
Five Years |         | Total  
|---------------------------------------------- | ------------------------------------------------- | ---------------------------------- | ------ | -------------------------------------- | ------- | ------------------------------------ | ------- | ---------------- | ------- | -------
|
|Interest-earning assets:                       |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|                                               | Interest-bearing deposits                         |                                    | $      | 8,205                                  |         | $                                    |        |                  | $       |       
|                                               | Federal funds sold                                |                                    |        | 25,170                                 |         |                                      |        |                  |         |       
|                                               | Securities                                        |                                    |        | 19,302                                 |         |                                      | 26,101  |                  |         | 44,367 
|                                               | Loans                                             |                                    |        | 284,996                                |         |                                      | 44,710  |                  |         | 104,477
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|                                               |                                                   | Total interest earning assets      |        |                                        | 337,673 |                                      |         | 70,811           |         |        
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|Interest-bearing liabilities:                  |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|                                               | Interest-bearing demand and savings               |                                    | $      | 215,588                                |         | $                                    |        |                  | $       |       
|                                               | Time deposits                                     |                                    |        | 60,189                                 |         |                                      | 147,980 |                  |         | 90,987 
|                                               | Federal funds purchased and repurchase agreements |                                    |        | 11,538                                 |         |                                      |        |                  |         |       
|                                               | Other borrowings                                  |                                    |        | 8,960                                  |         |                                      | 8,500   |                  |         | 34,014 
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|                                               |                                                   | Total interest-bearing liabilities |        | $                                      | 296,275 |                                      | $       | 156,480          |         | $      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|Interest rate sensitivity gap                  |                                                   | $                                  | 41,398 |                                        | $       | (85,669                              | )       | $                | 23,843  |        
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|Cumulative interest rate sensitivity gap       |                                                   | $                                  | 41,398 |                                        | $       | (44,271                              | )       | $                | (20,428 | )      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|Interest rate sensitivity gap ratio            |                                                   |                                    | 1.14   | %                                      |         | ..45                                 | %       |                  | 1.19    | %      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        
|Cumulative interest rate sensitivity gap ratio |                                                   |                                    | 1.14   | %                                      |         | ..90                                 | %       |                  | ..96    | %      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |         |        

We
actively manage 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 us due to the rate variability and short-term maturities of our earning assets. In particular, approximately
61.2% 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.

24

---

SECURITIES PORTFOLIO

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

December 31,2002

2001

2000(Dollars in Thousands)U. S. Treasury and U. S. government agencies and corporations

$
38,337

$
28,857

$
47,671Mortgage-backed securities


47,069


36,835


14,224State and municipal securities


16,774


16,590


16,213Equity securities (1)


8,447


6,914


5,925$
110,627

$
89,196

$
84,033


---

Maturities

The amounts of debt securities as of December 31, 2002 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 Other U. S.
Government Agencies
and Corporations

Municipal SecuritiesAmount

Yield
(1)

Amount

Yield
(1)(2)(Dollars in Thousands)Maturity:One year or less

$
11,914

2.65
%
$
4,175

4.11
%After one year through five years


27,541

5.00


8,872

4.63After five years through ten years


16,229

5.96


2,957

5.18After ten years


34,385

5.91


770

5.43$
90,069

5.21
%
$
16,774

4.64
%


---

25

---

LOAN PORTFOLIO

Types of Loans

Loans by type of collateral are presented below:

|                               |  | December 31, |        
|------------------------------ |  | ------------ | -------
|
|
|Commercial                     |  | $            | 43,011 
|Real estateconstruction       |  |              | 120,922
|Real estatemortgage(1)        |  |              | 348,229
|Consumer                       |  |              | 29,630 
|Other                          |  |              | 1,042  
|                               |  |              |        
|                               |  |              | 542,834
|Less allowance for loan losses |  |              | (7,538 
|                               |  |              |        
|Net loans                      |  | $            | 535,296
|                               |  |              |        

---

Maturities and Sensitivities to Changes in Interest Rates

Total loans as of December 31, 2002 are shown in the following table according to contractual maturity classifications (1) one year or less,
(2) after one year through five years, and (3) after five years.

(Dollars in Thousands)CommercialOne year or less

$
25,968After one through five years


17,014After five years


2943,011ConstructionOne year or less


86,534After one through five years


27,618After five years


6,770120,922OtherOne year or less


94,078After one through five years


244,194After five years


40,629378,901$
542,834


26

---



The following table summarizes loans at December 31, 2002 with the due dates after one year for predetermined and floating or adjustable interest rates.

(Dollars in Thousands)Predetermined interest rates

$
210,890Floating or adjustable interest rates


125,364$
336,254


Risk Elements

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

|                                                                                                                                                                               |  | December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------
|
|
|Loans accounted for on a nonaccrual basis                                                                                                                                      |  | $           
|Loans contractually past due 90 days or more to interest or principal payments and still accruing                                                                              |  |             
|Loans, the term of which have been renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower |  |             
|Loans now current about which there are serious doubts as to the ability of the borrower to comply with present loan repayment terms                                           |  |             

The
reduction in interest income associated with nonaccrual loans as of December 31, 2002 is as follows:

(Dollars in Thousands)Interest income that would have been recorded on nonaccrual loans under original terms

$
203Interest income that was recorded on nonaccrual loans

$
131


Management
includes nonaccrual loans in its definition of impaired loans as determined by Financial Accounting Standards Board Statement Numbers 114 and 118.

Our
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 90 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 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.

27

---

Commitments and Lines of Credit

We will, in the normal course of business, commit to extend credit in the form of letters of credit, lines of credit, and credit cards. The amount of outstanding
loan commitments at December 31, 2002 and 2001 was $108.7 million and $79.6 million, respectively. These commitments are recorded in the financial statements when funds are
disbursed or the financial instruments become payable. We use the same credit and collateral policies for these off balance sheet commitments as we do 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.

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.

|                                                                            |              | December 31, |        
|--------------------------------------------------------------------------- | ------------ | ------------ | -------
|
|
|Average amount of loans outstanding                                         |              | $            | 446,518
|                                                                            |              |              |        
|Balance of allowance for loan losses at beginning of year                   |              | $            | 5,522  
|                                                                            |              |              |        
|Loans charged off:                                                          |              |              |        
|                                                                            | Real estate  |              |        
|                                                                            | Commercial   |              |        
|                                                                            | Installment  |              |        
|                                                                            | Credit cards |              |        
|                                                                            |              |              |        
|                                                                            |              |              | (1,094 
|                                                                            |              |              |        
|Recoveries of loans previously charged off:                                 |              |              |        
|                                                                            | Real estate  |              |        
|                                                                            | Commercial   |              |        
|                                                                            | Installment  |              |        
|                                                                            | Credit cards |              |        
|                                                                            |              |              |        
|                                                                            |              |              | 424    
|                                                                            |              |              |        
|Net loans charged off during the year                                       |              |              | (670   
|                                                                            |              |              |        
|Allowance for loan losses acquired (sold)                                   |              |              | 1,841  
|                                                                            |              |              |        
|Additions to allowance charged to expense during year                       |              |              | 845    
|                                                                            |              |              |        
|Balance of allowance for loan losses at end of year                         |              | $            | 7,538  
|                                                                            |              |              |        
|Ratio of net loans charged off during the year to average loans outstanding |              |              | 0.15   
|                                                                            |              |              |        

28

---

The
following table sets forth the allowance for loan losses to total allowance for loan losses and the percent of loans to total loans in each of the categories listed
at the dates indicated.

|                         |  | December 31, |      
|------------------------ |  | ------------ | -----
|
|
|
|Commercial               |  | $            | 573  
|Real estate-construction |  |              | 942  
|Real estate-mortgage     |  |              | 4,485
|Consumer and other       |  |              | 1,538
|                         |  |              |      
|Total allowance          |  | $            | 7,538
|                         |  |              |      

Allowance for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged to operations. Loans are charged against the allowance for loan losses
when management believes that the collection of principal is unlikely. Subsequent recoveries are added to the allowance. Management's evaluation of the adequacy of the allowance for loan losses is
based on a formal analysis which assesses the risk within the loan portfolio. This analysis includes consideration of historical performance, current economic conditions, level of nonperforming loans,
loan concentrations, and review of certain individual loans.

Management
believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan
losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks'
allowances for loan losses. Such agencies may require the subsidiary banks to recognize additions to the allowance for loan losses based on their judgments about information available to them at the
time of their examination. Our allowance for loan losses was approximately $7,538,000 at December 31, 2002, representing 1.39% of total loans, compared with $5,522,000 at December 31,
2001, which represented 1.32% of total loans.

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.(1)

|                                             |                | Year Ended December 31, |        
|-------------------------------------------- | -------------- | ----------------------- | -------
|
|
|
|Noninterest-bearing demand deposits          |                | $                       | 56,913 
|Interest-bearing demand and Savings deposits |                |                         | 147,968
|Time deposits                                |                |                         | 251,887
|                                             |                |                         |        
|                                             | Total deposits |                         | $      
|                                             |                |                         |        

---

29

---

The
amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 2002 are shown below by category, which is based on time remaining until
maturity of (1) three months or less, (2) over three through 12 months, and (3) over 12 months.

(Dollars in
Thousands)Three months or less

$
21,680Over three through 12 months


45,228Over 12 months


28,499Total

$
95,407


RETURN ON EQUITY AND ASSETS

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

Years Ended December 31,2002

2001

2000Return on assets(1)

1.11
%
.75
%
.91
%Return on equity(2)

13.64

9.38

11.63Dividend payout ratio(3)

25.76

35.37

26.67Equity to assets ratio (4)

8.15

7.98

7.79


---

SHORT TERM BORROWINGS

Other Borrowings

As part of our operating strategy, we have utilized Federal funds purchased and securities sold under repurchase agreements as an alternative to retail deposits
to fund our operations when borrowings are less costly and can be invested at a positive interest rate spread or when we need additional funds to satisfy loan demand. By utilizing Federal funds
purchased and securities sold under repurchase agreements, which possess varying stated maturities, we can meet our liquidity needs without otherwise being dependent upon retail deposits and revising
our deposit rates to attract retail deposits, which have no stated maturities, except for certificates of deposit, which are interest rate sensitive and which are subject to withdrawal from us at any
time. At December 31, 2002, we had $11,538,000 in outstanding Federal funds purchased and securities sold under repurchase agreements.

The
following table sets forth certain information regarding Federal funds purchased and securities sold under repurchase agreements at or for the years ended on the dates indicated:

|                                                            |  | At or For the Year Ended December 31, |       
|----------------------------------------------------------- |  | ------------------------------------- | ------
|
|
|Average balance outstanding                                 |  | $                                     | 14,695
|Maximum amount outstanding at any month-end during the year |  |                                       | 26,160
|Balance outstanding at end of year                          |  |                                       | 11,538
|Weighted average interest rate during year                  |  |                                       | 2.16  
|Weighted average interest rate at end of year               |  |                                       | 1.69  

30

---



Critical Accounting Policies

The preparation of financial statements and related documents in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. We believe that our determination of the allowance for loan losses affect our
most significant judgments and estimates used in the preparation of our consolidated financial statements. Estimates and assumptions are reviewed periodically and the effects of revisions are
reflected in the consolidated financial statements in the period they are determined to be necessary.

The
allowance for loan losses is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a
regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available. 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 make additions to the allowance based on their judgment about information available to them at the time of their examinations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed only to U.S. dollar interest rate changes and accordingly, we manage exposure by considering the possible changes in the net interest margin. We do
not have any trading instruments nor do we classify any portion of the investment portfolio as held for trading. We do not engage in any hedging activities or enter into any derivative instruments
with a higher degree of risk than mortgage-backed securities that are commonly pass through securities. Finally, we have no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks. Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as "interest rate risk." The repricing of interest
earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of our asset/liability management program, the timing of repriced assets and liabilities is
referred to as Gap management. It is our policy to maintain a Gap ratio in the one-year time horizon of .80 to 1.20.

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

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

31

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the caption "Election of Directors" and "Executive Officers" in the definitive Proxy Statement filed in connection with our 2003
Annual Shareholders Meeting is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

The information set forth under the caption "Executive Compensation" in the definitive Proxy Statement filed in connection with our 2003 Annual Shareholders
meeting is incorporated herein by reference.

ITEM 12.    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 definitive Proxy Statement filed in connection
with our 2003 Annual Shareholders meeting is incorporated herein by reference.

32

---

Equity Compensation Plan Information

The following table gives information about shares of the Company's common stock that may be issued upon the exercise of options, warrants and rights under all
existing equity compensation plans as of December 31, 2002.

|Plan Category                                                 |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights |  | Weighted-average exercise
price of outstanding
options, warrants and rights |       | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected
in 1st column)
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders(1)     |  | 446,630                                                                                     |  | $                                                                           | 11.63 |                                                                                                                                            
|Equity compensation plans not approved by security holders(2) |  |                                                                                            |  |                                                                             |      |                                                                                                                                            
|                                                              |  |                                                                                             |  |                                                                             |       |                                                                                                                                            
|Total                                                         |  | 446,630                                                                                     |  |                                                                             | N/A   |                                                                                                                                            
|                                                              |  |                                                                                             |  |                                                                             |       |                                                                                                                                            

---

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Transactions" in the definitive Proxy Statement filed in connection with our 2003 Annual Shareholders meeting
is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES

Within 90 days prior to the date of filing this report, we carried out an evaluation, under the supervision and with the participation of our President and
the Chief Financial Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our President and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Securities Exchange Act of 1934, within
the time periods specified in the SEC's rules and forms. Our President and Chief Financial Officer also concluded that our disclosure controls and procedures are effective in timely alerting them to
material information relating to our Company required to be included in our periodic SEC filings. In connection with the new rules, we are in the process of further reviewing and documenting our
disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure
that our systems evolve with our business.

There
have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation.

33

---

PART IV

ITEM 15.    EXHIBITS AND REPORTS ON FORM 8K

(a)    Contents:





(b)    Reports
of Form 8-K:



(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, Registration No. 333-64197).                         
|3.2         |  | Articles of Amendment of the Registrant, dated July 8, 1998 (incorporated herein by reference from the Company's Registration Statement on Form S-3, Registration No. 333-64197)           
|3.3         |  | Articles of Amendment of the Registrant, dated effective June 30, 2002 (incorporated herein by reference from the Company's Registration Statement on Form S-4, Registration No. 333-99461)
|3.4         |  | By-Laws of the Registrant (incorporated herein by reference to the Registrant's Registration Statement on Form S-3, Registration No. 333-64197).                                           
|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 Registration's Registration Statement on Form S-3, Registration No. 333-64197).   
|            |  |                                                                                                                                                                                            

34

---

|10.2 |  | Agreement and Plan of Reorganization by and between GB&T Bancshares, Inc. and Community Trust Financial Services Corporation, dated as of March 16, 2001 (incorporated herein by reference from GB&T's Registration Statement on Form S-4,
Registration No. 333-59532).        
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3 |  | Agreement and Plan of Reorganization by and between GB&T Bancshares, Inc. and Home Town Bank of Villa Rica, dated as of June 13, 2002 and amended on September 30, 2002 (incorporated by reference from GB&T's Registration Statement on Form
S-4, Registration No. 333-99461).
|10.4 |  | Employment Agreement, by and between GB&T and Richard A. Hunt, dated as of December 30, 2002.                                                                                                                                                                                  
|10.5 |  | Employment Agreement, by and between GB&T and Gregory L. Hamby, dated as of December 30, 2002.                                                                                                                                                                                 
|10.6 |  | GB&T Bancshares, Inc. Stock Option Plan of 1997.                                                                                                                                                                                                                               
|21.1 |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                
|23.1 |  | Consent of Mauldin & Jenkins, LLC.                                                                                                                                                                                                                                             
|24.1 |  | Power of Attorney (included on the signatures page hereto).                                                                                                                                                                                                                    
|99.1 |  | Opinion of Porter Keadle Moore, LLP                                                                                                                                                                                                                                            

35

---



SIGNATURES

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

|                      |  | GB&T BANCSHARES, INC.
|--------------------- |  | ---------------------
|Dated: March 31, 2003 |  | By:                  

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard A. Hunt and Samuel L. Oliver, and each of them, as
his true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution for him, in his name place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done
in and about the premises as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant, in the capacities
and on the dates indicated.

GB&T BANCSHARES, INC.

|By: |  | /s/RICHARD A. HUNTRichard A. Hunt, President, Chief Executive Officer and Director        |  | DATE  March 31, 2003
|--- |  | ----------------------------------------------------------------------------------------- |  | --------------------
|By: |  | /s/GREGORY L. HAMBYGregory L. Hamby, Executive Vice President and Chief Financial Officer |  | DATE  March 31, 2003
|By: |  | /s/PHILIP A. WILHEITPhilip A. Wilheit, Chairman and Director                              |  | DATE  March 31, 2003
|By: |  | /s/SAMUEL L. OLIVERSamuel L. Oliver, Vice Chairman and Director                           |  | DATE  March 31, 2003
|By: |  | /s/ALAN A. WAYNEAlan A. Wayne, Secretary and Director                                     |  | DATE  March 31, 2003
|    |  |                                                                                           |  |                     

36

---

|By:                  |  | /s/LARRY B. BOGGSLarry B. Boggs, Director                 |  | DATE  March 31, 2003
|-------------------- |  | --------------------------------------------------------- |  | --------------------
|By:                  |  | /s/DONALD J. CARTERDonald J. Carter, Director             |  | DATE  March 31, 2003
|By:                  |  | /s/JOHN W. DARDENJohn W. Darden, Director                 |  | DATE  March 31, 2003
|By:                  |  | /s/WILLIAM A. FOSTER, IIIWilliam A. Foster, III, Director |  | DATE  March 31, 2003
|By:                  |  | /s/BENNIE E. HEWETTBennie E. Hewett, Director             |  | DATE  March 31, 2003
|By:                  |  | /s/JAMES L. LESTERJames L. Lester, Director               |  | DATE  March 31, 2003
|By:                  |  | /s/JOHN E. MANSFIELD, SR.John E. Mansfield, Sr., Director |  | DATE  March 31, 2003
|DATE  March 31, 2003 |  |                                                           |  |                     

37

---





CERTIFICATIONS

I,
Richard A. Hunt, certify that:





|Date:  March 31, 2003 |  |     |  |                                                     
|--------------------- |  | --- |  | ----------------------------------------------------
|                      |  | By: |  | /s/RICHARD A. HUNTRichard A. Hunt, President and CEO

38

---

CERTIFICATIONS

I,
Gregory L. Hamby, certify that:





|Date:  March 31, 2003 |  |     |  |                                                 
|--------------------- |  | --- |  | ------------------------------------------------
|                      |  | By: |  | /s/GREGORY L. HAMBYGregory L. Hamby, EVP and CFO

39

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2002

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT  DECEMBER 31, 2002   TABLE OF CONTENTS

|                                  |                                                 | Page
|--------------------------------- | ----------------------------------------------- | ----
|INDEPENDENT AUDITOR'S REPORT      |                                                 | 1   
|CONSOLIDATED FINANCIAL STATEMENTS |                                                 |     
|                                  | Consolidated balance sheets                     |     
|                                  | Consolidated statements of income               |     
|                                  | Consolidated statements of comprehensive income |     
|                                  | Consolidated statements of stockholders' equity |     
|                                  | Consolidated statements of cash flows           |     
|                                  | Notes to consolidated financial statements      |     

---

INDEPENDENT AUDITOR'S REPORT

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

We
have audited the accompanying consolidated balance sheets ofGB&T Bancshares, Inc. and subsidiariesas of December 31,
2002 and 2001, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002.
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 did not audit the 2000
financial statements of Community Trust Financial Services Corporation and subsidiaries, a company which was pooled with GB&T Bancshares, Inc. in 2001, as explained in Note 2 to the
consolidated financial statements, which statements are included in the restated 2000 statements of income, comprehensive income, stockholders' equity and cash flows and reflect revenues constituting
25% of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion for 2000 insofar as it relates to the amounts included
for Community Trust Financial Services Corporation, is based solely upon the report of the other auditors.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, based upon our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of GB&T Bancshares, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.



Atlanta,
Georgia
January 24, 2003

---



GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS        DECEMBER 31, 2002 AND 2001        (Dollars in thousands)

|                                                                                                                        |                     | 2002                                       |         | 2001   
|----------------------------------------------------------------------------------------------------------------------- | ------------------- | ------------------------------------------ | ------- | -------
|Assets                                                                                                                  |                     |                                            |         |        
|Cash and due from banks                                                                                                 |                     | $                                          | 18,113  |        
|Interest-bearing deposits in banks                                                                                      |                     |                                            | 8,205   |        
|Federal funds sold                                                                                                      |                     |                                            | 25,170  |        
|Securities available-for-sale                                                                                           |                     |                                            | 106,843 |        
|Restricted equity securities                                                                                            |                     |                                            | 3,784   |        
|Loans                                                                                                                   |                     |                                            | 542,834 |        
|Less allowance for loan losses                                                                                          |                     |                                            | 7,538   |        
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Loans, net                                 |         |        
|                                                                                                                        |                     |                                            |         |        
|Premises and equipment                                                                                                  |                     |                                            | 20,774  |        
|Goodwill and intangible assets                                                                                          |                     |                                            | 9,522   |        
|Other assets                                                                                                            |                     |                                            | 14,265  |        
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Total assets                               |         | $      
|                                                                                                                        |                     |                                            |         |        
|Liabilities and Stockholders' Equity                                                                                    |                     |                                            |         |        
|Deposits                                                                                                                |                     |                                            |         |        
|                                                                                                                        | Noninterest-bearing |                                            | $       | 56,795 
|                                                                                                                        | Interest-bearing    |                                            |         | 523,453
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Total deposits                             |         |        
|Federal funds purchased and securities sold under repurchase agreements                                                 |                     |                                            | 11,538  |        
|Other borrowings                                                                                                        |                     |                                            | 64,474  |        
|Other liabilities                                                                                                       |                     |                                            | 9,935   |        
|Company guaranteed trust preferred securities                                                                           |                     |                                            | 15,000  |        
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Total liabilities                          |         |        
|                                                                                                                        |                     |                                            |         |        
|Commitments and contingencies                                                                                           |                     |                                            |         |        
|Stockholders' equity                                                                                                    |                     |                                            |         |        
|Capital stock, no par value; 20,000,000 shares authorized, 5,356,946 shares issued and outstanding at December 31, 2002 |                     |                                            | 35,658  |        
|Common stock, par value $5; 20,000,000 shares authorized, 4,739,139 shares issued and outstanding at December 31, 2001  |                     |                                            |        |        
|Capital surplus                                                                                                         |                     |                                            |        |        
|Retained earnings                                                                                                       |                     |                                            | 23,130  |        
|Accumulated other comprehensive income                                                                                  |                     |                                            | 1,989   |        
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Total stockholders' equity                 |         |        
|                                                                                                                        |                     |                                            |         |        
|                                                                                                                        |                     | Total liabilities and stockholders' equity |         | $      
|                                                                                                                        |                     |                                            |         |        

See
Notes to Consolidated Financial Statements.

2

---



GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME        YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000        (Dollars in thousands, except per share amounts)

|                           |                                                                                           | 2002                                                |       | 2001   |        | 2000  |       
|-------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------- | ----- | ------ | ------ | ----- | ------
|Interest income            |                                                                                           |                                                     |       |        |        |       |       
|                           | Loans, including fees                                                                     |                                                     | $     | 34,197 |        | $     | 36,762
|                           | Taxable securities                                                                        |                                                     |       | 3,869  |        |       | 4,360 
|                           | Nontaxable securities                                                                     |                                                     |       | 698    |        |       | 720   
|                           | Federal funds sold                                                                        |                                                     |       | 150    |        |       | 447   
|                           | Deposits in banks                                                                         |                                                     |       | 42     |        |       | 60    
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Total interest income                               |       |        | 38,956 |       |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|Interest expense           |                                                                                           |                                                     |       |        |        |       |       
|                           | Deposits                                                                                  |                                                     |       | 11,455 |        |       | 17,485
|                           | Federal funds purchased, securities sold under repurchase agreements and other borrowings |                                                     |       | 3,442  |        |       | 3,408 
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Total interest expense                              |       |        | 14,897 |       |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Net interest income                                 |       |        | 24,059 |       |       
|Provision for loan losses  |                                                                                           |                                                     | 845   |        |        | 1,306 |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Net interest income after provision for loan losses |       |        | 23,214 |       |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|Other income               |                                                                                           |                                                     |       |        |        |       |       
|                           | Service charges on deposit accounts                                                       |                                                     |       | 3,660  |        |       | 3,471 
|                           | Other service charges and fees                                                            |                                                     |       | 1,147  |        |       | 925   
|                           | Security transactions, net                                                                |                                                     |       | 806    |        |       | 34    
|                           | Mortgage origination fees                                                                 |                                                     |       | 1,507  |        |       | 1,062 
|                           | Gain on sale of loans                                                                     |                                                     |       | 72     |        |       | 185   
|                           | Trust fees                                                                                |                                                     |       | 221    |        |       | 127   
|                           | Equity in loss of unconsolidated subsidiary                                               |                                                     |       | (9     | )      |       | (146  
|                           | Other operating income                                                                    |                                                     |       | 658    |        |       | 671   
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Total other income                                  |       |        | 8,062  |       |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|Other expenses             |                                                                                           |                                                     |       |        |        |       |       
|                           | Salaries and employee benefits                                                            |                                                     |       | 12,612 |        |       | 11,415
|                           | Occupancy expenses                                                                        |                                                     |       | 3,290  |        |       | 3,354 
|                           | Other operating expenses                                                                  |                                                     |       | 5,816  |        |       | 5,754 
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Total other expenses                                |       |        | 21,718 |       |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Income before income taxes                          |       |        | 9,558  |       |       
|Income tax expense         |                                                                                           |                                                     | 3,030 |        |        | 1,986 |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|                           |                                                                                           | Net income                                          |       | $      | 6,528  |       | $     
|                           |                                                                                           |                                                     |       |        |        |       |       
|Basic earnings per share   |                                                                                           | $                                                   | 1.36  |        | $      | 0.85  |       
|                           |                                                                                           |                                                     |       |        |        |       |       
|Diluted earnings per share |                                                                                           | $                                                   | 1.32  |        | $      | 0.82  |       
|                           |                                                                                           |                                                     |       |        |        |       |       

See
Notes to Consolidated Financial Statements.

3

---



GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000        (Dollars in thousands)

|                                   |                                                                                                                                       | 2002 |       | 2001  |   | 2000 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----- | ----- | - | -----
|Net income                         |                                                                                                                                       | $    | 6,528 |       | $ | 3,970
|                                   |                                                                                                                                       |      |       |       |   |      
|Other comprehensive income (loss): |                                                                                                                                       |      |       |       |   |      
|                                   | Unrealized holding gains arising during period, net of tax of $735, $548 and $563, respectively                                       |      |       | 1,503 |   |      
|                                   | Reclassification adjustment for (gains) losses realized in net income, net of (taxes) benefits of $(306), $(13) and $49, respectively |      |       | (500  | ) |      
|                                   |                                                                                                                                       |      |       |       |   |      
|Other comprehensive income         |                                                                                                                                       |      | 1,003 |       |   | 874  
|                                   |                                                                                                                                       |      |       |       |   |      
|Comprehensive income               |                                                                                                                                       | $    | 7,531 |       | $ | 4,844
|                                   |                                                                                                                                       |      |       |       |   |      

See
Notes to Consolidated Financial Statements.

4

---



GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000        (Amounts in thousands)

|                           |                                                                                                                      |       |     | Common Stock |        |         |   |        |        |   |       |        |   |        |       
|-------------------------- | -------------------------------------------------------------------------------------------------------------------- | ----- | --- | ------------ | ------ | ------- | - | ------ | ------ | - | ----- | ------ | - | ------ | ------
|
|
|
|Balance, December 31, 1999 |                                                                                                                      | 4,637 |     | $            | 23,187 |         | $ |       |        | $ | 1,585 |        | $ | 12,406 |       
|                           | Net income                                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        | 4,309 
|                           | Options exercised, net of repurchases                                                                                |       | 14  |              |        | 70      |   |        |       |   |       | (13    | ) |        |      
|                           | Tax benefit of nonqualified stock options                                                                            |       |    |              |        |        |   |        |       |   |       | 33     |   |        |      
|                           | Payment for fractional shares in connection with UB&T Financial Services Corp business combination                   |       |    |              |        | (2      | ) |        |       |   |       | (4     | ) |        |      
|                           | Dividends declared, $.24 per share                                                                                   |       |    |              |        |        |   |        |       |   |       |       |   |        | (1,129
|                           | Other comprehensive income                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        |      
|                           |                                                                                                                      |       |     |              |        |         |   |        |        |   |       |        |   |        |       
|Balance, December 31, 2000 |                                                                                                                      | 4,651 |     |              | 23,255 |         |   |       |        |   | 1,601 |        |   | 15,586 |       
|                           | Net income                                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        | 3,970 
|                           | Options exercised                                                                                                    |       | 88  |              |        | 442     |   |        |       |   |       | 99     |   |        |      
|                           | Payment for fractional shares in connection with Community Trust Financial Services Corporation business combination |       |    |              |        | (1      | ) |        |       |   |       | (4     | ) |        |      
|                           | Tax benefit of nonqualified stock options                                                                            |       |    |              |        |        |   |        |       |   |       | 198    |   |        |      
|                           | Dividends declared, $.29 per share                                                                                   |       |    |              |        |        |   |        |       |   |       |       |   |        | (1,358
|                           | Other comprehensive income                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        |      
|                           |                                                                                                                      |       |     |              |        |         |   |        |        |   |       |        |   |        |       
|Balance, December 31, 2001 |                                                                                                                      | 4,739 |     |              | 23,696 |         |   |       |        |   | 1,894 |        |   | 18,198 |       
|                           | Net income                                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        | 6,528 
|                           | Options exercised                                                                                                    |       | 55  |              |        | 111     |   |        | 312    |   |       | 18     |   |        |      
|                           | Purchase of Home Town Bank of Villa Rica                                                                             |       | 563 |              |        |        |   |        | 9,571  |   |       |       |   |        |      
|                           | Tax benefit of nonqualified stock options                                                                            |       |    |              |        |        |   |        | 56     |   |       |       |   |        |      
|                           | Reclassification of stock to no par stock                                                                            |       |    |              |        | (23,807 | ) |        | 25,719 |   |       | (1,912 | ) |        |      
|                           | Dividends declared, $.34 per share                                                                                   |       |    |              |        |        |   |        |       |   |       |       |   |        | (1,596
|                           | Other comprehensive income                                                                                           |       |    |              |        |        |   |        |       |   |       |       |   |        |      
|                           |                                                                                                                      |       |     |              |        |         |   |        |        |   |       |        |   |        |       
|Balance, December 31, 2002 |                                                                                                                      | 5,357 |     | $            |       |         | $ | 35,658 |        | $ |      |        | $ | 23,130 |       
|                           |                                                                                                                      |       |     |              |        |         |   |        |        |   |       |        |   |        |       

See Notes to Consolidated Financial Statements.

5

---



GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS        YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000        (Dollars in thousands)

|                     |                                                                                                    | 2002                                               |                                           | 2001    |         | 2000  |        
|-------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | ------- | ------- | ----- | -------
|OPERATING ACTIVITIES |                                                                                                    |                                                    |                                           |         |         |       |        
|                     | Net income                                                                                         |                                                    | $                                         | 6,528   |         | $     | 3,970  
|                     | Adjustments to reconcile net income to net cash provided by operating activities:                  |                                                    |                                           |         |         |       |        
|                     |                                                                                                    | Depreciation and amortization                      |                                           |         | 1,645   |       |        
|                     |                                                                                                    | Provision for loan losses                          |                                           |         | 845     |       |        
|                     |                                                                                                    | Provision for losses on other real estate owned    |                                           |         |        |       |        
|                     |                                                                                                    | Equity in loss of unconsolidated subsidiary        |                                           |         | 9       |       |        
|                     |                                                                                                    | (Gain) loss on sale of securities                  |                                           |         | (806    | )     |        
|                     |                                                                                                    | Loss on sale of other real estate owned            |                                           |         | 106     |       |        
|                     |                                                                                                    | Gain on sale of loans                              |                                           |         | (72     | )     |        
|                     |                                                                                                    | (Gain) loss on disposal of premises and equipment  |                                           |         | 82      |       |        
|                     |                                                                                                    | Deferred income taxes                              |                                           |         | 246     |       |        
|                     |                                                                                                    | (Increase) decrease in interest receivable         |                                           |         | 124     |       |        
|                     |                                                                                                    | Increase (decrease) in interest payable            |                                           |         | (1,421  | )     |        
|                     |                                                                                                    | Increase in cash surrender value of life insurance |                                           |         | (445    | )     |        
|                     |                                                                                                    | Net other operating activities                     |                                           |         | 2,570   |       |        
|                     |                                                                                                    |                                                    |                                           |         |         |       |        
|                     |                                                                                                    |                                                    | Net cash provided by operating activities |         |         | 9,411 |        
|                     |                                                                                                    |                                                    |                                           |         |         |       |        
|INVESTING ACTIVITIES |                                                                                                    |                                                    |                                           |         |         |       |        
|                     | (Increase) decrease in interest-bearing deposits in banks                                          |                                                    |                                           | (830    | )       |       | (763   
|                     | Purchases of securities available-for-sale                                                         |                                                    |                                           | (49,825 | )       |       | (48,650
|                     | Purchases of restricted equity securities                                                          |                                                    |                                           | (471    | )       |       | (150   
|                     | Proceeds from sale of restricted equity securities                                                 |                                                    |                                           |        |         |       |       
|                     | Proceeds from maturities of securities available-for-sale                                          |                                                    |                                           | 30,891  |         |       | 41,760 
|                     | Proceeds from sales of securities available-for-sale                                               |                                                    |                                           | 9,630   |         |       | 3,313  
|                     | Net (increase) decrease in federal funds sold                                                      |                                                    |                                           | (17,089 | )       |       | 7,699  
|                     | Net increase in loans                                                                              |                                                    |                                           | (33,594 | )       |       | (36,853
|                     | Net cash acquired in business combination                                                          |                                                    |                                           | 176     |         |       |       
|                     | Purchase of premises and equipment                                                                 |                                                    |                                           | (2,880  | )       |       | (3,060 
|                     | Disposals of premises and equipment                                                                |                                                    |                                           |        |         |       | 84     
|                     | Purchase of cash value life insurance policies                                                     |                                                    |                                           |        |         |       |       
|                     | Proceeds from sale of other real estate owned                                                      |                                                    |                                           | 1,413   |         |       | 626    
|                     | Proceeds from sale of loans                                                                        |                                                    |                                           |        |         |       |       
|                     |                                                                                                    |                                                    |                                           |         |         |       |        
|                     |                                                                                                    | Net cash used in investing activities              |                                           |         | (62,579 | )     |        
|                     |                                                                                                    |                                                    |                                           |         |         |       |        
|FINANCING ACTIVITIES |                                                                                                    |                                                    |                                           |         |         |       |        
|                     | Net increase in deposits                                                                           |                                                    |                                           | 40,162  |         |       | 25,456 
|                     | Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements |                                                    |                                           | (8,169  | )       |       | 2,575  
|                     | Net increase in other borrowings                                                                   |                                                    |                                           | 7,346   |         |       | 3,296  
|                     | Proceeds from issuance of trust preferred securities                                               |                                                    |                                           | 15,000  |         |       |       
|                     | Proceeds from issuance of common stock                                                             |                                                    |                                           | 441     |         |       | 540    
|                     | Dividends paid                                                                                     |                                                    |                                           | (1,596  | )       |       | (1,358 
|                     | Payment for fractional shares                                                                      |                                                    |                                           |        |         |       | (5     
|                     |                                                                                                    |                                                    |                                           |         |         |       |        
|                     |                                                                                                    | Net cash provided by financing activities          |                                           |         | 53,184  |       |        
|                     |                                                                                                    |                                                    |                                           |         |         |       |        

6

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

|                                                   |                                                                    | 2002         |        | 2001     |        | 2000  
|-------------------------------------------------- | ------------------------------------------------------------------ | ------------ | ------ | -------- | ------ | ------
|Net increase (decrease) in cash and due from banks |                                                                    | $            | 16     |          | $      | 1,765 
|Cash and due from banks at beginning of year       |                                                                    |              | 18,097 |          |        | 16,332
|                                                   |                                                                    |              |        |          |        |       
|Cash and due from banks at end of year             |                                                                    | $            | 18,113 |          | $      | 18,097
|                                                   |                                                                    |              |        |          |        |       
|SUPPLEMENTAL DISCLOSURES                           |                                                                    |              |        |          |        |       
|                                                   | Cash paid for:                                                     |              |        |          |        |       
|                                                   |                                                                    | Interest     |        | $        | 16,318 |       
|                                                   |                                                                    | Income taxes |        | $        | 3,150  |       
|NONCASH TRANSACTIONS                               |                                                                    |              |        |          |        |       
|                                                   | Principal balances of loans transferred to other real estate owned |              | $      | 70       |        | $     
|                                                   | Financed sales of other real estate owned                          |              | $      | 161      |        | $     
|                                                   | Tax benefits of nonqualified stock options                         |              | $      | 56       |        | $     
|ACQUISITION OF SUBSIDIARY                          |                                                                    |              |        |          |        |       
|                                                   | Capital stock issued                                               |              | $      | 9,571    |        | $     
|Assets acquired (liabilities assumed)              |                                                                    |              |        |          |        |       
|                                                   | Cash and due from banks, net of cash paid                          |              | $      | 176      |        |       
|                                                   | Interest-bearing deposits in banks                                 |              |        | 6,288    |        |       
|                                                   | Federal funds sold                                                 |              |        | 8,057    |        |       
|                                                   | Securities available-for-sale                                      |              |        | 10,217   |        |       
|                                                   | Restricted equity securities                                       |              |        | 321      |        |       
|                                                   | Loans, net                                                         |              |        | 89,322   |        |       
|                                                   | Premises and equipment                                             |              |        | 4,658    |        |       
|                                                   | Goodwill                                                           |              |        | 7,822    |        |       
|                                                   | Core deposit intangible                                            |              |        | 1,142    |        |       
|                                                   | Other assets                                                       |              |        | 1,830    |        |       
|                                                   | Deposits                                                           |              |        | (113,328 | )      |       
|                                                   | Other borrowings                                                   |              |        | (6,666   | )      |       
|                                                   | Other liabilities                                                  |              |        | (268     | )      |       
|                                                   |                                                                    |              |        |          |        |       
|                                                   |                                                                    | $            | 9,571  |          |        |       
|                                                   |                                                                    |              |        |          |        |       

See
Notes to Consolidated Financial Statements

7

---



GB&T BANCSHARES, INC.        AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

GB&T Bancshares, Inc. (the "Company") is a multi-bank holding company whose business is conducted by its wholly-owned commercial bank
subsidiaries, Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank, and HomeTown Bank of Villa Rica (the "Banks"). Gainesville Bank & Trust is located in
Gainesville, Hall County, Georgia with the main office and four branches located in Gainesville, one branch located in Oakwood, Georgia and one branch located in Buford, Georgia. United Bank &
Trust is located in Rockmart, Polk County, Georgia with a branch in Cedartown, Georgia and a branch in Cartersville, Georgia. Community Trust Bank is located in Hiram, Paulding County, Georgia with
one branch in Dallas, Georgia, one branch in Marietta, Georgia, and one branch in Kennesaw, Georgia. HomeTown Bank of Villa Rica is located in Villa Rica, Carroll County, Georgia with the main office
and one additional branch in Villa Rica and one branch in Hiram, Georgia. The Banks provide a full range of banking services to individual and corporate customers in their primary market areas of
Hall, Polk, Paulding, and Carroll Counties, respectively, and the surrounding counties.

The
consolidated financial statements also include the Company's wholly-owned subsidiary, Community Loan Company ("CLC"). CLC was incorporated in 1995 for the purpose of acquiring and
operating existing consumer finance companies under the direction of the Company. The operations of CLC, located in the Georgia cities of Rockmart, Rossville, Gainesville, Woodstock, Cartersville,
Dahlonega,
Dalton and Rome, are funded principally through a line of credit arrangement with another financial institution.

The
Company sold its 49% interest in Cash Transactions, L.L.C. ("CashTrans"), a company that sells, leases and services automated teller machines, as of January 31, 2002. The
investment had been accounted for using the equity method of accounting.

Basis of Presentation and Accounting Estimates

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany transactions and balances have been
eliminated in consolidation.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the
allowance for loan losses, the valuation of foreclosed real estate and deferred taxes.

Cash, Due from Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks includes cash on hand, cash items in process of collection and amounts due from banks. Cash flows
from loans, federal funds sold, federal funds purchased and securities sold under repurchase agreements, deposits and other borrowings are reported net.

8

---

The
Banks are required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was
approximately $7,556,000 at December 31, 2002.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at
amortized cost. Securities not classified as held-to-maturity, including equity securities with readily determinable fair values, are classified as
available-for-sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of the related deferred
tax effect. Equity securities, including restricted stock, without a readily determinable fair value are recorded at cost.

Purchase
premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are determined
using the specific identification method. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.

Loans

Loans are reported at their outstanding principal balances less unearned income and the allowance for loan losses. Interest income is accrued on the unpaid
balance. Loan origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment of the related loan yield over the life of the loan using a method which
approximates a level yield.

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, unless the loan is
well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Interest income on nonaccrual loans is
subsequently recognized only to the extent cash payments are received, until the loans are returned to accrual status.

The
allowance for loan losses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the
collectibility of the principal is unlikely. Subsequent recoveries are credited to the allowance.

The
allowance is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available. While management uses the best information available to make its evaluation, future adjustments to the allowance may be
necessary if
there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses,
and may

9

---

require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

A
loan is considered impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan
agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation computed principally by the straight-line method over
the estimated useful lives of the assets. The range of estimated useful lives for premises and equipment are:

Buildings and improvements

20-40 yearsFurniture and equipment

3-10 years


Other Real Estate Owned

Other real estate owned represents properties acquired through foreclosure. Other real estate owned is held for sale and is carried at the lower of cost or fair
value less estimated costs to sell. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses from foreclosed assets. The carrying amount of other real estate owned at December 31, 2002 and 2001 was $890,713
and $1,522,874, respectively.

Income Taxes

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 temporary 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.

Profit-Sharing Plan

Profit-sharing plan costs are based on a percentage of individual employee's salary, not to exceed the amount that can be deducted for federal income tax
purposes. The Banks make matching contributions up to 100% of the first 6% of each participant's salary contribution based on the individual Bank's performance.

Stock Compensation Plans

At December 31, 2002, the Company has a stock-based employee compensation plan, which is described more fully in Note 12. The Company accounts for
the plan under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related

10

---

Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying stock on
the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

Years Ended December 31,2002

2001

2000(Dollars in thousands)Net income, as reported

$
6,528

$
3,970

$
4,309Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


84


222


82Pro forma net income

$
6,444

$
3,748

$
4,227Earnings per share:Basicas reported

$
1.36

$
.85

$
.93Basicpro forma

$
1.34

$
.80

$
.91Dilutedas reported

$
1.32

$
.82

$
.90Dilutedpro forma

$
1.30

$
.78

$
.88


Earnings Per Share

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

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items,
along with net income, are components of comprehensive income.

Accounting Standards

In June 2001, the Financial Accounting Standards Board, ("FASB") issued SFAS No. 141,Business
Combinations, and SFAS No. 142.Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business
combinations consummated after June 30, 2001 be accounted for by the purchase method unless the combination was initiated on or prior to that date and it meets the conditions to be accounted by
the pooling-of-interests method in accordance with APB Opinion No. 16,Business Combinations. Under SFAS No. 142,
goodwill and intangible assets that management concludes have indefinite useful lives will no longer be amortized, but will be subject to impairment tests performed at

11

---

least annually. SFAS No. 142 also requires the Company to perform a transitional impairment test of all previously recognized goodwill and to assign all recognized assets and liabilities to
reporting units. Other identifiable intangible assets will continue to be amortized over their useful lives.

During
2002, the Company performed the first of the required annual impairment tests of goodwill and indefinite lived intangible assets. As a result of this test, no amount was charged
to earnings for impairment in 2002. Application of the nonamortization provisions of SFAS No. 142 resulted in an increase of $108,000 ($.02 per basic share and $.02 per diluted share) in net
income for 2002.

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and
Disclosure. SFAS No. 148 amends SFAS No. 123,Accounting for Stock-Based Compensation, to provide alternative
methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS
No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. The Company has
not elected to adopt the recognition provisions of this Statement for stock-based employee compensation and has elected to continue with accounting methodology in Opinion No. 25 as permitted by
SFAS No. 123.

NOTE 2. BUSINESS COMBINATIONS

On November 30, 2002, the Company completed the merger of HomeTown Bank of Villa Rica. The Company issued 562,994 shares of its capital stock and
approximately $4,819,000 in cash in exchange for all of the issued and outstanding common shares of HomeTown Bank of Villa Rica. The acquisition has been accounted for as a purchase resulting in
goodwill of approximately $7,822,000. HomeTown Bank of Villa Rica's results of operations from December 1, 2002 are included in the consolidated results of operations for the year ended
December 31, 2002.

On
June 30, 2001, the Company effected a business combination with Community Trust Financial Services Corporation ("CTF") by exchanging 1,890,662 shares of its common stock for
all of the common stock of CTF. The combination has been accounted for as a pooling of interests and, accordingly, all prior periods financial statements have been restated to include CTF.

12

---

NOTE 3. SECURITIES

The amortized cost and fair value of securities available-for-sale are summarized as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value(Dollars in thousands)December 31, 2002:U. S. Government and agency securities

$
37,545

$
798

$
(6
)
$
38,337State and municipal securities


15,893


882


(1
)

16,774Mortgage-backed securities


45,928


1,141





47,069Equity securities


1,612








1,612Corporate bonds


2,850


201





3,051$
103,828

$
3,022

$
(7
)
$
106,843


Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value(Dollars in thousands)December 31, 2001:U. S. Government and agency securities

$
28,089

$
773

$
(4
)
$
28,858State and municipal securities


16,148


450


(8
)

16,590Mortgage-backed securities


36,524


368


(57
)

36,835Equity securities


2,095








2,095Corporate bonds


1,765


67


(6
)

1,826$
84,621

$
1,658

$
(75
)
$
86,204


The
amortized cost and fair value of debt securities as of December 31, 2002 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 repaid without penalty. Therefore, these securities are not included in the maturity categories in the
following summary.

Amortized
Cost

Fair
Value(Dollars in thousands)Due within one year

$
16,025

$
16,079Due from one to five years


29,135


30,423Due from five to ten years


11,164


11,637Due after ten years


1,576


1,635Mortgage-backed securities


45,928


47,069$
103,828

$
106,843


13

---

Securities
with an approximate carrying value of $45,791,000 and $39,160,000 at December 31, 2002 and 2001, respectively, were pledged to secure public deposits and for other
purposes required or permitted by law.

Gains
and losses on sales of securities available-for-sale consist of the following:

Years Ended December 31,2002

2001

2000(Dollars in thousands)Gross gains

$
816

$
48

$
155Gross losses


(10
)

(14
)

(25
)Net realized gains

$
806

$
34

$
130


NOTE 4. LOANS

The composition of loans is summarized as follows:

December 31,2002

2001(Dollars in thousands)Commercial, financial and agricultural

$
43,011

$
38,597Real estateconstruction


120,922


99,473Real estatemortgage


348,548


247,825Consumer


29,630


29,286Other


1,042


3,989543,153


419,170Unearned income


(319
)

(514
)Allowance for loan losses


(7,538
)

(5,522
)Loans, net

$
535,296

$
413,134


Changes
in the allowance for loan losses are as follows:

Years Ended December 31,2002

2001

2000(Dollars in thousands)Balance, beginning of year

$
5,522

$
5,099

$
4,232Provision for loan losses


845


1,306


1,149Loans charged off


(1,094
)

(1,118
)

(581
)Recoveries of loans previously charged off


424


235


314Allowance for loan losses sold








(15
)Allowance for loan losses related to acquired loans


1,841





Balance, end of year

$
7,538

$
5,522

$
5,099


14

---

The
following is a summary of information pertaining to impaired loans:

As of and for the Years Ended December 31,2002

2001

2000(Dollars in thousands)Impaired loans without a valuation allowance

$


$
190

$
21Impaired loans with a valuation allowance


6,028


327


1,603Total impaired loans

$
6,028

$
517

$
1,624Valuation allowance related to impaired loans

$
1,017

$
49

$
185Average investment in impaired loans

$
5,142

$
1,224

$
944Interest income recognized on impaired loans

$
131

$
14

$
130Nonaccrual loans

$
5,506

$
473

$
1,602Loans past due ninety days or more and still accruing interest

$
1,814

$
196

$
773


In
the ordinary course of business, the Company has granted loans to certain related parties, including executive officers, directors and their affiliates. 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. Changes in related party loans for the year ended
December 31, 2002 are as follows:

(Dollars in
thousands)Balance, beginning of year

$
7,689Advances


11,420Repayments


(9,358
)Change in directors


2,701Balance, end of year

$
12,452


15

---

NOTE 5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

December 31,2002

2001(Dollars in thousands)Land

$
4,103

$
3,485Land improvements


564


104Buildings


11,566


7,096Leasehold improvements


2,630


2,837Furniture and equipment


10,380


9,606Automobiles


249


Construction in progress


259


48329,751


23,611Accumulated depreciation


(8,977
)

(8,804
)$
20,774

$
14,807


Depreciation
expense was $1,489,000, $1,477,000 and $1,206,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

At
December 31, 2002, the Company's 50% interest in the Gainesville Bank & Trust main office banking facility with a total carrying value (including land) of $1,775,000 was
pledged to a subsidiary bank to secure a $660,885 borrowing of a director who is the owner of the remaining 50% interest in the building.

At
December 31, 2002, construction in process consisted of computer equipment not yet in service. There are no significant amounts remaining to be incurred in completion of the
project. At December 31, 2001, computer installation and construction in progress consisted of costs incurred in constructing a new branch and a software upgrade.

Leases

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

The
Company also leases various other branches under noncancelable operating lease agreements.

Rental
expense under all operating leases amounted to $697,000, $708,000 and $651,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

16

---

Future minimum lease payments on noncancelable operating leases are summarized as follows:

(Dollars in
thousands)2003

$
6552004


6462005


2282006


1702007


130Thereafter


107$
1,936


NOTE 6. INTANGIBLE ASSETS

Following is a summary of information related to acquired intangible assets:

December 31, 2002

December 31, 2001Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization(Dollars in thousands)Amortized intangible assetsCore deposit premiums

$
1,142

$
8

$


$
Total

$
1,142

$
8

$


$
Unamortized intangible assetsGoodwill

$
8,388




$
566


The
aggregate amortization expense was $8,000, $65,000 and $69,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

The
estimated amortization expense for each of the next five years is as follows:

(Dollars in
thousands)2003

$
982004


982005


982006


982007


98


There
were no changes in the carrying amount of goodwill during the year ended December 31, 2002.

17

---

Following
is a summary of net income and earnings per share that would have been reported exclusive of amortization expense recognized in those periods related to goodwill and intangible
assets that are no longer being amortized.

Years Ended December 31,2002

2001

2000Reported net income

$
6,528

$
3,970

$
4,309Goodwill amortization





65


69Adjusted net income

$
6,528

$
4,035

$
4,378Basic earnings per share:Reported net income

$
1.36

$
0.85

$
0.93Goodwill amortization





.01


.01Adjusted net income

$
1.36

$
0.86

$
0.94Diluted earnings per share:Reported net income

$
1.32

$
0.82

$
0.90Goodwill amortization





.01


.01Adjusted net income

$
1.32

$
0.83

$
0.91


NOTE 7. DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2002 and 2001 was approximately $95,407,000 and $57,661,000
respectively. The scheduled maturities of time deposits at December 31, 2002 are as follows:

(Dollars in
thousands)2003

$
226,8362004


51,4582005


12,0312006


4,7162007


12,824$
307,865


NOTE 8. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under repurchase agreements, which are secured borrowings, generally mature within one to four days from the transaction date. Securities sold
under repurchase agreements are reflected at the amount of cash received in connection with the transactions. The Company may be required to provide additional collateral based on the fair value of
the underlying securities. The

18

---

Company monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements at December 31, 2002 and 2001 were $10,173,000 and $10,664,000,
respectively.

NOTE 9. OTHER BORROWINGS

Other borrowings consist of the following:

December 31,2002

2001(Dollars in thousands)FHLB advances, interest payable at fixed rates ranging from 1.97% to 6.48%, advances mature at various maturity dates from February 24, 2003 through January 5, 2011.

$
56,654

$
35,551FHLB advances, interest payable at variable rates from LIBOR minus .23% to LIBOR flat rate, advances mature at various maturity dates from February 18, 2003 to April 22, 2004.


7,000


12,000Line of credit with bank with interest due quarterly at prime less 1.0% or 3.75% at December 31, 2001.





1,875Line of credit with bank with interest due quarterly at prime less .75% or 4.00% at December 31, 2001.





180Treasury, tax and loan note option account due on demand, bearing interest equal to the 90 day Treasury bill rate.


820


856$
64,474

$
50,462


Contractual
maturities of other borrowings as of December 31, 2002 are as follows:

(Dollars in
thousands)2003

$
11,9602004


12,1042005


8,0002006


2007


12,500Thereafter


19,910$
64,474


The
advances from the Federal Home Loan Bank are collateralized by blanket floating liens on qualifying first mortgage and commercial loans of approximately $72,131,000,
available-for-sale securities of approximately $8,628,000 and Federal Home Loan Bank stock of $3,174,000.

NOTE 10. TRUST PREFERRED

In 2002, the Company formed a wholly-owned grantor trust to issue cumulative trust preferred securities in a private placement offering. The grantor trust has
invested the proceeds of the trust

19

---

preferred securities in subordinated debentures of the Company. The trust preferred securities can be redeemed, in whole or in part, from time to time, prior to maturity at the option of the Company
on or after October 30, 2007. The sole assets of the grantor trust are the Subordinated Debentures of the Company (the Debentures). The Debentures have the same interest rate (5.1875%) as the
trust preferred securities. The Company has the right to defer interest payments on the Debentures up to twenty consecutive quarterly periods (five years), so long as the Company is not in default
under the subordinated debentures. Interest compounds during the deferral period. No deferral period may extend beyond the maturity date.

The
preferred securities are subject to redemption, in whole or in part, upon repayment of the subordinated debentures at maturity on October 30, 2032 or their earlier redemption.
The Company has the right to redeem the debentures, in whole or in part, from time to time, on or after October 30, 2007, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest.

The
Company has guaranteed the payment of all distributions the Trust is obligated to make, but only to the extent the Trust has sufficient funds to satisfy those payments. The Company
and the Trust believe that, taken together, the obligations of the Company under the Guarantee Agreement, the Trust Agreement, the Subordinated Debentures, and the Indenture provide, in the aggregate,
a full, irrevocable and unconditional guarantee of all of the obligations of the Trust under the Preferred Securities on a subordinated basis.

The
Company is required by the Federal Reserve Board to maintain certain levels of capital for bank regulatory purposes. The Federal Reserve Board has determined that certain cumulative
preferred securities having the characteristics of trust preferred securities qualify as minority interest, which is
included in Tier 1 capital for bank and financial holding companies. In calculating the amount of Tier l qualifying capital, the trust preferred securities can only be included up to the amount
constituting 25% of total Tier 1 capital elements (including trust preferred securities). Such Tier 1 capital treatment provides the Company with a more cost-effective means of obtaining
capital for bank regulatory purposes than if the Company were to issue preferred stock.

The
trust preferred securities and the related Debentures were issued on October 30, 2002. Both financial instruments bear an identical annual rate of interest of 5.1875%.
Distributions on the trust preferred securities are paid quarterly on March 31, June 30, September 30 and December 31 of each year, beginning December 31, 2002.
Interest on the Debentures is paid on the corresponding dates. The aggregate principal amount of trust preferred certificates outstanding at December 31, 2002 was $15,000,000. The aggregate
principal amount of Debentures outstanding at December 31, 2002 was $15,464,000.

NOTE 11. EMPLOYEE BENEFIT PLANS

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 $283,000, $240,000 and $229,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

20

---

Deferred Compensation Plan

The Company has various deferred compensation plans providing for death and retirement benefits for certain officers. The estimated amounts to be paid under the
compensation plans have been funded through the purchase of life insurance policies on the officers. Accrued deferred compensation of $510,000 and $360,000 is included in other liabilities as of
December 31, 2002 and 2001, respectively. Cash surrender values of $4,766,000 and $4,321,000 on the insurance policies is included in other assets at December 31, 2002 and 2001,
respectively.

NOTE 12. STOCK COMPENSATION PLAN

The Company has a 1997 stock option plan for the granting of options to directors, officers, and employees. Option prices reflect the fair market value of the
Company's capital stock on the dates the options are granted. The options may be exercised over a period of ten years in accordance with vesting schedules determined by the Board of Directors.

Other
pertinent information related to the options is as follows:

|                                                               |            | Years Ended December 31,
|-------------------------------------------------------------- | ---------- | ------------------------
|
|
|Outstanding at beginning of year                               |            | 436,636                 
|                                                               | Granted    |                         
|                                                               | Exercised  |                         
|                                                               | Terminated |                         
|                                                               |            |                         
|Outstanding at end of year                                     |            | 446,630                 
|                                                               |            |                         
|Options exercisable at year-end                                |            | 274,425                 
|Weighted-average fair value of options granted during the year |            |                         

Information pertaining to options outstanding at December 31, 2002 is as follows:

|              |  | Options Outstanding |  | Options Exercisable
|------------- |  | ------------------- |  | -------------------
|
|$3.68-$5.01   |  | 19,401              |  | 1.1 years          
|$6.36-$9.01   |  | 15,720              |  | 3.4 years          
|$10.04-$15.00 |  | 346,217             |  | 5.5 years          
|$15.25-$23.00 |  | 65,292              |  | 8.9 years          

21

---

The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Years Ended December 31,2002

2001

2000Dividend yield

1.83
%
2.63
%
$
1.25
%Expected life

10 years

10 years


10 yearsExpected volatility

23.07
%
27.60
%

25.74
%Risk-free interest rate

3.88
%
5.59
%

6.24
%


NOTE 13. INCOME TAXES

The components of income tax expense are as follows:

Years Ended December 31,2002

2001

2000(Dollars in thousands)Current

$
2,784

$
2,310

$
2,404Deferred


282


(324
)

(314
)Change in valuation allowance


(36
)




$
3,030

$
1,986

$
2,090


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:

Years Ended December 31,2002

2001

2000(Dollars in thousands)Tax provision at statutory rate

$
3,249

$
2,025

$
2,176Tax-exempt interest


(237
)

(245
)

(235
)Disallowed interest


25


42


44Life insurance


(82
)

(70
)

(62
)State income taxes


169


37


50Merger expenses





167


70Change in valuation allowance


(36
)




Other


(58
)

30


47Income tax expense

$
3,030

$
1,986

$
2,090


22

---

The
components of deferred income taxes are as follows:

2002

2001(Dollars in thousands)Deferred tax assets:Loan loss reserves

$
2,437

$
1,668Other real estate write-down


21


38Deferred compensation


295


190Organizational expenses


1


4Deferred loan fees


109


64CLC bad debt reserve


131


203Other


16


653,010


2,232Deferred tax liabilities:Depreciation


426


167Accretion of discount on securities


10


6Installment sale of stock


241


Other


50


Valuation allowance


470


Securities available-for-sale


1,025


6032,222


776Net deferred tax assets

$
788

$
1,456


NOTE 14. EARNINGS PER SHARE

Presented below is a summary of the components used to calculate basic and diluted earnings per share:

Years Ended December 31,2002

2001

2000(Amounts in thousands)Net income

$
6,528

$
3,970

$
4,309Weighted average number of capital shares outstanding


4,813


4,676


4,639Effect of dilutive options


135


140


152Weighted average number of capital shares outstanding used to calculate dilutive earnings per share


4,948


4,816


4,791


23

---

Loan Commitments

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit, standby letters of credit and credit card commitments. Such commitments involve, to varying degrees, elements of credit
risk and interest rate risk in excess of the amount recognized in the balance sheets.

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, standby letters of credit and credit
card commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. A summary of the Company's commitments is as follows:

December 31,2002

2001(Dollars in thousands)Commitments to extend credit

$
99,362

$
70,933Standby letters of credit


4,388


3,704Credit card commitments


4,975


4,997$
108,725

$
79,634


Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Credit
card commitments are granted on an unsecured basis.

Standby
letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit 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 is
required in instances which the Company deems necessary.

Contingencies

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.

NOTE 16. CONCENTRATIONS OF CREDIT

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

24

---

Eighty-six
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
areas. 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 areas. 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 each Bank's statutory capital, or
approximately $4,471,000, $1,368,000, $2,500,000, and $1,680,000 for Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank, and HomeTown Bank of Villa Rica, respectively.

NOTE 17. REGULATORY MATTERS

The Banks are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2002,
approximately $3,105,000 of retained earnings were available for dividend declaration without regulatory approval.

The
Company and Banks 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 Banks 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 Banks' capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative
measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of Total and Tier I capital to
risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 2002 and 2001, the Company and the Banks met all
capital adequacy requirements to which they are subject.

As
of December 31, 2002, the most recent notification from the Federal Deposit Insurance Corporation categorized HomeTown Bank of Villa Rica as under capitalized and Gainesville
Bank & Trust, United Bank & Trust and Community Trust Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the
Banks 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 Banks' categories.

25

---

The
Company and Banks' actual capital amounts and ratios are presented in the following table.

|                                        |                             | Actual |   | For Capital
Adequacy
Purposes |  | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions |  
|--------------------------------------- | --------------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | -
|
|
|As of December 31, 2002:                |                             |        |   |                               |  |                                                                  |  
|Total Capital to Risk Weighted Assets:  |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 72,556                        |  | 12.58                                                            | %
|                                        | Gainesville Bank & Trust    |        | $ | 28,430                        |  | 10.51                                                            | %
|                                        | United Bank & Trust         |        | $ | 6,744                         |  | 12.79                                                            | %
|                                        | Community Trust Bank        |        | $ | 15,238                        |  | 10.36                                                            | %
|                                        | HomeTown Bank of Villa Rica |        | $ | 7,945                         |  | 7.77                                                             | %
|Tier I Capital to Risk Weighted Assets: |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 65,343                        |  | 11.33                                                            | %
|                                        | Gainesville Bank & Trust    |        | $ | 25,355                        |  | 9.37                                                             | %
|                                        | United Bank & Trust         |        | $ | 6,094                         |  | 11.55                                                            | %
|                                        | Community Trust Bank        |        | $ | 13,539                        |  | 9.21                                                             | %
|                                        | HomeTown Bank of Villa Rica |        | $ | 6,661                         |  | 6.52                                                             | %
|Tier I Capital to Average Assets:       |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 65,343                        |  | 10.15                                                            | %
|                                        | Gainesville Bank & Trust    |        | $ | 25,355                        |  | 6.83                                                             | %
|                                        | United Bank & Trust         |        | $ | 6,094                         |  | 8.80                                                             | %
|                                        | Community Trust Bank        |        | $ | 13,539                        |  | 8.05                                                             | %
|                                        | HomeTown Bank of Villa Rica |        | $ | 6,661                         |  | 5.66                                                             | %
|As of December 31, 2001:                |                             |        |   |                               |  |                                                                  |  
|Total Capital to Risk Weighted Assets:  |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 48,764                        |  | 11.19                                                            | %
|                                        | Gainesville Bank & Trust    |        | $ | 23,273                        |  | 9.32                                                             | %
|                                        | United Bank & Trust         |        | $ | 6,312                         |  | 13.15                                                            | %
|                                        | Community Trust Bank        |        | $ | 13,684                        |  | 10.79                                                            | %
|Tier I Capital to Risk Weighted Assets: |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 43,243                        |  | 9.93                                                             | %
|                                        | Gainesville Bank & Trust    |        | $ | 20,337                        |  | 8.14                                                             | %
|                                        | United Bank & Trust         |        | $ | 5,830                         |  | 12.14                                                            | %
|                                        | Community Trust Bank        |        | $ | 12,109                        |  | 9.55                                                             | %
|Tier I Capital to Average Assets:       |                             |        |   |                               |  |                                                                  |  
|                                        | Consolidated                |        | $ | 43,243                        |  | 7.87                                                             | %
|                                        | Gainesville Bank & Trust    |        | $ | 20,337                        |  | 6.40                                                             | %
|                                        | United Bank & Trust         |        | $ | 5,830                         |  | 9.06                                                             | %
|                                        | Community Trust Bank        |        | $ | 12,109                        |  | 7.55                                                             | %

26

---

NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is
best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS No. 107,Disclosures
about Fair Value of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate
fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The
following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments.

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 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 analyses, using interest rates currently being offered for loans with similar terms to borrowers
with similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

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 a discounted cash flow calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased, Repurchase Agreements and 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, federal funds purchased, and securities sold under repurchase agreements approximate their fair values.

Trust Preferred Securities:The fair values of the Company's fixed rate trust preferred securities approximates the carrying
value at December 31, 2002.

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 currently charged to enter into similar agreements. Since the majority of

27

---

the Company's off-balance-sheet instruments consist of nonfee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

The
carrying amounts and estimated fair value of the Company's financial instruments were as follows:

December 31, 2002

December 31, 2001Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value(Dollars in thousands)Financial assets:Cash, due from banks, interest-bearing deposits in banks and federal funds sold

$
51,488

$
51,488

$
19,208

$
19,208Securities


106,843


106,843


86,204


86,204Restricted equity securities


3,784


3,784


2,992


2,992Loans


535,296


556,920


413,134


423,042Accrued interest receivable


3,074


3,074


3,198


3,198Financial liabilities:Deposits


580,248


581,255


426,758


433,836Federal funds purchased and securities sold under repurchase agreements


11,538


11,538


19,707


19,707Other borrowings


64,474


68,694


50,462


49,153Trust preferred


15,000


15,000





Accrued interest payable


2,963


2,963


4,384


4,384


NOTE 19. SUPPLEMENTAL FINANCIAL DATA

Components of other operating expenses in excess of 1% of total revenue are as follows:

Years Ended December 31,2002

2001

2000(Dollars in thousands)Advertising

$
367

$
375

$
395Audit and professional fees


507


405


474Legal fees and merger expenses


154


619


336


28

---

NOTE 20. PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets as of December 31, 2002 and 2001 and statements of income and cash flows of GB&T
Bancshares, Inc. for the years ended December 31, 2002, 2001 and 2000.

CONDENSED BALANCE SHEETS

2002

2001(Dollars in thousands)AssetsCash

$
10,832

$
854Securities available-for-sale


812


1,295Investment in subsidiaries


66,213


42,909Premises and equipment


1,587


1,511Other assets


1,600


235Total assets

$
81,044

$
46,804LiabilitiesOther borrowings

$


$
1,875Trust preferred


15,464


Other liabilities


4,803


155Total liabilities


20,267


2,030Stockholders' equity


60,777


44,774Total liabilities and stockholders' equity

$
81,044

$
46,804


29

---

CONDENSED STATEMENTS OF INCOME

2002

2001

2000(Dollars in thousands)IncomeDividends from subsidiaries

$
2,000

$
1,948

$
2,169Management fees








297Other income


751


146


182,751


2,094


2,484ExpenseInterest


252


131


77Other operating expense


589


1,862


1,237841


1,993


1,314Income before income tax benefit and equity in undistributed income of subsidiaries


1,910


101


1,170Income tax benefits


108


571


353Income before equity in undistributed income of subsidiaries


2,018


672


1,523Equity in undistributed income of subsidiaries


4,510


3,298


2,786Net income

$
6,528

$
3,970

$
4,309


30

---

CONDENSED STATEMENTS OF CASH FLOWS

|                                |                                                                                   | 2002                                 |                                                     | 2001   |        | 2000   |       
|------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------- | ------ | ------ | ------ | ------
|
|OPERATING ACTIVITIES            |                                                                                   |                                      |                                                     |        |        |        |       
|                                | Net income                                                                        |                                      | $                                                   | 6,528  |        | $      | 3,970 
|                                | Adjustments to reconcile net income to net cash provided by operating activities: |                                      |                                                     |        |        |        |       
|                                |                                                                                   | Undistributed income of subsidiaries |                                                     |        | (4,510 | )      |       
|                                |                                                                                   | Depreciation                         |                                                     |        | 74     |        |       
|                                |                                                                                   | Gain on sale of assets               |                                                     |        | (752   | )      |       
|                                |                                                                                   | Net other operating activities       |                                                     |        | (682   | )      |       
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|                                |                                                                                   |                                      | Net cash provided by operating activities           |        |        | 658    |       
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|INVESTING ACTIVITIES            |                                                                                   |                                      |                                                     |        |        |        |       
|                                | Purchase of securities available-for-sale                                         |                                      |                                                     |       |        |        |      
|                                | Purchase of premises and equipment                                                |                                      |                                                     | (150   | )      |        |      
|                                | Sale of premises and equipment                                                    |                                      |                                                     |       |        |        | 21    
|                                | Capital investment in subsidiaries                                                |                                      |                                                     | (2,964 | )      |        |      
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|                                |                                                                                   |                                      | Net cash provided by (used in) investing activities |        |        | (3,114 | )     
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|FINANCING ACTIVITIES            |                                                                                   |                                      |                                                     |        |        |        |       
|                                | Dividends paid                                                                    |                                      |                                                     | (1,596 | )      |        | (1,358
|                                | Proceeds from issuance of common stock                                            |                                      |                                                     | 441    |        |        | 540   
|                                | Payment for fractional shares                                                     |                                      |                                                     |       |        |        | (5    
|                                | Proceeds from issuance of trust preferred debentures                              |                                      |                                                     | 15,464 |        |        |      
|                                | Proceeds from note payable                                                        |                                      |                                                     | 4,000  |        |        | 845   
|                                | Repayment of note payable                                                         |                                      |                                                     | (5,875 | )      |        | (419  
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|                                |                                                                                   |                                      | Net cash provided by (used in) financing activities |        |        | 12,434 |       
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|Net increase (decrease) in cash |                                                                                   |                                      | 9,978                                               |        |        | 624    |       
|Cash at beginning of year       |                                                                                   |                                      | 854                                                 |        |        | 230    |       
|                                |                                                                                   |                                      |                                                     |        |        |        |       
|Cash at end of year             |                                                                                   | $                                    | 10,832                                              |        | $      | 854    |       
|                                |                                                                                   |                                      |                                                     |        |        |        |       

31

---

NOTE 21. QUARTERLY DATA (Unaudited)

|                                                    |         | Years Ended December 31,
|--------------------------------------------------- | ------- | ------------------------
|
|
|
|Interest income                                     |         | $                       
|Interest expense                                    |         |                         
|                                                    |         |                         
|Net interest income                                 |         |                         
|Provision for loan losses                           |         |                         
|                                                    |         |                         
|Net interest income after provision for loan losses |         |                         
|Noninterest income                                  |         |                         
|Noninterest expenses                                |         |                         
|                                                    |         |                         
|Income before income taxes                          |         |                         
|Provision for income taxes                          |         |                         
|                                                    |         |                         
|Net income                                          |         | $                       
|                                                    |         |                         
|Earnings per share:                                 |         |                         
|                                                    | Basic   |                         
|                                                    |         |                         
|                                                    | Diluted |                         
|                                                    |         |                         

32

---

Exhibit Index

|Exhibit No. |  | Description                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------
|10.4        |  | Employment Agreement, by and between GB&T and Richard A. Hunt, dated as of December 30, 2002 
|10.5        |  | Employment Agreement, by and between GB&T and Gregory L. Hamby, dated as of December 30, 2002
|10.6        |  | GB&T Bancshares, Inc. Stock Option Plan of 1997                                              
|21.1        |  | Subsidiaries of the Registrant                                                               
|23.1        |  | Consent of Mauldin & Jenkins, LLC                                                            
|99.1        |  | Opinion of Porter Keadle Moore, LLP                                                          

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