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, 2003 
|o                                            | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the transition period
from            to

Commission file number 000-24203

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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:                                
|Common Stock, no par value(Title of class)                                                 

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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 ý    No o

The aggregate market value of the registrant's capital stock held by nonaffiliates as of June 30, 2003 was approximately $114,260,451. For this purpose,
directors and executive officers have been assumed to be affiliates.

As
of March 1, 2004, the Company had issued and outstanding 6,813,354 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 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 2003 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," of 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 of $5 par value common stock. The acquisition was accounted for as a
pooling of interests. At December 31, 2003, we had five wholly-owned bank subsidiaries, Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank, HomeTown Bank of Villa
Rica and First National Bank of the South, (collectively the "Banks") and a consumer finance company, Community Loan Company.

We
operate as a multi-bank holding company. At December 31, 2003, we also held common stock in one de novo bank in Georgia, representing a less than 5% ownership. Our
plans include aggressively exploring opportunities through mergers and acquisitions. As of March 1, 2004, there are 39 employees of the holding company. The increase since year-end
represents the move of operations staff from GB&T to 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 jointly by GB&T and a related party. GB&T occupies over 90% of this
facility. The remainder of this facility 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 and Bartow Counties 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 machines, 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, Kennesaw and Acworth, 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 machines, 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 machines, internet banking and telephone banking.

First National Bank of the South

First National Bank of the South ("FNB") is located in Milledgeville, Baldwin County, Georgia and operates as a national banking association incorporated under
the laws of the United States. The bank was chartered on July 3, 1989 under the name First National Bank of Baldwin County. On October 13, 1999, the bank changed its name to First
National Bank of the South. On August 31, 2003, FNB was acquired by the Company in a business combination accounted for as a purchase.

FNB
conducts business from its main office facility at 2501 North Columbia Street in Milledgeville, Georgia. FNB has a branch located at East Hancock Street in Milledgeville, Georgia and
a branch in the Lake Oconee area of Putnam County, Georgia.

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

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Community Loan Company

Community Loan Company ("CLC") was formed in 1995 as a consumer finance company. CLC was acquired by the Company in 2001 as part of the acquisition of Community
Trust Financial Services, Inc. and its subsidiary, CTB. 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 variable interest rate as the trust preferred securities. The Company has the right to defer interest payments on the Debentures for up to 20 consecutive quarterly periods (five years), so
long as the Company is not in default under the Debentures. See the notes to the consolidated financial statements for further information on the trust.

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 Carroll, Baldwin and Putnam 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 do, 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, Carroll, Baldwin and Putnam County areas.

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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 mortgages on the principals' 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, Paulding, Baldwin and Putnam Counties,
fraud, deteriorating or non-existing collateral, general economic conditions, interest rate risk, and deteriorating borrower financial conditions.

Our
Boards of Directors establish 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. National banking regulations provide that no loan relationship may exceed 15% of the Banks' Tier 1 capital. 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, subordinated debt 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 the growth of core deposits,

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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 $944 million as of December 31, 2003. The continued growth in total
assets and loans was generated almost exclusively from deposits obtained from our market areas and through acquisitions. The loan portfolio of $710 million as of December 31, 2003 is
comprised of commercial loans ($51 million), loans secured by real estate ($626 million), and consumer and other loans ($33 million).

Employees

As of December 31, 2003, we had 380 full-time equivalent employees, of which 132 were employed by GB&T, 38 were employed by UB&T, 69 were
employed by CTB, 23 were employed by CLC, 49 were employed by HTB, 53 were employed by FNB 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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SUPERVISION AND REGULATION

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.

GBT,
UBT, CTB, and HTB 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"). FNB is a nationally chartered bank incorporated under the laws of the United States and is subject to examination by the FDIC and the Office of the Comptroller of the Currency ("OCC"). The
Banks' deposits are insured by the FDIC to the maximum extent provided by law. The FDIC, OCC 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

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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 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.

Affiliate Transactions.Unless an exemption applies, sections 23A and 23B of the Federal Reserve Act (i) limit the
extent to which a financial institution or its subsidiaries may engage in "covered transactions" with an affiliate, to an amount equal to 10% of such institution's capital and surplus and an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of such capital and surplus and (ii) require that all transactions with an affiliate be on terms substantially the
same, or at least as favorable to the institution or subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and other similar types of transactions.

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 Company has not filed an application 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
(the "SEC")

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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.

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.

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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.

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, 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

11

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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 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 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 their CRA examinations.

12

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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 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 ("GFLA") imposes new restrictions and procedural requirements on most
mortgage loans made in Georgia, including home equity loans and lines of credit. GFLA became effective on October 1, 2002 and was amended on March 7, 2003. While selected provisions of
GFLA apply regardless of the interest rate or charges on the loan, the majority of the requirements apply only to "high cost home loans," as defined by GFLA. We have implemented procedures to comply
with all GFLA requirements.

Available Information

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. These filings are
available to the public at the SEC's website at http://www.sec.gov. The Company also has a website at http://www.gbt.com. On the website, the Company provides hyperlinks to copies of the annual,
quarterly and current reports that the Company files with the SEC, any amendments to those reports and press releases.

The
Company is in the process of developing its code of ethics that applies to its executive officers and anticipates that the code will be publicly available by May 4, 2004.

13

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ITEM 2.    PROPERTIES

GB&T's main office is owned jointly by GB&T and a related party. The three-story building, consisting of 28,496 square feet, 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 unrelated 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 a local business 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. CTB also leases space in Acworth for a loan production office.

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.

FNB's
main office is located at 2501 North Columbia Street in Milledgeville, Georgia. The main office building is owned by FNB and has a 50-year ground lease. It contains
approximately 17,000 square feet of space and has an automated teller machine.

14

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FNB
has a branch located at 241 East Hancock Street in Milledgeville, Georgia. This building is owned by FNB and contains approximately 2,200 square feet of space. FNB also has a branch
at 1105 Lake Oconee Parkway in Eatonton, Georgia. The building is owned by FNB and has approximately 6,000 square feet of space. Both locations have an automated teller machine.

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

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 2003.

15

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PART II

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



Sales PriceCalendar PeriodLow

High2002First Quarter

$
13.40

$
16.20Second Quarter


15.25


18.75Third Quarter


15.41


17.75Fourth Quarter


15.95


18.902003First Quarter

$
17.77

$
19.36Second Quarter


18.98


25.00Third Quarter


21.80


25.39Fourth Quarter


22.25


24.48




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.

16

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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, 2003 includes the acquisition of FNB which was accounted for as a purchase. See Management's Discussion and Analysis of Financial Condition and Results of Operations for the
years ended December 31, 2003, 2002 and 2001 for further discussion on the acquisition of FNB.

|                              |                                     | 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                             |                                          

17

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

Executive Summary

GB&T Bancshares, Inc. headquartered in Gainesville, Georgia consists of a network of profitable community banks in growth areas of Georgia with more than
$944 million in assets. Bank affiliate autonomy serves the unique needs of each community we serve. We focus on strong asset quality, sound management teams and use economies of scale to
enhance profitability. Our results reflect a combination of internal and acquisition growth. We have had acquisitions in each of the three previous years. We continue to build infrastructure to
support the growth we have realized.

We
consider the following key financial indicators as we grow the company.



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

On
February 11, 2004, the Company signed a definitive agreement to acquire Lumpkin County Bank. The terms of the agreement call for the exchange of 0.82 shares of GB&T
Bancshares, Inc. stock for each of the outstanding shares of Lumpkin County Bank. The merger is subject to approval of the shareholders of Lumpkin County Bank and regulators.

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.

18

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Business Acquisitions

On August 31, 2003, we completed the acquisition of Baldwin Bancshares, Inc., the parent company of First National Bank of the South in
Milledgeville, Georgia. The Company issued 1,397,451 shares of its capital stock in exchange for all of the issued and outstanding common shares of Baldwin Bancshares, Inc. The acquisition was
accounted for as a purchase resulting in goodwill of approximately $21,318,000. The results of operations for the year ended December 31, 2003 include the results of operations for FNB since
the date of acquisition, which represents four months of operations. The year ended December 31, 2002 does not include results of operations for FNB.

The
results of operations for the year ended December 31, 2003, includes twelve months of operations for HTB compared to one month of operations included in the year ended
December 31, 2002 due to the acquisition of HTB being consummated on November 30, 2002.

Summary

During 2003 and 2002, 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 2003, we experienced additional growth through the acquisition of FNB as explained below. We recorded net income of $7,725,000 and $6,509,000 for
the years ended December 31, 2003 and 2002, respectively. Total equity at December 31, 2003 increased to $96,843,000 from $60,353,000, or $36,490,000 from December 31, 2002. The
aforementioned acquisition of FNB accounted for $31,869,000 of this increase.

Balance Sheets

Our total assets increased $202.0 million or 27.2% for the year ended December 31, 2003 compared to $194.4 million or 35.5% for the same
period in 2002. The acquisition of FNB accounted for approximately $150.7 million of this increase. The increase in total assets for the year ended December 31, 2003, exclusive of FNB,
consists primarily of an increase in interest-earning assets of $58.4 million or 8.5% compared to an increase of $61.9 million or 12.2% during the same period in 2002, exclusive of HTB.
The overall growth in 2003 and 2002 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 30.8% or
$167.1 million for the year ended
December 31, 2003. Exclusive of FNB, which represented $89.3 million of this increase, total loans increased 14.1%. This increase is compared to an increase of 29.7% or
$124.2 million during 2002. Exclusive of HTB, which represented $91.2 million of this increase, total loans increased 7.9%. As of December 31, 2003, our
loan-to-deposit ratio was 97.4% compared to 93.6% in 2002. At December 31, 2003 and 2002, we had total outstanding borrowings of $108.8 million and
$91.0 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 84.8% and 80.9% at December 31, 2003 and 2002, respectively.

During
2003, total deposits grew by $148.4 million, or 25.6%. Exclusive of FNB, which accounted for $104.0 million of this increase, total deposits grew
$44.4 million or 7.6% compared to an increase of $40.2 million or 9.4% in 2002, exclusive of HTB. The increase in 2003, exclusive of FNB, consists primarily of an increase in
interest-bearing deposits of $24.2 million or 4.6% compared to an increase of $45.4 million or 12.2% during 2002.

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

19

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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 declined
slightly during 2001 and continued to decline throughout 2002. In 2003, the economy began to show signs of improvement. Our growth has not been significantly impacted by the previously mentioned
economic conditions.

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 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, 2003, we had borrowed under federal funds purchase lines and securities sold under repurchase agreements $17.3 million compared to $11.5 million as of
December 31, 2002. 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, 2003.

|                                |                                    | Payments Due after December 31, 2003
|------------------------------- | ---------------------------------- | ------------------------------------
|
|Subordinated debt               |                                    | $                                   
|Operating leases                |                                    |                                     
|Capital commitments             |                                    |                                     
|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.

Our
liquidity and capital resources are monitored on a periodic basis by management and state and federal regulatory authorities. At December 31, 2003, our liquidity ratio was
15.09% which was above our policy minimum ratio of 15%. 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, 2003, we had available borrowing
capacity totaling approximately $125.5 million through various borrowing arrangements and available lines of credit. We believe our short-term investments and available borrowing
arrangements are adequate to cover any reasonably anticipated immediate need for funds.

20

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At
December 31, 2003, our capital to asset ratios were considered well-capitalized, with the exception of FNB, based on guidelines established by the regulatory
authorities. Subsequent to December 31, 2003, the Company has injected sufficient capital into FNB to return FNB to well-capitalized status. At December 31, 2003, our total
capital to risk weighted assets ratio was 11.80%, our Tier 1 capital to risk weighted assets ratio was 10.62%, and our Tier 1 capital to average assets ratio was 8.63%. During 2003, we increased our
capital by retaining net earnings of $7.7 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 the Company's
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.

The
Banks are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2003, approximately $3,500,000 of
retained earnings at the Banks were available for dividend declaration without regulatory approval.

Off-Balance Sheet Financing

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. The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same
credit policies in making commitments as it does for on-balance sheet instruments. At December 31, 2003, we had outstanding commitments to extend credit through open lines of credit
of approximately $143.6 million and outstanding standby letters of credit of approximately $5.1 million.

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, 2003, 2002 and 2001

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 decreased to 4.23% in 2003 from 4.39% in 2002. This decrease is attributable primarily to decreases in rates. In 2003, the average yield on interest-earning assets decreased to 6.28% from 7.11%
in 2002 and the average yield on interest-bearing liabilities decreased to 2.33% in 2003 from 3.13% in 2002. The overall change in the interest rate spread from 2002 to 2003 was a decrease of 3 basis
points. The decrease in the net interest spread is a result of increases in loan volume, which are not being offset by decreases in rates. Total average interest-earning assets increased by
$197.6 million, to $745,238,000 at December 31, 2003 from the

21

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same period of 2002 and average interest-bearing liabilities increased by $178.9 million, to $655,585,000 for the same period.

The
net yield on average interest-earning assets increased by 6 basis points to 4.39% from 4.33% for the year ended December 31, 2002 as compared to 2001. The increased net yield
in 2002 was primarily attributable to increases in loan volume and the significant decrease in rates paid on interest-bearing liabilities.

Net Interest Income.Net interest income increased by $7,445,000 to $31.5 million in 2003, compared to an increase of
$2,603,000 in 2002. The increase for both years continues to reflect the continued increase in interest-earning assets during 2003 and 2002. 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 increased by $561,000 during 2003 compared to a decrease of $461,000
during 2002. The provision for loan losses is the charge to operations which management believes is necessary to fund the allowance for loan losses. This provision is based on 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. Our 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. See also allowance discussion in the Critical Accounting Policies section of
this 10K.

The
following table presents details of the provision for loan loss, nonaccrual loans and related categories for each subsidiary as well as on a consolidated basis. The increase in the
provision for loan losses in 2003 was primarily due to a provision taken at HTB for $679,000 that directly relates to one loan relationship commented on by its regulators. The loan is currently
performing and is secured by real estate. The Company believes that there is sufficient collateral to cover this loan. 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, 2003 was 261.8%, which was up from 136.9% in 2002. This increase is due to nonaccrual loans decreasing to $3,333,000 at December 31, 2003 from
$5,506,000 at December 31, 2002. This decrease in nonaccrual loans was primarily attributable to HTB whose nonaccrual loan balance at December 31, 2002 was $3,846,000 and at
December 31, 2003 was $497,000. Offsetting this decrease, was an increase at one subsidiary in nonaccrual loans of $1,363,000 representing one loan relationship. During the same period, other
problem loans, including past due loans greater than 90 days past due, decreased by $1,305,000 compared to a increase of $1,618,000 in 2002. The decrease in past due loans is attributable to
the loan mentioned above of $1,363,000 moving

22

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from
past due status to nonaccrual. Based on management's evaluations, management believes the allowance for loan losses is adequate to absorb potential losses on existing loans.

|                                           |  | For the year ended December 31, 2003 |       
|------------------------------------------ |  | ------------------------------------ | ------
|
|Total charge-offs                          |  | $                                    | 221   
|Total recoveries                           |  |                                      | 66    
|Net charge-offs (recoveries)               |  |                                      | 155   
|Total nonaccrual loans                     |  |                                      | 1,459 
|Loans past due 90 days                     |  |                                      | 9     
|Provision for loan losses                  |  |                                      | 431   
|Allowance/Total loans                      |  |                                      | 1.12  
|Net charge-offs (recoveries)/Average loans |  |                                      | .054  
|Allowance/Nonaccrual loans                 |  |                                      | 229.68

|                                           |  | For the year ended December 31, 2002 |       
|------------------------------------------ |  | ------------------------------------ | ------
|
|Total charge-offs                          |  | $                                    | 318   
|Total recoveries                           |  |                                      | 37    
|Net charge-offs (recoveries)               |  |                                      | 281   
|Total nonaccrual loans                     |  |                                      | 666   
|Loans past due 90 days                     |  |                                      | 1,458 
|Provision for loan losses                  |  |                                      | 420   
|Allowance/Total loans                      |  |                                      | 1.15  
|Net charge-offs (recoveries)/Average loans |  |                                      | .107  
|Allowance/Nonaccrual loans                 |  |                                      | 461.71

Other Income.Other income increased during 2003 by $1,866,000 compared to an increase of $1,733,000 in 2002.
For the year ended December 31, 2003, the most significant portion of the net increase consisted of an increase of $1,293,000 in service charges on deposit accounts and an increase of $933,000
in mortgage origination fees. This increase was partially offset by a decrease in security transactions, net of $424,000. For the same period in 2002, service charges increased by $189,000 and
mortgage origination fees increased by $445,000. 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 the 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 $7,945,000 and $590,000 for the years ended December 31, 2003 and 2002,
respectively. Increases in salaries and employee benefits represent the most significant portions of these increases, which increased by $4,551,000 and $592,000 for the years ended 2003 and 2002,
respectively. The number of full-time equivalent employees increased by 68 from December of 2002 to December of 2003, 53 of which related to the acquisition of FNB. 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, 2003 and 2002. Other operating expenses increased by $2,332,000 and $62,000, respectively, for the years ended December 31, 2003 and 2002. The increase
in other operating expenses in 2003 included increases in marketing and public relations of $369,000, ATM and data processing expenses of $314,000, supplies, postage and telephone expenses of $390,000
and a loss recorded on the sale of a building of $315,000.

Income Tax Expense.Income tax expense decreased $411,000 to $2,608,000 in 2003 from $3,019,000 in 2002. The decrease was
attributable to state tax retraining credits taken in 2003. The effective tax rate was 25.2% for the year ended December 31, 2003 and 31.7% for the year ended December 31, 2002.

23

---

Net Income.Net income increased by $1,216,000 for the year ended December 31, 2003, or by 18.68%. The increase in net
income for the same period in 2002 was $2,933,000, or 82.02%. The increase in net income in 2003 was due primarily to significant growth in interest-earning assets and increased
non-interest income. 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.

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.

24

---

Table 1Distribution of Assets, Liabilities and Stockholders' Equity Interest Rates and Interest Differentials

|                                             |       | Years Ended December 31, |        
|-------------------------------------------- | ----- | ------------------------ | -------
|
|
|
|Taxable securities                           |       | 103,660                  |        
|Nontaxable securities(5)                     |       | 18,172                   |        
|Federal funds sold                           |       | 12,897                   |        
|Interest-bearing deposits in banks           |       | 2,378                    |        
|Loans(2)(4)                                  |       | 608,131                  |        
|                                             |       |                          |        
|Total interest-earning assets                |       | 745,238                  |        
|                                             |       |                          |        
|Unrealized gains on securities               |       | 2,330                    |        
|Allowance for loan losses                    |       | (7,932                   | )      
|Cash and due from banks                      |       | 17,026                   |        
|Other assets                                 |       | 56,472                   |        
|                                             |       |                          |        
|                                             | Total |                          | 813,134
|                                             |       |                          |        
|Interest-bearing demand & savings            |       | 239,731                  |        
|Time                                         |       | 320,974                  |        
|Borrowings                                   |       | 94,880                   |        
|                                             |       |                          |        
|Total interest-bearing liabilities           |       | 655,585                  |        
|                                             |       |                          |        
|Noninterest-bearing demand                   |       | 76,983                   |        
|Other liabilities                            |       | 7,422                    |        
|Stockholders' equity(3)                      |       | 73,144                   |        
|                                             |       |                          |        
|                                             | Total |                          | 813,134
|                                             |       |                          |        
|Net interest income                          |       |                          |        
|                                             |       |                          |        
|Net interest spread                          |       |                          |        
|Net yield on average interest-earning assets |       |                          |        

---

25

---



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

26

---

to
adversely affect net interest income. If our assets and liabilities were equally flexible and moved concurrently, the impact of any increase or decrease in interest rates on net interest income
would be minimal.

A
simple interest rate "gap" analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Accordingly, 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, 2003 our cumulative one year interest rate sensitivity gap ratio was .95%. 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, 2003, 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

27

---

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                         |                                    | $      | 535                                    |         | $                                    |        |                  | $      |       
|                                               | Federal funds sold                                |                                    |        | 6,534                                  |         |                                      |        |                  |        |       
|                                               | Securities*                                       |                                    |        | 25,617                                 |         |                                      | 44,514  |                  |        | 55,813 
|                                               | Loans                                             |                                    |        | 385,037                                |         |                                      | 73,994  |                  |        | 164,080
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|                                               |                                                   | Total interest earning assets      |        |                                        | 417,723 |                                      |         | 118,508          |        |        
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|Interest-bearing liabilities:                  |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|                                               | Interest-bearing demand and savings               |                                    | $      | 294,121                                |         | $                                    |        |                  | $      |       
|                                               | Time deposits                                     |                                    |        | 87,076                                 |         |                                      | 144,236 |                  |        | 112,282
|                                               | Federal funds purchased and Repurchase agreements |                                    |        | 17,314                                 |         |                                      |        |                  |        |       
|                                               | Other borrowings                                  |                                    |        | 8,437                                  |         |                                      | 12,095  |                  |        | 30,168 
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|                                               |                                                   | Total interest-bearing liabilities |        | $                                      | 406,948 |                                      | $       | 156,331          |        | $      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|Interest rate sensitivity gap                  |                                                   | $                                  | 10,775 |                                        | $       | (37,823                              | )       | $                | 77,443 |        
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|Cumulative interest rate sensitivity gap       |                                                   | $                                  | 10,775 |                                        | $       | (27,048                              | )       | $                | 50,395 |        
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|Interest rate sensitivity gap ratio            |                                                   |                                    | 1.03   | %                                      |         | ..76                                 | %       |                  | 1.54   | %      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        
|Cumulative interest rate sensitivity gap ratio |                                                   |                                    | 1.03   | %                                      |         | ..95                                 | %       |                  | 1.07   | %      
|                                               |                                                   |                                    |        |                                        |         |                                      |         |                  |        |        

---

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
65.4% 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.

28

---

SECURITIES PORTFOLIO

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

December 31,2003

2002

2001(Dollars in Thousands)U. S. Treasury and U. S. government agencies and corporations

$
42,639

$
38,337

$
28,857Mortgage-backed securities


69,872


47,069


36,835State and municipal securities


17,576


16,774


16,590Equity securities(1)


7,440


8,447


6,914$
137,527

$
110,627

$
89,196


---

Maturities

The amounts of debt securities as of December 31, 2003 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

$
8,071

5.33
%
$
1,420

4.79
%After one year through five years


31,247

3.32


7,635

4.67After five years through ten years


40,558

4.68


6,399

4.73After ten years


33,850

4.49


2,122

4.92$
113,726

4.29
%
$
17,576

4.73
%


---

29

---

LOAN PORTFOLIO

Types of Loans

Loans by type of collateral are presented below:

|                               |  | December 31, |        
|------------------------------ |  | ------------ | -------
|
|
|Commercial                     |  | $            | 50,997 
|Real estateconstruction       |  |              | 185,397
|Real estatemortgage           |  |              | 439,779
|Consumer                       |  |              | 30,088 
|Other                          |  |              | 3,697  
|                               |  |              |        
|                               |  |              | 709,958
|Less allowance for loan losses |  |              | (8,726 
|                               |  |              |        
|Net loans                      |  | $            | 701,232
|                               |  |              |        

Loans
are net of deferred loan fees.

Maturities and Sensitivities to Changes in Interest Rates

Total loans as of December 31, 2003 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

$
25,447After one through five years


25,241After five years


30950,997ConstructionOne year or less


137,941After one through five years


45,916After five years


1,540185,397OtherOne year or less


144,773After one through five years


284,801After five years


43,990473,564$
709,958


30

---



The following table summarizes loans at December 31, 2003 with the due dates after one year for predetermined and floating or adjustable interest rates.

(Dollars in
Thousands)Predetermined interest rates

$
245,989Floating or adjustable interest rates


155,808$
401,797


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, 2003 is as follows:

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

$
239Interest income that was recorded on nonaccrual loans

$
100


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

31

---

repayment
terms. In the event of non-performance by the borrower, these loans have collateral pledged which would prevent the recognition of substantial losses.

Commitments and Lines of Credit

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, 2003 and 2002 was $148.7 million and $108.7 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.

32

---

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                                         |              | $            | 608,131
|                                                                            |              |              |        
|Balance of allowance for loan losses at beginning of year                   |              | $            | 7,538  
|                                                                            |              |              |        
|Loans charged off:                                                          |              |              |        
|                                                                            | Real estate  |              |        
|                                                                            | Commercial   |              |        
|                                                                            | Consumer     |              |        
|                                                                            | Credit cards |              |        
|                                                                            |              |              |        
|                                                                            |              |              | (1,466 
|                                                                            |              |              |        
|Recoveries of loans previously charged off:                                 |              |              |        
|                                                                            | Real estate  |              |        
|                                                                            | Commercial   |              |        
|                                                                            | Consumer     |              |        
|                                                                            | Credit cards |              |        
|                                                                            |              |              |        
|                                                                            |              |              | 384    
|                                                                            |              |              |        
|Net loans charged off during the year                                       |              |              | (1,082 
|                                                                            |              |              |        
|Allowance for loan losses acquired (sold)                                   |              |              | 864    
|                                                                            |              |              |        
|Additions to allowance charged to expense during year                       |              |              | 1,406  
|                                                                            |              |              |        
|Balance of allowance for loan losses at end of year                         |              | $            | 8,726  
|                                                                            |              |              |        
|Ratio of net loans charged off during the year to average loans outstanding |              |              | 0.18   
|                                                                            |              |              |        

33

---

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               |  | $            | 663  
|Real estate-construction |  |              | 1,091
|Real estate-mortgage     |  |              | 5,192
|Consumer and other       |  |              | 1,780
|                         |  |              |      
|Total allowance          |  | $            | 8,726
|                         |  |              |      

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. 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. See also allowance discussion in the Critical Accounting Policies section of this 10K.

Our
allowance for loan losses was approximately $8,726,000 at December 31, 2003, representing 1.23% of total loans, compared with $7,538,000 at December 31, 2002, which
represented 1.39% 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          |  | $                       | 76,983 
|Interest-bearing demand and Savings deposits |  |                         | 239,731
|Time deposits                                |  |                         | 320,974
|                                             |  |                         |        
|Total deposits                               |  | $                       | 637,688
|                                             |  |                         |        

---

34

---

The
amounts of time certificates of deposit issued in amounts of $100,000 or more as of December 31, 2003 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

$
26,104Over three through 12 months


55,000Over 12 months


41,349Total

$
122,453


RETURN ON EQUITY AND ASSETS

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

Years Ended December 31,2003

2002

2001Return on assets(1)

0.95
%
1.11
%
.67
%Return on equity(2)

10.56

13.72

8.53Dividend payout ratio(3)

27.91

25.56

39.19Equity to assets ratio(4)

9.00

8.08

7.90


---

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, 2003, we had $17,314,000 in outstanding Federal funds purchased and securities sold under repurchase agreements.

35

---

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 31,2003

2002

2001(Dollars in Thousands)Average balance outstanding

$
13,882

$
14,695

$
12,785Maximum amount outstanding at any month-end during the year


21,343


26,160


19,707Balance outstanding at end of year


17,314


11,538


19,707Weighted average interest rate during year


1.06
%

2.16
%

3.44
%Weighted average interest rate at end of year


0.85
%

1.69
%

1.74
%


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 Company uses an 8 point rating system for its
loans. Ratings of 1 to 4 are considered "pass ratings", 5 is special mention, 6 is substandard, 7 is doubtful, and 8 is loss. The originating officer rates all loans on this system. This rating is
adjusted from time to time by the officer to accurately reflect the loan's current status. These ratings are reviewed regularly by the Loan Committee, an outside independent loan review firm, our
accountants, and by the applicable regulator for accuracy.

Pass
loans are separated into homogeneous pools. Currently, these pools consist of real estate, commercial, consumer and credit card. Management assigns loss percentages to these
categories of homogeneous pools of loans based on historic loss data in each category. In addition to the homogeneous pools management has specified certain industry risks and applied loss percentages
to the specified industry risk categories. Management is developing moving average net losses for the historic loss percentage in each category. These loss percentages will be reviewed and adjusted
periodically, by pool, in light of current trends in past dues, changes in lending policies, underwriting standards, economic conditions, and other factors that may affect this number. Recently,
because of low losses in most categories, management has assigned minimum percentages to each category.

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

All
significant loans rated 6 and 7 are individually analyzed and a specific reserve is assigned based on exposure or industry standards whichever is greater. These accounts, their
reserves, and action plans to resolve their criticisms are reviewed by the Loan Committee. All other loans rated 6 and 7 are assigned loss percentages of 15% and 50% respectively.

All
loans rated 8 are assigned specific reserve of 100%

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

36

---

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.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance SheetsDecember 31, 2003 and 2002.

Consolidated
Statements of IncomeThree Years Ended December 31, 2003, 2002, and 2001.

Consolidated
Statements of Comprehensive IncomeThree Years Ended December 31, 2003, 2002, and 2001.

Consolidated
Statements of Stockholders' EquityThree Years Ended December 31, 2003, 2002, and 2001.

Consolidated
Statements of Cash FlowsThree Years Ended December 31, 2003, 2002, and 2001.

Notes
to Consolidated Financial Statements.

37

---



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

Not applicable

Item 9A.    CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's President and
Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon that evaluation, the President and Chief Financial Officer concluded
that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report in alerting them on a timely basis to material information
relating to the Company required to be included in the Company's reports filed or submitted under the Securities Exchange Act of 1934. In addition, no change in our internal control over financial
reporting occurred during the fourth quarter of our fiscal year ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

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 2004
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 2004 Annual Shareholders
meeting is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 2004 Annual Shareholders meeting is incorporated herein by reference.

38

---

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, 2003.

|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 first column)
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders(1)     |  | 423,069                                                                                     |  | $                                                                           | 12.23 |                                                                                                                                              
|Equity compensation plans not approved by security holders(2) |  |                                                                                            |  |                                                                             |      |                                                                                                                                              
|                                                              |  |                                                                                             |  |                                                                             |       |                                                                                                                                              
|Total                                                         |  | 423,069                                                                                     |  |                                                                             | 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 2004 Annual Shareholders meeting
is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the caption "Independent Accountants" in the definitive Proxy Statement filed in connection with our 2004 Annual Shareholders
Meeting is incorporated herin by reference.

39

---



PART IV

ITEM 15.    EXHIBITS AND REPORTS ON FORM 8-K





40

---



Exhibit
No.

Description2.1

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 to the Registrant's
Registration Statement on Form S-4, Registration No. 333-59532).2.2

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 to the
Registrant's Registration Statement on Form S-4, Registration No. 333-99461).2.3

Agreement and Plan of Reorganization by and between GB&T Bancshares, Inc. and Baldwin Bancshares, Inc., dated as of April 28, 2003 (incorporated herein by reference to the Registrant's Registration Statement on
Form S-4/A, Registration No. 333-106451).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 Registrant'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 Registrant'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).*10.2

Employment Agreement, by and between GB&T and Richard A. Hunt, dated as of December 30, 2002 (incorporated herein by reference to the Registrant's Form 10-K filed on March 31, 2003).*10.3

Employment Agreement, by and between GB&T and Gregory L. Hamby, dated as of December 30, 2002 (incorporated herein by reference to the Registrant's Form 10-K filed on March 31, 2003).*10.4

GB&T Bancshares, Inc. Stock Option Plan of 1997 (incorporated herein by reference to the Registrant's Form 10-K filed on March 31, 2003).21.1

Subsidiaries of the Registrant.23.1

Consent of Mauldin & Jenkins, LLC.24.1

Power of Attorney (included on the signatures page hereto).31.1

Rule 13a-14(a) Certification of Principal Executive Officer.31.2

Rule 13a-14(a) Certification of Principal Financial Officer.32.1

Section 1350 Certification of Principal Executive Officer.32.2

Section 1350 Certification of Principal Financial Officer.


---

*Each
management contract or compensation plan required to be filed as an exhibit is identified by an asterisk.

41

---



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 15, 2004 |  | 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 (Principal Executive Officer)                       |  | DATE  March 15, 2004
|By: |  | /s/GREGORY L. HAMBYGregory L. Hamby, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer) |  | DATE  March 15, 2004
|By: |  | /s/PHILIP A. WILHEITPhilip A. Wilheit, Chairman and Director                                                                           |  | DATE  March 15, 2004
|By: |  | /s/SAMUEL L. OLIVERSamuel L. Oliver, Vice Chairman and Director                                                                        |  | DATE  March 15, 2004
|By: |  | /s/ALAN A. WAYNEAlan A. Wayne, Secretary and Director                                                                                  |  | DATE  March 15, 2004
|    |  |                                                                                                                                        |  |                     

42

---

|By: |  | /s/LARRY B. BOGGSLarry B. Boggs, Director                 |  | DATE  March 15, 2004
|--- |  | --------------------------------------------------------- |  | --------------------
|By: |  | /s/JAMES H. MOOREJames H. Moore, Director                 |  | DATE  March 15, 2004
|By: |  | /s/DR. JOHN W. DARDENDr. John W. Darden, Director         |  | DATE  March 15, 2004
|By: |  | /s/WILLIAM A. FOSTER, IIIWilliam A. Foster, III, Director |  | DATE  March 15, 2004
|By: |  | /s/BENNIE E. HEWETTBennie E. Hewett, Director             |  | DATE  March 15, 2004
|By: |  | /s/JAMES L. LESTERJames L. Lester, Director               |  | DATE  March 15, 2004
|By: |  | /s/T. ALLEN MAXWELLT. Allen Maxwell, Director             |  | DATE  March 15, 2004

43

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2003

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2003

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, 2003 and 2002, 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, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with 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, 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.



Atlanta,
Georgia
January 30, 2004, except for Note 23 as to which the date is February 11, 2004

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2003 AND 2002

(Dollars in thousands)

|                                                                        |                                                                                                                                                              | 2003                                       |         | 2002   
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | -------
|Assets                                                                  |                                                                                                                                                              |                                            |         |        
|Cash and due from banks                                                 |                                                                                                                                                              | $                                          | 17,584  |        
|Interest-bearing deposits in banks                                      |                                                                                                                                                              |                                            | 535     |        
|Federal funds sold                                                      |                                                                                                                                                              |                                            | 6,534   |        
|Securities available for sale                                           |                                                                                                                                                              |                                            | 132,945 |        
|Restricted equity securities, at cost                                   |                                                                                                                                                              |                                            | 4,582   |        
|Loans, net of unearned income                                           |                                                                                                                                                              |                                            | 709,958 |        
|Less allowance for loan losses                                          |                                                                                                                                                              |                                            | 8,726   |        
|                                                                        |                                                                                                                                                              |                                            |         |        
|                                                                        |                                                                                                                                                              | Loans, net                                 |         |        
|                                                                        |                                                                                                                                                              |                                            |         |        
|Premises and equipment, net                                             |                                                                                                                                                              |                                            | 25,813  |        
|Goodwill and intangible assets                                          |                                                                                                                                                              |                                            | 33,043  |        
|Other assets                                                            |                                                                                                                                                              |                                            | 22,010  |        
|                                                                        |                                                                                                                                                              |                                            |         |        
|                                                                        |                                                                                                                                                              | Total assets                               |         | $      
|                                                                        |                                                                                                                                                              |                                            |         |        
|Liabilities and Stockholders' Equity                                    |                                                                                                                                                              |                                            |         |        
|Liabilities:                                                            |                                                                                                                                                              |                                            |         |        
|                                                                        | Deposits:                                                                                                                                                    |                                            |         |        
|                                                                        | Noninterest-bearing                                                                                                                                          |                                            | $       | 90,914 
|                                                                        | Interest-bearing                                                                                                                                             |                                            |         | 637,715
|                                                                        |                                                                                                                                                              |                                            |         |        
|                                                                        |                                                                                                                                                              | Total deposits                             |         |        
|Federal funds purchased and securities sold under repurchase agreements |                                                                                                                                                              |                                            | 17,314  |        
|Other borrowings                                                        |                                                                                                                                                              |                                            | 76,003  |        
|Other liabilities                                                       |                                                                                                                                                              |                                            | 10,025  |        
|Subordinated debt                                                       |                                                                                                                                                              |                                            | 15,464  |        
|                                                                        |                                                                                                                                                              |                                            |         |        
|                                                                        |                                                                                                                                                              | Total liabilities                          |         |        
|                                                                        |                                                                                                                                                              |                                            |         |        
|Commitments and contingencies                                           |                                                                                                                                                              |                                            |         |        
|Stockholders' equity:                                                   |                                                                                                                                                              |                                            |         |        
|                                                                        | Capital stock, no par value; 20,000,000 shares authorized, 6,794,148 and 5,356,946 shares issued and outstanding at December 31, 2003 and 2002, respectively |                                            |         | 67,983 
|                                                                        | Retained earnings                                                                                                                                            |                                            |         | 28,393 
|                                                                        | Accumulated other comprehensive income                                                                                                                       |                                            |         | 467    
|                                                                        |                                                                                                                                                              |                                            |         |        
|                                                                        |                                                                                                                                                              | 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, 2003, 2002 AND 2001

(Dollars in thousands, except per share amounts)

|                           |                                                                                                              | 2003                                                |       | 2002   |        | 2001  |       
|-------------------------- | ------------------------------------------------------------------------------------------------------------ | --------------------------------------------------- | ----- | ------ | ------ | ----- | ------
|Interest income:           |                                                                                                              |                                                     |       |        |        |       |       
|                           | Loans, including fees                                                                                        |                                                     | $     | 42,176 |        | $     | 34,197
|                           | Taxable securities                                                                                           |                                                     |       | 3,753  |        |       | 3,869 
|                           | Nontaxable securities                                                                                        |                                                     |       | 688    |        |       | 698   
|                           | Federal funds sold                                                                                           |                                                     |       | 145    |        |       | 150   
|                           | Interest-bearing deposits in banks                                                                           |                                                     |       | 30     |        |       | 42    
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Total interest income                               |       |        | 46,792 |       |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|Interest expense:          |                                                                                                              |                                                     |       |        |        |       |       
|                           | Deposits                                                                                                     |                                                     |       | 11,471 |        |       | 11,455
|                           | Federal funds purchased, securities sold under repurchase agreements, other borrowings and subordinated debt |                                                     |       | 3,817  |        |       | 3,442 
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Total interest expense                              |       |        | 15,288 |       |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Net interest income                                 |       |        | 31,504 |       |       
|Provision for loan losses  |                                                                                                              |                                                     | 1,406 |        |        | 845   |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Net interest income after provision for loan losses |       |        | 30,098 |       |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|Other income:              |                                                                                                              |                                                     |       |        |        |       |       
|                           | Service charges on deposit accounts                                                                          |                                                     |       | 4,953  |        |       | 3,660 
|                           | Other service charges and fees                                                                               |                                                     |       | 1,144  |        |       | 1,147 
|                           | Gain on sale of securities                                                                                   |                                                     |       | 382    |        |       | 806   
|                           | Mortgage origination fees                                                                                    |                                                     |       | 2,440  |        |       | 1,507 
|                           | Gain on sale of loans                                                                                        |                                                     |       | 20     |        |       | 72    
|                           | Trust fees                                                                                                   |                                                     |       | 279    |        |       | 221   
|                           | Equity in loss of unconsolidated subsidiary                                                                  |                                                     |       |       |        |       | (9    
|                           | Other operating income                                                                                       |                                                     |       | 710    |        |       | 658   
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Total other income                                  |       |        | 9,928  |       |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|Other expenses:            |                                                                                                              |                                                     |       |        |        |       |       
|                           | Salaries and employee benefits                                                                               |                                                     |       | 17,193 |        |       | 12,642
|                           | Occupancy and equipment expenses, net                                                                        |                                                     |       | 4,352  |        |       | 3,290 
|                           | Other operating expenses                                                                                     |                                                     |       | 8,148  |        |       | 5,816 
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Total other expenses                                |       |        | 29,693 |       |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Income before income taxes                          |       |        | 10,333 |       |       
|Income tax expense         |                                                                                                              |                                                     | 2,608 |        |        | 3,019 |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|                           |                                                                                                              | Net income                                          |       | $      | 7,725  |       | $     
|                           |                                                                                                              |                                                     |       |        |        |       |       
|Basic earnings per share   |                                                                                                              | $                                                   | 1.32  |        | $      | 1.35  |       
|                           |                                                                                                              |                                                     |       |        |        |       |       
|Diluted earnings per share |                                                                                                              | $                                                   | 1.29  |        | $      | 1.33  |       
|                           |                                                                                                              |                                                     |       |        |        |       |       

See
Notes to Consolidated Financial Statements.

3

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(Dollars in thousands)

|                                   |                                                                                                                      | 2003 |        | 2002   |   | 2001  |      
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ------ | - | ----- | -----
|Net income                         |                                                                                                                      | $    | 7,725  |        | $ | 6,509 |      
|                                   |                                                                                                                      |      |        |        |   |       |      
|Other comprehensive income (loss): |                                                                                                                      |      |        |        |   |       |      
|                                   | Unrealized holding gains (losses) arising during period, net of tax (benefit) of $(632), $735 and $548, respectively |      |        | (1,285 | ) |       | 1,503
|                                   | Reclassification adjustment for gains realized in net income, net of taxes of $145, $306 and $13, respectively       |      |        | (237   | ) |       | (500 
|                                   |                                                                                                                      |      |        |        |   |       |      
|Other comprehensive income (loss)  |                                                                                                                      |      | (1,522 | )      |   | 1,003 |      
|                                   |                                                                                                                      |      |        |        |   |       |      
|Comprehensive income               |                                                                                                                      | $    | 6,203  |        | $ | 7,512 |      
|                                   |                                                                                                                      |      |        |        |   |       |      

See
Notes to Consolidated Financial Statements.

4

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(Amounts in thousands)

|                                               |                                                                        |       |       | Common Stock |        |         |   |        |        |   |       | Accumulated
Other
Comprehensive
Income (Loss) |   |        |       
|---------------------------------------------- | ---------------------------------------------------------------------- | ----- | ----- | ------------ | ------ | ------- | - | ------ | ------ | - | ----- | --------------------------------------------- | - | ------ | ------
|
|
|Balance, December 31, 2000                     |                                                                        | 4,651 |       | $            | 23,255 |         | $ |       |        | $ | 1,601 |                                               | $ | 15,586 |       
|Adjustment applicable to prior years (Note 22) |                                                                        |       |       |              |       |         |   |       |        |   |      |                                               |   | (11    | )     
|                                               |                                                                        |       |       |              |        |         |   |        |        |   |       |                                               |   |        |       
|Balance, December 31, 2000, as restated        |                                                                        | 4,651 |       |              | 23,255 |         |   |       |        |   | 1,601 |                                               |   | 15,575 |       
|                                               | Net income                                                             |       |      |              |        |        |   |        |       |   |       |                                              |   |        | 3,576 
|                                               | Options exercised, net of repurchases                                  |       | 88    |              |        | 442     |   |        |       |   |       | 99                                            |   |        |      
|                                               | Tax benefit of nonqualified stock options                              |       |      |              |        |        |   |        |       |   |       | 198                                           |   |        |      
|                                               | Payment for fractional shares in connection with business combination  |       |      |              |        | (1      | ) |        |       |   |       | (4                                            | ) |        |      
|                                               | Dividends declared, $.29 per share                                     |       |      |              |        |        |   |        |       |   |       |                                              |   |        | (1,358
|                                               | Other comprehensive income                                             |       |      |              |        |        |   |        |       |   |       |                                              |   |        |      
|                                               |                                                                        |       |       |              |        |         |   |        |        |   |       |                                               |   |        |       
|Balance, December 31, 2001                     |                                                                        | 4,739 |       |              | 23,696 |         |   |       |        |   | 1,894 |                                               |   | 17,793 |       
|                                               | Net income                                                             |       |      |              |        |        |   |        |       |   |       |                                              |   |        | 6,509 
|                                               | Options exercised, net of repurchases                                  |       | 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 |        |   |      |                                               |   | 22,706 |       
|                                               | Net income                                                             |       |      |              |        |        |   |        |       |   |       |                                              |   |        | 7,725 
|                                               | Options exercised, net of repurchases                                  |       | 41    |              |        |        |   |        | 380    |   |       |                                              |   |        |      
|                                               | Purchase of First National Bank of the South                           |       | 1,397 |              |        |        |   |        | 31,869 |   |       |                                              |   |        |      
|                                               | Tax benefit of nonqualified stock options                              |       |      |              |        |        |   |        | 74     |   |       |                                              |   |        |      
|                                               | Payment for fractional shares in connection with business combinations |       | (1    | )            |        |        |   |        | (9     | ) |       |                                              |   |        |      
|                                               | Contributed capital                                                    |       |       |              |        |         |   |        | 11     |   |       |                                               |   |        |       
|                                               | Dividends declared, $.36 per share                                     |       |      |              |        |        |   |        |       |   |       |                                              |   |        | (2,038
|                                               | Other comprehensive (loss)                                             |       |      |              |        |        |   |        |       |   |       |                                              |   |        |      
|                                               |                                                                        |       |       |              |        |         |   |        |        |   |       |                                               |   |        |       
|Balance, December 31, 2003                     |                                                                        | 6,794 |       | $            |       |         | $ | 67,983 |        | $ |      |                                               | $ | 28,393 |       
|                                               |                                                                        |       |       |              |        |         |   |        |        |   |       |                                               |   |        |       

See Notes to Consolidated Financial Statements.

5

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(Dollars in thousands)

|                     |                                                                                                    | 2003                                               |                                           | 2002     |        | 2001    |        
|-------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------- | -------- | ------ | ------- | -------
|OPERATING ACTIVITIES |                                                                                                    |                                                    |                                           |          |        |         |        
|                     | Net income                                                                                         |                                                    | $                                         | 7,725    |        | $       | 6,509  
|                     | Adjustments to reconcile net income to net cash provided by operating activities:                  |                                                    |                                           |          |        |         |        
|                     |                                                                                                    | Depreciation and amortization, net                 |                                           |          | 2,917  |         |        
|                     |                                                                                                    | Provision for loan losses                          |                                           |          | 1,406  |         |        
|                     |                                                                                                    | Provision for losses on other real estate owned    |                                           |          | 65     |         |        
|                     |                                                                                                    | Equity in loss of unconsolidated subsidiary        |                                           |          |       |         |        
|                     |                                                                                                    | Gain on sale of securities                         |                                           |          | (382   | )       |        
|                     |                                                                                                    | (Gain) loss on sale of other real estate owned     |                                           |          | (37    | )       |        
|                     |                                                                                                    | Gain on sale of loans                              |                                           |          | (20    | )       |        
|                     |                                                                                                    | (Gain) loss on disposal of premises and equipment  |                                           |          | 295    |         |        
|                     |                                                                                                    | Deferred income taxes                              |                                           |          | (582   | )       |        
|                     |                                                                                                    | Decrease in interest receivable                    |                                           |          | 324    |         |        
|                     |                                                                                                    | Decrease in interest payable                       |                                           |          | (561   | )       |        
|                     |                                                                                                    | Increase in cash surrender value of life insurance |                                           |          | (505   | )       |        
|                     |                                                                                                    | Net other operating activities                     |                                           |          | (2,391 | )       |        
|                     |                                                                                                    |                                                    |                                           |          |        |         |        
|                     |                                                                                                    |                                                    | Net cash provided by operating activities |          |        | 8,254   |        
|                     |                                                                                                    |                                                    |                                           |          |        |         |        
|INVESTING ACTIVITIES |                                                                                                    |                                                    |                                           |          |        |         |        
|                     | (Increase) decrease in interest-bearing deposits in banks                                          |                                                    |                                           | 7,720    |        |         | (830   
|                     | Purchases of securities available for sale                                                         |                                                    |                                           | (111,808 | )      |         | (49,825
|                     | Purchases of restricted equity securities                                                          |                                                    |                                           | (685     | )      |         | (471   
|                     | Proceeds from sale of restricted equity securities                                                 |                                                    |                                           | 500      |        |         |       
|                     | Proceeds from maturities of securities available for sale                                          |                                                    |                                           | 80,200   |        |         | 30,891 
|                     | Proceeds from sales of securities available for sale                                               |                                                    |                                           | 18,802   |        |         | 9,630  
|                     | Net (increase) decrease in federal funds sold                                                      |                                                    |                                           | 21,615   |        |         | (17,089
|                     | Net increase in loans                                                                              |                                                    |                                           | (80,886  | )      |         | (33,594
|                     | Net cash acquired in business combinations                                                         |                                                    |                                           | 5,452    |        |         | 176    
|                     | Purchase of premises and equipment                                                                 |                                                    |                                           | (4,937   | )      |         | (2,880 
|                     | Proceeds from disposals of premises and equipment                                                  |                                                    |                                           | 2,198    |        |         |       
|                     | Proceeds from sale of other real estate owned                                                      |                                                    |                                           | 864      |        |         | 1,413  
|                     |                                                                                                    |                                                    |                                           |          |        |         |        
|                     |                                                                                                    |                                                    | Net cash used in investing activities     |          |        | (60,965 | )      
|                     |                                                                                                    |                                                    |                                           |          |        |         |        
|FINANCING ACTIVITIES |                                                                                                    |                                                    |                                           |          |        |         |        
|                     | Net increase in deposits                                                                           |                                                    |                                           | 44,905   |        |         | 40,162 
|                     | Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements |                                                    |                                           | 5,776    |        |         | (8,169 
|                     | Proceeds from other borrowings                                                                     |                                                    |                                           | 16,852   |        |         | 20,883 
|                     | Repayment of other borrowings                                                                      |                                                    |                                           | (13,695  | )      |         | (13,537
|                     | Proceeds from issuance of subordinated debt                                                        |                                                    |                                           |         |        |         | 15,000 
|                     | Proceeds from issuance of common stock                                                             |                                                    |                                           | 380      |        |         | 441    
|                     | Dividends paid                                                                                     |                                                    |                                           | (2,038   | )      |         | (1,596 
|                     | Payment for fractional shares                                                                      |                                                    |                                           | (9       | )      |         |       
|                     | Capital contribution                                                                               |                                                    |                                           | 11       |        |         |       
|                     |                                                                                                    |                                                    |                                           |          |        |         |        
|                     |                                                                                                    |                                                    | Net cash provided by financing activities |          |        | 52,182  |        
|                     |                                                                                                    |                                                    |                                           |          |        |         |        

6

---

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

(Dollars in thousands)

|                                                   |                                                   | 2003         |        | 2002     |        | 2001  
|-------------------------------------------------- | ------------------------------------------------- | ------------ | ------ | -------- | ------ | ------
|Net increase (decrease) in cash and due from banks |                                                   | $            | (529   | )        | $      | 16    
|Cash and due from banks at beginning of year       |                                                   |              | 18,113 |          |        | 18,097
|                                                   |                                                   |              |        |          |        |       
|Cash and due from banks at end of year             |                                                   | $            | 17,584 |          | $      | 18,113
|                                                   |                                                   |              |        |          |        |       
|SUPPLEMENTAL DISCLOSURES                           |                                                   |              |        |          |        |       
|                                                   | Cash paid for:                                    |              |        |          |        |       
|                                                   |                                                   | Interest     |        | $        | 15,849 |       
|                                                   |                                                   | Income taxes |        | $        | 2,524  |       
|NONCASH TRANSACTIONS                               |                                                   |              |        |          |        |       
|                                                   | Other real estate acquired in settlement of loans |              | $      | 2,010    |        | $     
|                                                   | Financed sales of other real estate owned         |              | $      | 84       |        | $     
|ACQUISITION OF SUBSIDIARIES                        |                                                   |              |        |          |        |       
|                                                   | Capital stock issued                              |              | $      | 31,869   |        | $     
|                                                   |                                                   |              |        |          |        |       
|Assets acquired (liabilities assumed)              |                                                   |              |        |          |        |       
|                                                   | Cash and due from banks, net of cash paid         |              | $      | 5,452    |        | $     
|                                                   | Interest-bearing deposits in banks                |              |        | 50       |        |       
|                                                   | Federal funds sold                                |              |        | 2,979    |        |       
|                                                   | Securities available for sale                     |              |        | 16,239   |        |       
|                                                   | Restricted equity securities                      |              |        | 652      |        |       
|                                                   | Loans, net                                        |              |        | 88,467   |        |       
|                                                   | Premises and equipment                            |              |        | 5,662    |        |       
|                                                   | Goodwill                                          |              |        | 21,318   |        |       
|                                                   | Core deposit intangible                           |              |        | 2,354    |        |       
|                                                   | Other assets                                      |              |        | 7,540    |        |       
|                                                   | Deposits                                          |              |        | (104,092 | )      |       
|                                                   | Other borrowings                                  |              |        | (9,522   | )      |       
|                                                   | Other liabilities                                 |              |        | (5,230   | )      |       
|                                                   |                                                   |              |        |          |        |       
|                                                   |                                                   | $            | 31,869 |          | $      | 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 Operations

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, HomeTown Bank of Villa Rica, and First National Bank of the South (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 branch located in Villa Rica and one branch located in Hiram, Georgia. First National Bank of the South is located in Milledgeville, Baldwin County,
Georgia with the main office and one branch located in Milledgeville and one branch located at Lake Oconee, Putnam County. The Banks provide a full range of banking services to individual and
corporate customers in their primary market areas of Hall, Polk, Paulding, Carroll, Baldwin, and Putnam 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. CLC has operations located
in the Georgia cities of Rockmart, Rossville, Gainesville, Woodstock, Cartersville, Dahlonega, Dalton and Rome.

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 the consolidated financial statements in accordance 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. The determination of the adequacy of the allowance for loan losses is based on estimates
that are susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and the valuation of foreclosed
real estate, management obtains independent appraisals for significant collateral.

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 and deposits 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 $8,002,000 and $7,556,000 at December 31, 2003 and 2002, respectively.

Securities

Debt securities that management has the positive intent and ability to hold to maturity would be 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 accumulated 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.

The
amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the life of the securities. Realized gains and losses on the sale
of securities are determined using the specific identification method and are included in earnings on the settlement date. 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 would be reflected in earnings as realized losses.

Loans

Loans are reported at their outstanding principal balances less unearned income, net deferred fees and the allowance for loan losses. Interest income is accrued
on the outstanding principal 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. Loans are returned to accrual status when all the principal and interest amounts
are brought current and future payments are reasonably assured.

Allowance for Loan Losses

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 relating to specifically identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, concentrations and current economic conditions that may affect the borrower's ability to pay.
This evaluation does not include the

9

---

effects
of expected losses on specific loans or groups of loans that are related to future events or expected changes in economic conditions. 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 Banks' allowance for loan losses, and may require the Banks to make additions to their 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 or in lieu of loan foreclosure and is initially recorded 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. Costs of improvements are capitalized,
whereas costs relating to holding other real estate owned and subsequent adjustments to the value are expensed. The carrying amount of other real estate owned at December 31, 2003 and 2002 was
$1,868,000 and $891,000, respectively.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of the net assets purchased in business combinations. Goodwill is required to be tested annually for
impairment, or whenever events occur that may indicate that the recoverability of the carrying amount is not probable. In the event of an impairment the amount by which the carrying amount exceeds the
fair value would be charged to earnings. The Company performed its annual test of impairment in the third quarter and determined that there was no impairment of the carrying value as of
July 31, 2003.

Intangible
assets consist of core deposit premiums acquired in connection with business combinations. The core deposit premium is initially recognized based on a valuation performed as
of the consummation date. The core deposit premium is amortized over the average remaining life of the

10

---

acquired
customer deposits, or 5 to 9 years. Amortization periods are reviewed annually in connection with the annual impairment testing of goodwill.

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-Based Compensation

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 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 31,2003

2002

2001(Dollars in thousands)Net income, as reported

$
7,725

$
6,509

$
3,576Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


109


84


222Pro forma net income

$
7,616

$
6,425

$
3,354Earnings per share:Basicas reported

$
1.32

$
1.35

$
.76Basicpro forma

$
1.30

$
1.33

$
.72Dilutedas reported

$
1.29

$
1.33

$
.74Dilutedpro forma

$
1.27

$
1.31

$
.70


11

---

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.

Options
to purchase 17,095 shares of common stock at prices ranging from $22.38 to $23.55 per share were outstanding during the year but were not included in the computation of diluted
EPS because the options' exercise price was greater than the average market price of the common shares. The options were still outstanding at the end of year 2003.

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.

Recent Accounting Standards

In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and a rescission of FASB Interpretation
No. 34". The interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. It also
clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and
initial measurement provisions of the interpretation are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements in the interpretation are effective for
financial statements of interim or annual periods ending after December 15, 2002. The adoption of the interpretation did not have a material effect on the Company's financial condition or
results of operations.

In
December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement
No. 123". The Statement amends Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value method
of accounting for stock-based employee compensation. In addition, the statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based compensation and the effect on reported results of operations. The disclosure requirements of the statement are required for
fiscal years ending after December 15, 2002 and interim periods beginning after December 15, 2002. The Company has not adopted Statement No. 123 for accounting for stock-based
compensation as of December 31, 2003; however all required disclosures of Statement No. 148 are included above under the heading "Stock-Based Compensation".

12

---

In
January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51", and on December 24,
2003, the FASB issued FASB Interpretation No. 46
(Revised December 2003), "Consolidation of Variable Interest Entities" which replaced FIN 46. The interpretation addresses consolidation by business enterprises of variable interest entities. A
variable interest entity is defined as an entity subject to consolidation according to the provisions of the interpretation. The revised interpretation provided for special effective dates for
entities that had fully or partially applied the original interpretation as of December 24, 2003. Otherwise, application of the interpretation is required in financial statements of public
entities that have interests in special-purpose entities, or SPEs, for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other
types of variable interest entities (i.e., non-SPEs) is required in financial statements for periods ending after March 15, 2004. The interpretations have not had a material effect
on the Company's financial condition or results of operations.

In
May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". The statement
establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The statement requires that an issuer classify a
financial instrument that is within its scope as a liability. Many of those instruments were previously classified as equity. The statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the statement did not have a material
effect on the Company's financial condition or results of operations.

NOTE 2. BUSINESS COMBINATIONS

On August 31, 2003, the Company completed the merger of Baldwin Bancshares, Inc. the parent company of First National Bank of the South in
Milledgeville, Georgia. The Company issued 1,397,451 shares of its capital stock in exchange for all of the issued and outstanding common shares of Baldwin Bancshares, Inc. The acquisition has
been accounted for as a purchase resulting in goodwill of approximately $21,318,000. First National Bank of the South's results of operations from September 1, 2003 are included in the
consolidated results of operations for the year ended December 31, 2003.

On
November 30, 2002, the Company completed the merger of HomeTown Bank of Villa Rica. The Company issued 562,581 shares of its capital stock and approximately $4,826,000 in cash
in exchange for all of the issued and outstanding common shares of HomeTown Bank of Villa Rica. The acquisition was accounted for as a purchase resulting in goodwill of approximately $8,227,000.
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 was accounted for as a pooling of interests.

13

---



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, 2003:U.S. Government and agency securities

$
42,497

$
310

$
(168
)
$
42,639State and municipal securities


16,792


795


(11
)

17,576Mortgage-backed securities


70,083


422


(633
)

69,872Equity securities


1,642








1,642Corporate bonds


1,215


1





1,216$
132,229

$
1,528

$
(812
)
$
132,945December 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


The
amortized cost and fair value of securities available for sale as of December 31, 2003 by contractual maturity are shown below. Actual maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized
Cost

Fair
Value(Dollars in thousands)Due within one year

$
9,284

$
9,470Due from one to five years


36,322


36,577Due from five to ten years


12,879


13,262Due after ten years


2,019


2,121Mortgage-backed securities


70,083


69,872$
130,587

$
131,302


Securities
with an approximate carrying value of $65,501,000 and $45,791,000 at December 31, 2003 and 2002, respectively, were pledged to secure public deposits and for other
purposes required or permitted by law.

14

---

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

Years Ended December 31,2003

2002

2001(Dollars in thousands)Gross gains

$
460

$
816

$
48Gross losses


(78
)

(10
)

(14
)Net realized gains

$
382

$
806

$
34


In
2003, the FASB Emerging Issues Task Force released Issue 03-01,The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The issue requires disclosure of certain information about other than temporary impairments in the market value of securities. The market
value of securities is based on quoted market values and is significantly affected by the interest rate environment. At December 31, 2003, all unrealized losses in the securities portfolio were
for debt securities. All securities with an unrealized loss at December 31, 2003 have been in a continuous unrealized loss position for less than twelve months. These unrealized losses are
considered temporary because of acceptable investment grades on each security and the repayment sources of principal and interest are government backed.

The
following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss
position at December 31, 2003.

|                                      |  | Less Than 12 Months |        | 12 Months or More |   | Total
|------------------------------------- |  | ------------------- | ------ | ----------------- | - | -----
|
|Description of Securities:            |  |                     |        |                   |   |      
|U.S. Government and agency securities |  | $                   | 14,230 |                   | $ | 168  
|State and municipal securities        |  |                     | 1,015  |                   |   | 11   
|Mortgage-backed securities            |  |                     | 46,412 |                   |   | 633  
|                                      |  |                     |        |                   |   |      
|Total temporarily impaired securities |  | $                   | 61,657 |                   | $ | 812  
|                                      |  |                     |        |                   |   |      

15

---

NOTE 4. LOANS

The composition of loans is summarized as follows:

December 31,2003

2002(Dollars in thousands)Commercial, financial and agricultural

$
50,997

$
43,011Real estateconstruction


185,397


120,922Real estatemortgage


440,496


348,548Consumer


30,088


29,630Other


3,697


1,042710,675


543,153Unearned income and deferred loan fees


(717
)

(319
)Allowance for loan losses


(8,726
)

(7,538
)Loans, net

$
701,232

$
535,296


Changes
in the allowance for loan losses are as follows:

Years Ended December 31,2003

2002

2001(Dollars in thousands)Balance, beginning of year

$
7,538

$
5,522

$
5,099Provision for loan losses


1,406


845


1,306Loans charged off


(1,466
)

(1,094
)

(1,118
)Recoveries of loans previously charged off


384


424


235Allowance for loan losses related to acquired loans


864


1,841


Balance, end of year

$
8,726

$
7,538

$
5,522


16

---

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

As of and for the Years
Ended December 31,2003

2002

2001(Dollars in thousands)Impaired loans without a valuation allowance

$
3

$


$
190Impaired loans with a valuation allowance


3,392


6,028


327Total impaired loans

$
3,395

$
6,028

$
517Valuation allowance related to impaired loans

$
608

$
1,017

$
49Average investment in impaired loans

$
3,925

$
5,142

$
1,224Interest income recognized on impaired loans

$
100

$
131

$
14Nonaccrual loans

$
3,333

$
5,506

$
473Loans past due ninety days or more and still accruing interest

$
509

$
1,814

$
196


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, 2003 are as follows:

(Dollars in
thousands)Balance, beginning of year

$
12,452Advances


16,577Repayments


(11,875
)Change in directors


2,282Balance, end of year

$
19,436


17

---

NOTE 5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

December 31,2003

2002(Dollars in thousands)Land

$
4,910

$
4,103Land improvements


638


564Buildings


15,385


11,566Leasehold improvements


2,683


2,630Furniture and equipment


12,892


10,380Automobiles


323


249Construction in progress


1,265


25938,096


29,751Accumulated depreciation


(12,283
)

(8,977
)$
25,813

$
20,774


Depreciation
expense was $1,705,000, $1,489,000 and $1,477,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

The
Gainesville Bank & Trust main office banking facility is owned by a partnership that is 50% owned by Gainesville Bank & Trust and 50% owned by a related party.

At
December 31, 2003, 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 $571,396 borrowing of the related party.

At
December 31, 2003 and 2002, construction in process included computer equipment purchased but not yet in service. In addition, the Company purchased a piece of property in
May 2003 to build an operations center. The cost of the land was approximately $1,168,000. The Company has a contract for the building and land development with an estimated cost of $2,900,000.
The building is expected to be complete in the third quarter of 2004.

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 related party. 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 $688,000, $697,000 and $708,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

18

---



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

(Dollars in
thousands)2004

$
6992005


2522006


1962007


1732008


75Thereafter


455$
1,850


NOTE 6. INTANGIBLE ASSETS

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

December 31, 2003

December 31, 2002Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization(Dollars in thousands)Amortized intangible assets
Core deposit premiums

$
3,091

$
159

$
1,142

$
8


The
aggregate amortization expense was $151,000, $8,000 and $65,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

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

(Dollars in
thousands)2004

$
3352005


3352006


3352007


3352008


335


19

---

Changes
in the carrying amount of goodwill are as follows:

For the Year Ended December 31,2003

2002

2001Beginning balance

$
8,388

$
566

$
566Goodwill acquired


21,318


7,822


Adjustment to previous goodwill


405





Ending balance

$
30,111

$
8,388

$
566


For
the year ended December 31, 2001, net income that would have been reported exclusive of amortization expense recognized related to goodwill that is no longer being amortized
would be $3,641, or $0.77 and $0.75 per basic and diluted earnings per share, respectively.

NOTE 7. DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2003 and 2002 was approximately $122,453,000 and $95,407,000
respectively. The scheduled maturities of time deposits at December 31, 2003 are as follows:

(Dollars in
thousands)2004

$
231,3122005


61,4722006


12,8452007


18,2242008


19,741$
343,594


The
Company had brokered time deposits at December 31, 2003 of $7,921,000.

At
December 31, 2003 and 2002, overdraft demand deposits reclassified to loans totaled $1,006,000 and $542,000, respectively.

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 pledges assets to collateralize repurchase agreements based on the fair value
of the underlying securities. The Company monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements at December 31, 2003 and 2002 were
$13,315,000 and $10,173,000, respectively.

20

---

NOTE 9. OTHER BORROWINGS

Other borrowings consist of the following:

December 31,2003

2002(Dollars in thousands)FHLB advances, interest payable at fixed rates ranging from 2.735% to 6.10%, advances mature at various dates from March 5, 2004 through September 23, 2013.

$
66,703

$
56,654FHLB advances, interest payable at variable rates from LIBOR minus .23% to LIBOR flat rate, or 1.17% to 1.21% at December 31, 2003 with maturity dates from February 18, 2004 to August 2, 2004.


9,000


7,000Treasury, tax and loan note option account due on demand, bearing interest equal to the 90 day Treasury bill rate.


300


820$
76,003

$
64,474


Contractual
maturities of other borrowings as of December 31, 2003 are as follows:

(Dollars in
thousands)2004

$
20,5322005


10,3772006


1272007


12,6272008


7,037Thereafter


25,303$
76,003


The
advances from the Federal Home Loan Bank are collateralized by blanket floating liens on qualifying first mortgage, home equity and commercial loans of approximately $80,350,000,
available for sale securities of approximately $7,090,000 and Federal Home Loan Bank stock of $3,796,000.

The
Company and subsidiaries have available unused lines of credit with various financial institutions totaling approximately $125,500,000 at December 31, 2003. There were no
other advances outstanding at December 31, 2003.

NOTE 10. SUBORDINATED DEBT

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 variable interest rate as the trust

21

---

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 4.54% and
5.1875% at December 31,
2003 and 2002, respectively. Distributions on the trust preferred securities are paid quarterly on March 31, June 30, September 30 and December 31 of each year. Interest on
the Debentures is paid on the corresponding dates. The aggregate principal amount of trust preferred certificates outstanding at December 31, 2003 was $15,464,000. The aggregate principal
amount of Debentures outstanding at December 31, 2003 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 $391,000, $283,000 and $240,000 for the years ended December 31, 2003, 2002 and 2001, respectively.

Deferred Compensation Plans

The Company has various deferred compensation plans providing for death and retirement benefits for certain officers and directors. The estimated amounts to be
paid under the compensation plans have been partially provided through the purchase of life insurance policies on certain officers

22

---

and
directors. Accrued deferred compensation of $5,027,000 and $1,195,000 is included in other liabilities as of December 31, 2003 and 2002, respectively. Cash surrender values of $10,436,000
and $4,766,000 on the insurance policies is included in other assets at December 31, 2003 and 2002, respectively.

Stock Purchase Plan

In 2003, the Company adopted a stock purchase plan. Under the plan, all full-time employees and directors of the Company or a subsidiary meeting
certain eligibility requirements are
eligible to participate in the plan. Participants in the plan may participate through payroll deduction, direct contribution or a combination thereof. Payroll deductions are limited to $3,500 for
directors and the lesser of 10% of gross pay or $3,500 for employees. The Company matches payroll deductions and direct contributions at a rate of 50% of the amount contributed. The purchase price of
the shares of capital stock is based on the current market price. All administrative costs are borne by the Company. For the year ended December 31, 2003, 16,487 shares were purchased under the
plan. Contributions expensed for the year ended December 31, 2003 were $162,000.

Dividend Reinvestment Plan

The Company has a dividend reinvestment and share purchase plan. Under the plan, all holders of record of capital stock are eligible to participate in the plan.
Participants in the plan may direct the plan administrator to invest cash dividends declared with respect to all or any portion of their capital stock. Participants may also make optional cash
payments that will be invested through the plan. All cash dividends paid to the plan administrator are invested within 30 days of cash dividend payment date. Cash dividends and optional cash
payments will be used to purchase capital stock of the Company in the open market, from newly-issued shares, from shares held in treasury, in negotiated transactions, or in any combination of the
foregoing. The purchase price of the shares of capital stock is based on the average market price. All administrative costs are borne by the Company. For the years ended December 31, 2003 and
2002, 28,301 and 36,275 shares were purchased under the plan, respectively.

NOTE 12. STOCK-BASED COMPENSATION

The Company has a stock option plan in which 700,000 shares were approved 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.

23

---



Other pertinent information related to the options is as follows:

|                                                               |            | Years Ended December 31,
|-------------------------------------------------------------- | ---------- | ------------------------
|
|
|Outstanding at beginning of year                               |            | 446,630                 
|                                                               | Granted    |                         
|                                                               | Exercised  |                         
|                                                               | Terminated |                         
|                                                               |            |                         
|Outstanding at end of year                                     |            | 423,069                 
|                                                               |            |                         
|Options exercisable at year-end                                |            | 269,785                 
|Weighted-average fair value of options granted during the year |            |                         

Information
pertaining to options outstanding at December 31, 2003 is as follows:

|                  |  | Options Outstanding |  |            |  |  
|----------------- |  | ------------------- |  | ---------- |  | -
|
|
|
|$  4.15 - $  5.01 |  | 7,781               |  | 0.8 years  |  | $
|$  6.36 - $  9.44 |  | 21,014              |  | 3.70 years |  |  
|$10.04 - $10.81   |  | 260,263             |  | 3.95 years |  |  
|$11.73 - $17.51   |  | 97,916              |  | 7.62 years |  |  
|$17.75 - $23.55   |  | 36,095              |  | 8.51 years |  |  

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 31,2003

2002

2001Dividend yield

1.60%

1.83%

$
2.63%Expected life

10 years

10 years


10 yearsExpected volatility

32.42%

23.07%


27.60%Risk-free interest rate

3.95%

3.88%


5.59%


24

---

NOTE 13. INCOME TAXES

The components of income tax expense are as follows:

Years Ended December 31,2003

2002

2001(Dollars in thousands)Current

$
3,190

$
2,784

$
2,310Deferred


(246
)

282


(324
)Change in valuation allowance


(336
)

(36
)

$
2,608

$
3,030

$
1,986


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 31,2003

2002

2001(Dollars in thousands)Tax provision at statutory federal rate

$
3,513

$
3,249

$
2,025Tax-exempt interest


(234
)

(237
)

(245
)Disallowed interest


17


25


42Life insurance


(93
)

(82
)

(70
)State income taxes, net of credits


(149
)

169


37Merger expenses








167Change in valuation allowance


(336
)

(36
)

Other


(110
)

(58
)

30Income tax expense

$
2,608

$
3,030

$
1,986


25

---

The
components of deferred income taxes are as follows:

2003

2002(Dollars in thousands)Deferred tax assets:Loan loss reserves

$
2,754

$
2,393Other real estate write-down


24


21Deferred compensation


2,210


548Organizational expenses





1Deferred loan fees


174


104CLC bad debt reserve


124


131Other





165,286


3,214Deferred tax liabilities:Depreciation


1,100


749Accretion of discount on securities


9


10Installment sale of stock





241Purchase adjustment


1,072


53Valuation allowance





336Securities available for sale


248


1,0252,429


2,414Net deferred tax assets

$
2,857

$
800


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 31,2003

2002

2001(Amounts in thousands)Net income

$
7,725

$
6,509

$
3,576Weighted average number of capital shares outstanding


5,850


4,813


4,676Effect of dilutive options


125


87


140Weighted average number of capital shares outstanding used to calculate dilutive earnings per share


5,975


4,900


4, 816


26

---

NOTE 15. COMMITMENTS AND CONTINGENCIES

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 and standby letters of credit. 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 majority of all commitments to extend credit and standby letters of credit are variable rate instruments.

The
Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the
Company's commitments is as follows:

December 31,2003

2002(Dollars in thousands)Commitments to extend credit

$
138,310

$
99,362Financial standby letters of credit


3,718


2,727Other standby letters of credit


1,349


1,661Credit card commitments


5,302


4,975$
148,679

$
108,725


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. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the party.
Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate and income-producing commercial properties.

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 guarantees are primarily issued to support
public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies as
specified above and is required in instances which the Company deems necessary.

At
December 31, 2003 and 2002, the carrying amount of liabilities related to the Company's obligation to perform under financial standby letters of credit was insignificant. The
Company has not been required to perform on any financial standby letters of credit, and the Company has not incurred any losses on financial standby letters of credit for the years ended
December 31, 2003 and 2002.

27

---

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 Banks originate primarily commercial real estate, residential real estate and consumer loans to customers in Hall, Polk, Paulding, Carroll, Baldwin, Putnam
and surrounding counties. The ability of the majority of the Company's customers to honor their contractual obligations is dependent on their local economies as well as the metropolitan Atlanta,
Georgia economy.

Eighty-eight
percent of the Company's loan portfolio is concentrated in loans secured by real estate. A substantial portion of these loans is 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 regulatory limits, or approximately $5,096,000,
$1,443,000, $2,875,000, $3,079,000 and $1,460,000 for Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank, HomeTown Bank of Villa Rica, and First National Bank of the
South, 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, 2003,
approximately $3,500,000 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 consolidated 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 Company's and Banks'
assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.

Quantitative
measures established by regulation to ensure capital adequacy require the Company and the 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. Management believes, as of December 31, 2003 the Company and the Banks met all capital adequacy
requirements to which they are subject.

As
of December 31, 2003, based on the regulatory framework for prompt corrective action, Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank and
HomeTown Bank of Villa

28

---

Rica
are considered well capitalized and First National Bank of the South is considered adequately capitalized. 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. Prompt corrective action provisions are not applicable to bank holding companies.

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, 2003:                |                                  |        |   |                               |  |                                                                 
|Total Capital to Risk Weighted Assets:  |                                  |        |   |                               |  |                                                                 
|                                        | Consolidated                     |        | $ | 87,524                        |  | 11.80                                                           
|                                        | Gainesville Bank & Trust         |        | $ | 31,025                        |  | 10.10                                                           
|                                        | United Bank & Trust              |        | $ | 6,953                         |  | 12.41                                                           
|                                        | Community Trust Bank             |        | $ | 16,000                        |  | 11.58                                                           
|                                        | HomeTown Bank of Villa Rica      |        | $ | 13,306                        |  | 10.04                                                           
|                                        | First National Bank of the South |        | $ | 9,735                         |  | 9.29                                                            
|Tier I Capital to Risk Weighted Assets: |                                  |        |   |                               |  |                                                                 
|                                        | Consolidated                     |        | $ | 78,797                        |  | 10.62                                                           
|                                        | Gainesville Bank & Trust         |        | $ | 27,673                        |  | 9.01                                                            
|                                        | United Bank & Trust              |        | $ | 6,299                         |  | 11.24                                                           
|                                        | Community Trust Bank             |        | $ | 14,405                        |  | 10.43                                                           
|                                        | HomeTown Bank of Villa Rica      |        | $ | 11,646                        |  | 8.79                                                            
|                                        | First National Bank of the South |        | $ | 8,848                         |  | 8.44                                                            
|Tier I Capital to Average Assets:       |                                  |        |   |                               |  |                                                                 
|                                        | Consolidated                     |        | $ | 78,797                        |  | 8.63                                                            
|                                        | Gainesville Bank & Trust         |        | $ | 27,673                        |  | 7.10                                                            
|                                        | United Bank & Trust              |        | $ | 6,299                         |  | 8.23                                                            
|                                        | Community Trust Bank             |        | $ | 14,405                        |  | 8.28                                                            
|                                        | HomeTown Bank of Villa Rica      |        | $ | 11,646                        |  | 7.72                                                            
|                                        | First National Bank of the South |        | $ | 8,848                         |  | 6.82                                                            
|                                        |                                  |        |   |                               |  |                                                                 

29

---

|As of December 31, 2002:                |                             |  |   |        |  |       |   |   |        |  |   |   |   |        | 
|--------------------------------------- | --------------------------- |  | - | ------ |  | ----- | - | - | ------ |  | - | - | - | ------ | 
|Total Capital to Risk Weighted Assets:  |                             |  |   |        |  |       |   |   |        |  |   |   |   |        | 
|                                        | Consolidated                |  | $ | 72,132 |  | 12.51 | % | $ | 46,139 |  | 8 | % |   | N/A    | 
|                                        | Gainesville Bank & Trust    |  | $ | 28,379 |  | 10.49 | % | $ | 21,644 |  | 8 | % | $ | 27,055 | 
|                                        | United Bank & Trust         |  | $ | 6,744  |  | 12.79 | % | $ | 4,220  |  | 8 | % | $ | 5,275  | 
|                                        | Community Trust Bank        |  | $ | 14,863 |  | 10.11 | % | $ | 11,763 |  | 8 | % | $ | 14,703 | 
|                                        | HomeTown Bank of Villa Rica |  | $ | 7,945  |  | 7.77  | % | $ | 8,180  |  | 8 | % | $ | 10,224 | 
|Tier I Capital to Risk Weighted Assets: |                             |  |   |        |  |       |   |   |        |  |   |   |   |        | 
|                                        | Consolidated                |  | $ | 64,919 |  | 11.26 | % | $ | 23,070 |  | 4 | % |   | N/A    | 
|                                        | Gainesville Bank & Trust    |  | $ | 25,304 |  | 9.35  | % | $ | 10,822 |  | 4 | % | $ | 16,233 | 
|                                        | United Bank & Trust         |  | $ | 6,094  |  | 11.55 | % | $ | 2,110  |  | 4 | % | $ | 3,165  | 
|                                        | Community Trust Bank        |  | $ | 13,164 |  | 8.95  | % | $ | 5,882  |  | 4 | % | $ | 8,822  | 
|                                        | HomeTown Bank of Villa Rica |  | $ | 6,661  |  | 6.52  | % | $ | 4,090  |  | 4 | % | $ | 6,135  | 
|Tier I Capital to Average Assets:       |                             |  |   |        |  |       |   |   |        |  |   |   |   |        | 
|                                        | Consolidated                |  | $ | 64,919 |  | 10.22 | % | $ | 25,421 |  | 4 | % |   | N/A    | 
|                                        | Gainesville Bank & Trust    |  | $ | 25,304 |  | 6.82  | % | $ | 14,850 |  | 4 | % | $ | 18,562 | 
|                                        | United Bank & Trust         |  | $ | 6,094  |  | 8.80  | % | $ | 2,770  |  | 4 | % | $ | 3,462  | 
|                                        | Community Trust Bank        |  | $ | 13,164 |  | 7.81  | % | $ | 6,739  |  | 4 | % | $ | 8,424  | 
|                                        | HomeTown Bank of Villa Rica |  | $ | 6,661  |  | 5.66  | % | $ | 4,708  |  | 4 | % | $ | 5,884  | 

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 value is based on discounted cash flows or other valuation techniques. These 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.

30

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

Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds Sold:The carrying amount of cash, due from banks,
interest-bearing deposits in banks and federal funds sold approximates fair value.

Securities:Fair values of securities is based on available quoted market prices. The carrying amount of equity securities
with no readily determinable fair value approximates fair value.

Loans:The carrying amount of variable-rate loans that reprice frequently and have no significant change in
credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with
similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.

Deposits:The carrying amount of demand deposits, savings deposits, and variable-rate certificates of deposit
approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for
certificates of similar maturities.

Federal Funds Purchased, Repurchase Agreements and Other Borrowings:The carrying amount of variable rate borrowings, federal
funds purchased, and securities sold under repurchase agreements approximate fair value. The fair value of fixed rate other borrowings are estimated based on discounted contractual cash flows using
the current incremental borrowing rates for similar type borrowing arrangements.

Subordinated Debt:The carrying amount of the Company's variable rate subordinated debt approximates the fair value.

Accrued Interest:The carrying amount of accrued interest approximates their fair value.

Off-Balance Sheet Instruments:The carrying amount of commitments to extend credit and standby letters of credit
approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees currently charged to enter into such agreements.

31

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

December 31, 2003

December 31, 2002Carrying
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

$
24,738

$
24,738

$
51,488

$
51,488Securities


132,945


132,945


106,843


106,843Restricted equity securities


4,582


4,582


3,784


3,784Loans


701,232


706,667


535,296


556,920Accrued interest receivable


3,993


3,993


3,074


3,074Financial liabilities:Deposits


728,629


730,920


580,248


581,255Federal funds purchased and securities sold under repurchase agreements


17,314


17,314


11,538


11,538Other borrowings


76,003


79,573


64,474


68,694Subordinated debt


15,464


15,464


15,000


15,000Accrued interest payable


3,119


3,119


2,963


2,963


NOTE 19. SUPPLEMENTAL FINANCIAL DATA

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

Years Ended December 31,2003

2002

2001(Dollars in thousands)Audit and professional fees

$
615

$
507

$
405Legal fees and merger expenses


150


154


619Stationery, forms and supplies


617


466


389


NOTE 20. PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets as of December 31, 2003 and 2002 and statements of income and cash flows of GB&T
Bancshares, Inc. for the years ended December 31, 2003, 2002 and 2001.

32

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CONDENSED BALANCE SHEETS

2003

2002(Dollars in thousands)AssetsCash

$
3,954

$
10,832Securities available for sale


842


812Investment in subsidiaries


106,280


65,789Premises and equipment


1,478


1,587Other assets


393


1,600Total assets

$
112,947

$
80,620LiabilitiesSubordinated debt

$
15,464

$
15,464Other liabilities


640


4,803Total liabilities


16,104


20,267Stockholders' equity


96,843


60,353Total liabilities and stockholders' equity

$
112,947

$
80,620


CONDENSED STATEMENTS OF INCOME

2003

2002

2001(Dollars in thousands)IncomeDividends from subsidiaries

$
3,080

$
2,000

$
1,948Management fees


1,048





Other income


142


751


1464,270


2,751


2,094ExpenseInterest


822


252


131Other operating expense


2,522


589


1,8623,344


841


1,993Income before income tax benefit and equity in undistributed income of subsidiaries


926


1,910


101Income tax benefits


819


108


571Income before equity in undistributed income of subsidiaries


1,745


2,018


672Equity in undistributed income of subsidiaries


5,980


4,491


2,904Net income

$
7,725

$
6,509

$
3,576


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CONDENSED STATEMENTS OF CASH FLOWS

2003

2002

2001(Dollars in thousands)OPERATING ACTIVITIESNet income

$
7,725

$
6,509

$
3,576Adjustments to reconcile net income to net cash provided by (used in) operating activities:Undistributed income of subsidiaries


(5,980
)

(4,491
)

(2,904
)Depreciation


42


74


86(Gain) loss on sale of assets


316


(752
)

Net other operating activities


(2,406
)

(682
)

242Net cash provided by (used in) operating activities


(303
)

658


1,000INVESTING ACTIVITIESPurchase of securities available for sale


(723
)




Proceeds from sale of securities available for sale


693





Purchase of premises and equipment


(1,394
)

(150
)

Proceeds from sale of premises and equipment


1,144





21Capital investment in subsidiaries


(4,628
)

(2,964
)

Net cash provided by (used in) investing activities


(4,908
)

(3,114
)

21FINANCING ACTIVITIESDividends paid


(2,038
)

(1,596
)

(1,358
)Proceeds from issuance of common stock


380


441


540Payment for fractional shares


(9
)




(5
)Proceeds from issuance of subordinated debentures





15,464


Proceeds from note payable





4,000


845Repayment of note payable





(5,875
)

(419
)Net cash provided by (used in) financing activities


(1,667
)

12,434


(397
)Net increase (decrease) in cash


(6,878
)

9,978


624Cash at beginning of year


10,832


854


230Cash at end of year

$
3,954

$
10,832

$
854


34

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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 |                         
|                                                    |         |                         

NOTE 22. PRIOR PERIOD ADJUSTMENT

In December 2003, management discovered that certain deferred compensation liabilities had not been recognized in accordance with generally accepted
accounting principles, which requires deferred compensation liabilities to be recognized over the service periods of the participants. The error resulted primarily from deferred compensation
agreements assumed in a business combination consummated in 2001. These particular deferred compensation liabilities are funded through the earnings generated from life insurance policies as discussed
in Note 11. The prior period adjustments represent an acceleration of expense recognition, and will reduce expenses to be recognized in future years.

The
effect on net income for the years ended December 31, 2002 and 2001 is as shown below:

December 31,2002

2001(dollars in thousands)Net income before adjustment

$
6,528

$
3,970Prior period adjustments for correction of an error


(19
)

(394
)$
6,509

$
3,576


The
prior period adjustment as shown in the statement of stockholders' equity for the years ended December 31, 2003, 2002 and 2001 represents the correction of the error for the
years ended prior to January 1, 2000.

35

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NOTE 23. SUBSEQUENT EVENTS

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

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

36

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EXHIBIT INDEX

Exhibit
No.

Description21.1

Subsidiaries of the Registrant23.1

Consent of Mauldin & Jenkins, LLC31.1

Rule 13a-14(a) Certification of Principal Executive Officer31.2

Rule 13a-14(a) Certification of Principal Financial Officer32.1

Section 1350 Certification of Principal Executive Officer32.2

Section 1350 Certification of Principal Financial Officer


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