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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM
10-K

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

(Mark One)

xAnnual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee
Required)

for the fiscal year ended December 31, 2002

OR

oTransition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)

for the transition period from ____________________ to ____________________.

Commission File Number 0-24172

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GEORGIA BANK FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

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| | GEORGIA(State or Other Jurisdictionof Incorporation or Organization |  | 58-2005097(I.R.S. EmployerIdentification No.) | 
| | ------------------------------------------------------------------- |  | --------------------------------------------- | 

| | 3530 Wheeler RoadAugusta, Georgia(Address of PrincipalExecutive Office) |  | 30909(Zip Code) | 
| | ----------------------------------------------------------------------- |  | --------------- | 

Registrants Telephone Number, Including Area Code: (706) 738-6990

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities
Registered Pursuant to Section 12(g) of the Act:Common Stock, par value $3.00 per share

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

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

The number of shares
outstanding of the Registrants Common Stock, as of March 17, 2003 was 2,385,280. The aggregate market value of the voting stock held by non-affiliates of the Registrant at March 17, 2003, based on the last sale price of $44.00 per share on
such date was approximately $46,711,896.

Certain portions of the Companys definitive Proxy Statement for the Annual Meeting of Shareholders to be held
on April 16, 2003 (the Proxy Statement) filed pursuant to Rule 14a-6 of the Securities Exchange Act of 1934, as amended, are incorporated by reference into this Form 10-K. Other than those portions of the Proxy Statement specifically
incorporated by reference pursuant to Items 10 through 13 of Part III hereof, no other portions of the Proxy Statement shall be deemed so incorporated.

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Item 1.Description of Business

General

Georgia Bank Financial Corporation (the Company) is a Georgia corporation that is a bank holding company registered with the Board of Governors of the Federal Reserve
System (the Federal Reserve) under the Bank Holding Company Act of 1956, as amended (the BHCA). The Company had total consolidated assets of $569.8 million, total deposits of $439.6 million and total stockholders equity
of $46.7 million at December 31, 2002. Through its wholly-owned subsidiary, Georgia Bank & Trust Company of Augusta (the Bank), the Company operates a total of seven banking offices in the greater Augusta area in Richmond and
Columbia Counties, Georgia. The Bank also has mortgage operations in Augusta, Georgia, Savannah, Georgia, and Nashville, Tennessee.

The Bank is community
oriented and focuses primarily on offering real estate, commercial and consumer loans and various deposit and other services to individuals, small to medium sized businesses and professionals in its market area. The Bank is the only locally owned
and managed commercial bank operating in Richmond and Columbia Counties. Each member of the Companys management team is a banking professional with many years of experience in the Augusta market with this and other banking organizations. A
large percentage of Bank management has worked together for many years. The Bank competes against the larger regional and super-regional banks operating in its market by emphasizing the stability and accessibility of its management,
managements long-term familiarity with the market, immediate local decision making and the pride of local ownership.

The Bank was organized by a group
of local citizens from Richmond and Columbia Counties and commenced business from the main office location at 3530 Wheeler Road in Augusta on August 28, 1989. The Bank opened its first Augusta branch at 3111 Peach Orchard Road in December 1991 and
its second Augusta branch at 1530 Walton Way in December 1992. The Bank became a subsidiary of the Company in February 1992 as a result of its holding company reorganization. The Company acquired FCS Financial Corporation and First Columbia Bank
(First Columbia) on December 31, 1992. This allowed the Company to expand into neighboring Columbia County. In July 1993, First Columbia merged into the Bank, and the Bank now operates the former main office of First Columbia at 4105
Columbia Road, Martinez, Georgia as a branch. The Bank opened a second branch in Columbia County in November 1994 that is located in Evans, Georgia. In October 1995, the Bank opened its sixth banking office at 3133 Washington Road. The company
opened a full service branch in May 2001 in Martinez, Georgia, the third Columbia County branch.

The Bank was founded with an experienced management team, and
that team has continued to expand with the growth of the Bank. The Banks President and Chief Executive Officer, R. Daniel Blanton, was involved in the organization of the Bank in 1988 and previously served with a predecessor to First Union
National Bank, Georgia State Bank, for over 13 years. With the acquisition of First Columbia, the Bank obtained its Executive Vice President and Chief

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Operating Officer, Ronald L. Thigpen, who had served as Chief Executive Officer of First Columbia since 1991, and before that served in various capacities
with First Union National Bank and its predecessors. J. Pierce Blanchard, Jr., Executive Vice President-Business Development, joined the team in 1994. He previously served for six years as President of Citizens Bank & Trust Company in Evans,
Georgia, and had prior experience with First Union National Bank and its predecessors. The Banks senior loan officer and Group Vice President, Tom C. McLaughlin, has been associated with the Bank for nine years, and worked together previously
with Mr. Blanton at Georgia State Bank, a predecessor to First Union National Bank. Regina W. Mobley, Group Vice President, Bank Operations has been with the Bank since the acquisition of First Columbia Bank. With over 26 years of bank
operations experience, she previously served First Columbia Bank and C&S National Bank, as predecessor of Bank of America.

Market Area

The Banks market area includes Richmond and Columbia Counties and is centered in West Augusta. This area represents a significant portion of the Augusta-Aiken metropolitan
area. Augusta-Aiken is one of 318 metropolitan statistical areas (MSA) in the United States and its 2000 population of 478,200 ranked 107th in the nation. During the 1990 to 2000 period, the Augusta-Aiken metropolitan area had the fourth fastest
growing population among Georgias metropolitan areas. The 2000 census shows the Augusta-Aiken areas population at 477,441 at April 1, 2000. The Augusta market area has a diversified economy based principally on government,
transportation, public utilities, health care, manufacturing, and wholesale and retail trade. Augusta is one of the leading medical centers in the Southeast. Significant medical facilities include the Medical College of Georgia, the University
Hospital, Veterans Administration Hospital, Dwight D. Eisenhower Hospital, Gracewood State School and Hospital, Columbia/Augusta Regional Hospital and St. Josephs Hospital. Other major employers in the Augusta market area include the
Fort Gordon military installation, E-Z Go (golf car manufacturer), International Paper Company (bleached paper board manufacturer), Thermal Ceramics (insulating material manufacturer), President Baking Company (cookie manufacturer), John Deere
(tractor manufacturer) and Club Car (golf car manufacturer). The area is served by Interstate 20, which connects it to Atlanta, 140 miles to the west and Columbia, South Carolina, 70 miles to the east. Augusta is also served by a major commercial
airport (Bush Field) and a commuter airport (Daniel Field). The average unemployment rate for the Augusta-Aiken MSA was 4.6% in 2000, and 5.0% in 2001. Between June 2001 and June 2002 (the latest date for which FDIC information is available), total
commercial bank and thrift deposits in Richmond County increased 5.0% from $2.0 billion to $2.1 billion, and total commercial bank and thrift deposits in Columbia County increased 10.8% from $640.1 million to $709.2 million. At June 30, 2002, the
Bank has 12.3% of all deposits in Richmond County and 19.8% in Columbia County. In both Richmond and Columbia Counties, the Bank has 14.2% of all deposits and is the second largest depository institution. The demographic information as presented
above is based upon information and estimates provided by the Selig Center for Economic Growth at the University of Georgia, Georgia Department of Labor and the Federal Deposit Insurance Corporation.

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Lending Activities

General

The Bank offers a wide range of lending services, including real estate, commercial and consumer loans, to individuals, small to medium-sized businesses and professionals that are located in, or
conduct a substantial portion of their business in, the Banks market area. The Banks total loans at December 31, 2002, were $396.7 million, or 73.3% of total interest-earning assets. An analysis of the composition of the Banks loan
portfolio is set forth under Managements Discussion and Analysis of Financial Condition and Results of Operations - Composition of Loan Portfolio.

Real Estate Loans.Loans secured by real estate are the primary component of the Banks loan portfolio, constituting $291.0 million, or 73.35% of the Banks total loans, at December
31, 2002. These loans consist of commercial real estate loans, construction and development loans, residential real estate loans, and home equity loans. See -Consumer Loans.

Commercial Real Estate Loans.At December 31, 2002, the Bank held $112.0 million of commercial real estate loans of various sizes secured by office buildings, retail establishments, and other
types of property. These commercial real estate loans represented 28.23% of the Banks total loans at December 31, 2002. Loan terms are generally limited to five years and often do not exceed three years, although the installment payments may
be structured on a 20-year amortization basis with a balloon payment at maturity. Interest rates may be fixed or adjustable. The Bank generally charges an origination fee. Management attempts to reduce credit risk in the commercial real estate
portfolio by emphasizing loans on owner-occupied office and retail buildings where the loan-to-value ratio, established by independent appraisals, does not exceed 80%. In addition, the Bank requires personal guarantees from the principal owners of
the property supported with an analysis by the Bank of the guarantors personal financial statements in connection with a substantial majority of such loans. A number of the loans classified as commercial real estate loans are, in fact,
commercial loans for which a security interest in real estate has been taken as additional collateral. These loans are subject to underwriting as commercial loans as described below. The Bank experienced a $5,000 net loan recovery on commercial real
estate loans during 2002.

Construction and Development Loans. Construction and development real estate loans comprise $79.5
million, or 20.04% of the Banks total loans at December 31, 2002.

A construction and development loan portfolio represents special problems and risks.
The level of construction and development loans are representative of the character of the Banks market. Columbia County has been rated among the top five in the State of Georgia in population growth during each of the last four years. This
growth has spawned a significant demand for residential housing in Columbia County. The Bank subjects this type of loan to

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underwriting criteria that include: certified appraisal and valuation of collateral; loan-to-value margins (typically not exceeding 75%); cash equity
requirements; evaluations of borrowers cash flows and alternative sources of repayment; and a determination that the market is able to absorb the project on schedule.

To further reduce the risk related to construction and development loans, the Bank generally relies upon the long-standing relationships between its loan officers and the developer and contractor borrowers. In most
cases these relationships exceed ten or more years. The Bank targets seasoned developers and contractors who have experience in the local market. Various members of the Banks Board of Directors have close contacts with the construction
industry: Robert W. Pollard, Jr. owns and operates a lumber manufacturing company; E. G. Meybohm owns the largest local real estate brokerage firm; Larry S. Prather owns a utility and grading company and William J. Badger owns and operates a lumber
company. Through these connections to the industry, the Bank attempts to monitor current economic conditions in the market place for residential real estate, and the financial standing and on-going reputation of its construction and development
borrowers.

Infrastructure development loans are generally made with an initial maturity of one year, although the Bank may renew the loan for up to two
additional one-year terms to allow the developer to complete the sale of the lots comprising the property before requiring the payment of the related loan. These loans typically bear interest at a floating rate and the Bank typically charges an
origination fee. These loans are repaid, interest only, on a monthly or quarterly basis until sales of lots begin, and then principal payments are made as each lot is sold at a rate allowing the Bank to be repaid in full by the time 75% of the lots
have been sold. In order to reduce the credit risk associated with these loans, the Bank requires the projects loan to value ratio (on an as completed basis) to be not more than 70%. The Bank experienced $36,000 in net loan charge-offs on
these loans during 2002.

Residential construction loans are typically made for homes with a completed value in the range of $110,000 to $300,000. Loans for
the lower-value homes are typically made for a term of six months, while loans for the larger homes are typically made for a term of nine to twelve months. Typically, these loans bear interest at a floating rate and the Bank collects an origination
fee. The Bank may renew these loans for one additional term (equal to the original term) to allow the contractor time to market the home. In order to reduce the credit risk with respect to these loans, the Bank restricts the loans that are made for
homes being built on a speculative basis, carefully manages its aggregate lending relationship with each borrower, and requires approval of the Loan Committee of the Board of Directors to lend more than $500,000 in the aggregate to any borrower and
its related interests.

Residential Loans.The Bank originates, on a selective basis, residential loans for its
portfolio on single-and multi-family properties, both owner-occupied and non-owner-occupied. At December 31, 2002, the Bank held $75.2 million of such loans, including home equity loans, representing 19.0% of the Banks loan portfolio, as
compared to $63.9 million, or 18.8% of the Banks loan portfolio at December 31, 2001. There has been little growth in Residential Loans as most mortgage loans are sold in the secondary market. This portfolio includes, typically 15 or 30-year
adjustable rate mortgage loans whose terms mirror those prevalent in the secondary

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market for mortgage loans or, less typically, floating rate non-amortized term loans for purposes other than acquisition of the underlying residential
property. A limited number of fixed rate loans are maintained in the portfolio when there are compelling market reasons to do so. Generally, all fixed rate residential loans are sold into the secondary market. In the case of home equity loans and
lines of credit, the underwriting criteria are the same as applied by the Bank when making a first mortgage loan, as described above. Home equity lines of credit typically expire ten years after their origination.

The Bank also originates residential loans for sale into the secondary market, an activity that began with the acquisition of First Columbia. Residential real estate lending for
the purpose of sale of such loans was further expanded with the acquisition of Georgia Union Mortgage Company in May of 1997. The Bank further expanded its secondary market mortgage operations in June 2000 with the addition of experienced mortgage
staff. The Bank moved its mortgage department from the Martinez Branch to its facilities located in the Operations Complex at 3515 Wheeler Road to accommodate this expansion. In September of 2000, the Bank acquired the mortgage origination offices
of Prime Lending in Savannah, Georgia. In April of 2001, the Bank acquired the mortgage origination offices of Prime Lending in Nashville, Tennessee. The addition of experienced mortgage personnel well known to our management staff provides an
opportunity to participate in that dynamic market. The Bank originates both fixed and variable rate residential mortgage loans for sale with servicing released. Loans originated for sale into the secondary market are approved for purchase by an
investor prior to closing and the Bank takes no credit or interest rate risk with respect to these loans. The Bank generates loan origination fees, typically ranging from 1.0% to 1.5% of the loan balance, and servicing release fees, generally
ranging from 0.25% to 0.75% of the loan balance, both of which are recognized as income when the loan is sold. The Bank limits interest rate and credit risk on these loans by locking the interest rate for each loan with the secondary investor and
receiving the investors underwriting approval prior to originating the loan. The Bank had $24.3 million of such loans at December 31,2002, representing 6.1% of the Banks total loans.

Commercial Loans.The Bank makes loans for commercial purposes in various lines of businesses. At December 31, 2002, the Bank held $55.7 million of these loans,
representing 14.04% of the total loan portfolio, excluding for these purposes commercial loans secured by real estate. See -Real Estate Loans. Equipment loans are made for a term of up to five years (more typically three years) at fixed
or variable rates, with the loan being fully amortized over the term and secured by the financed equipment with a loan-to-value ratio of 80% or less. Working capital loans are made for a term typically not exceeding one year. These loans are usually
secured by accounts receivable or inventory, and principal is either repaid as the assets securing the loan are converted into cash, or principal is due at maturity. The Bank experienced net loan charge-offs on commercial loans of $413,000 during
2002 and $282,000 during 2001.

Consumer Loans. The Bank makes a variety of loans to individuals for personal and household
purposes, including secured and unsecured installment and term loans, and revolving lines of credit such as overdraft protection. During 1999, the Bank sold its credit card portfolio of $2.4 million. At December 31, 2002, the Bank held $49.9 million
of consumer loans, representing 12.6% of total loans. These loans typically carry balances of less than $25,000 and

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earn interest at a fixed rate. Non-revolving loans are either amortized over a period not exceeding 60 months or are ninety-day term loans. Revolving loans
require monthly payments of interest and a portion of the principal balance (typically 2 to 3% of the outstanding balance). The Bank entered the indirect lending business in 1997 and currently purchases sales finance contracts from dealers for new
and used automobiles and home improvements. At December 31, 2002, indirect loans outstanding totaled $24.7 million. The Bank experienced net loan charge-offs on consumer loans of $547,000 during 2002 and $572,000 during 2001.

Loan Approval and Review. The Banks loan approval policies provide for various levels of officer lending authority. When the aggregate amount of
outstanding loans to a single borrower exceeds that individual officers lending authority, the loan request must be considered and approved by an officer with a higher lending limit or by the Directors Loan Committee. Individual
officers lending limits range from $10,000 to $400,000 depending on seniority and the type of loan. Any loan in excess of the lending limit of senior bank officers must be approved by the Directors Loan Committee.

The Bank has a loan review procedure involving multiple officers of the Bank which is designed to promote early identification of credit quality problems. All loan officers are
charged with the responsibility of rating all their loans exceeding $25,000 and reviewing those loans on a periodic basis, the frequency of which increases as the quality of the loans decreases. The Banks Senior Credit Officer is charged with
the responsibility of ensuring that all lending relationships of $300,000 and above are reviewed annually. In addition, the Credit Administration Department, under the direction of the Senior Credit Officer is involved in the analysis of all loans
that require Directors Loan Committee approval.

Deposits

The Bank offers a
variety of deposit programs to individuals and to small to medium-sized businesses and other organizations at interest rates generally consistent with local market conditions. The following table sets forth the mix of depository accounts at the Bank
as a percentage of total deposits at the dates indicated.

Deposit Mix



|                           |  | At December 31, |  
|-------------------------- |  | --------------- | -
|                           |  |                 |  
|                           |  | 2002            |  
|                           |  |                 |  
|Noninterest-bearing demand |  | 16.00           | %
|Interest checking          |  | 14.36           |  
|Money management           |  | 6.53            |  
|Savings                    |  | 34.64           |  
|Time Deposits              |  |                 |  
|Under $100,000             |  | 8.51            |  
|$100,000 and over          |  | 19.96           |  
|                           |  |                 |  
|                           |  | 100.00          | %
|                           |  |                 |  

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The Bank accepts deposits at its main office and six branch banking offices, each of which maintains an automated teller machine. The
Bank is a member of the HONOR network of automated teller machines, which permits Bank customers to perform certain transactions in many cities throughout Georgia and other regions. The Bank controls deposit volumes primarily through the
pricing of deposits and to a certain extent through promotional activities such as free checking. The Bank also utilizes other sources of funding, specifically repurchase agreements and Federal Home Loan Bank borrowings and occasionally
brokered certificates of deposit. Deposit rates are set weekly by senior management of the Bank. Management believes that the rates it offers are competitive with, or in some cases, slightly above those offered by other institutions in the
Banks market area. The Bank does not actively solicit deposits outside of its market area.

Competition

The banking business generally is highly competitive, and sources of competition are varied. The Bank competes as a financial intermediary with other commercial banks, savings and loan associations, credit unions,
mortgage banking companies, consumer finance companies, securities brokerages, insurance companies, and money market mutual funds operating in Columbia and Richmond Counties and elsewhere. In addition, recent legislative and regulatory changes and
technological advances have enabled customers to conduct banking activities without regard to geographic barriers through computer-based banking and similar services.

Many of the financial organizations in competition with the Company have much greater financial resources, more diversified markets and larger branch networks than the Company and are able to offer similar services at
varying costs with higher lending limits. In addition, with the enactment of federal and state laws affecting interstate and bank holding company expansion, there have been major interstate acquisitions involving Augusta financial institutions which
have offices in the Companys market area but are headquartered in other states. The effect of such acquisitions (and the possible increase in size of the financial institutions in the Companys market areas) may further increase the
competition faced by the Company. The Company believes, however, that it will be able to use its local independent image to its advantage in competing for business from certain Augusta individuals and businesses.

Employees

The Company had approximately 233 full-time equivalent employees at December 31, 2002. The
Company maintains training, educational and affirmative action programs designed to prepare employees for positions of increasing responsibility in both management and operations, and provides a variety of benefit programs, including group life,
health, accident and other insurance and retirement plans. None of the Companys employees are covered by a collective bargaining agreement, and the Company believes its employee relations are generally good.

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Supervision and Regulation

The Company and the Bank are
subject to extensive state and federal banking laws and regulations which impose specific requirements or restrictions on, and provide for general regulatory oversight with respect to, virtually all aspects of their operations. These laws and
regulations are generally intended to protect depositors or customers, not stockholders. The following summary of statutory or regulatory provisions is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any
change in applicable laws, or the policies or practices of the federal and state regulatory agencies, may have a material effect on the business and prospects of the Company. The Company is unable to predict the nature or the extent of the effect on
its business and earnings that fiscal or monetary policies, or new federal or state legislation or regulation may have in the future.

Federal Bank Holding Company
Regulation

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the BHCA). Under the BHCA, the
Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. The Companys activities are limited to banking,
managing or controlling banks, furnishing services to or performing services for its subsidiaries, or engaging in any other activity that the Federal Reserve determines to be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.

Investments, Control, and Activities.The Company must generally obtain the prior approval of the Federal
Reserve before acquiring or merging with another bank holding company or acquiring another bank. Similarly, prior approval or clearance is required before another person, group or company may acquire direct or indirect control of, or merge with, the
Company.

Under the BHCA, the Company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares
of any company engaged in nonbanking activities, unless the Federal Reserve, by order or regulation, has found those activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve has determined by regulation to be proper incidents to the business of banking include making or servicing loans and certain types of leases, engaging in certain insurance agency and securities brokerage
activities, engaging in limited insurance and securities underwriting, performing certain data processing services, acting in certain circumstances as a fiduciary or investment or financial advisor, owning savings associations, and making
investments in certain corporations or projects designed primarily to promote community welfare. The Federal Reserve has adopted regulations governing the approval requirements associated with permissible non-banking activities.

Pursuant to the Gramm-Leach Bliley Act (GLB) enacted in 1999, bank holding companies that are well-capitalized and well-managed and meet certain other
conditions can elect to become financial holding companies. As such, they and their subsidiaries are permitted to acquire or engage in previously impermissible activities such as insurance underwriting, securities

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underwriting and distribution, certain travel agency activities, broad insurance agency activities, merchant banking, and other activities that the Federal
Reserve determines to be financial in nature or complementary thereto. While the Company does not currently intend to become a financial holding company in order to exercise the broader activity powers provided by GLB, it may elect to do so in the
future.

Source of Strength; Cross-Guarantee.In accordance with Federal Reserve policy, the Company is expected to act as a source
of financial strength to the Bank and to commit resources to support the Bank in circumstances in which the Company might not otherwise do so. Under the BHCA, the Federal Reserve may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserves determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institutions financial condition. If the Company controlled two or more banks (which it does not), each bank may be required to indemnify, or cross-guarantee, the FDIC against losses it incurs were another of
the bank subsidiaries to fail. Such arrangement would in effect make a bank holding companys equity investments in healthy bank subsidiaries available to the FDIC to assist any failing or failed bank subsidiary of each holding
company.

The Bank

General.The Bank is a
Georgia-chartered bank, and its deposits are insured by the FDIC to the extent provided by law. It is not a member of the Federal Reserve System. The Georgia Department of Banking and Finance (the Department) and the FDIC are the primary
regulators for the Bank. These regulatory authorities regulate or monitor all areas of the Banks operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff
training to carry on safe lending and deposit gathering practices. The Bank must maintain certain capital ratios and is subject to limitations on aggregate investments in real estate, bank premises, and furniture and fixtures.

All insured institutions must undergo regular on-site examination by their appropriate banking agency. The cost of examinations of insured depository institutions and any
affiliates may be assessed by the appropriate agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit periodic reports to the FDIC and the appropriate state supervisor when
applicable.

Transactions With Affiliates and Insiders. The Bank is subject to limitations on the amount of loans or extensions of
credit to, or investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. The Bank may not engage in certain transactions with
affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those

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prevailing at the time for comparable transactions with non-affiliated companies. The Bank is subject to certain restrictions on extensions of credit to
executive officers, directors, certain principal stockholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features.

Branching. In addition to the main office, the Bank currently has three branches in Richmond County and three branches in Columbia County. Under current Georgia law, banks may establish branches throughout the state.
The Company, with prior regulatory approval, may also acquire an interest in and operate banks throughout the State of Georgia. There are currently no definitive plans for the Company to make any such acquisition, but the Company remains open to
such acquisitions as part of its strategic growth plan.

The Company may also acquire banks or bank holding companies located in other states, subject to
certain deposit-percentage, aging requirements and other restrictions. Subject to similar restrictions, the Bank may likewise merge with or acquire banks located in other states, and if permissible under state law, may enter other states throughde novobranches. Out-of-state bank holding companies and banks may engage in similar transactions in Georgia, although Georgia law does not permit acquisitions or mergers involving banks less than five
years old or the initial entry into Georgia throughde novobranching or the acquisition of less than all of a bank. Once in the state, however, Georgia law permits out-of-state institutions to expand
throughout the state on the same basis as the Company and the Bank.

Community Reinvestment Act. The Community Reinvestment Act
requires that, each insured depository institution shall be evaluated by its primary federal regulator with respect to its record in meeting the credit needs of its local community, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. The Bank received a satisfactory rating in its most recent
evaluation.

Other Statutes and Regulations.The operations of the Bank are subject to a myriad of federal and state statutes, many
of which are specifically designed to protect individual customers of the Bank. These include statutes requiring accurate disclosure of interest rates, terms and conditions of loans and deposits, prohibiting discrimination in lending, the collection
of indebtedness and other similar matters. The Bank is also required to make reports of certain large or suspicious transactions to state and federal regulators. GLB requires the Bank to safeguard personal information it obtains from its individual
customers and to adopt and disclose policies regarding the sharing of personal information it obtains with third parties.

On October 26, 2001, the Uniting
and Strengthening America by providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, was signed into law. Among the provisions applicable to financial institutions, the act calls for the issuance of new
know your customer requirements that will obligate financial institutions to take actions to verify the identity of the account holders in connection with the opening of an account at any U.S. financial institution. Banking regulators
may consider a financial institutions

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compliance with the acts money laundering provisions in making decisions regarding approval of acquisitions and mergers. In addition, the law gives the
regulatory authorities the ability to impose sanctions for violations of the act.

Federal and state laws affect the ability of the Bank
and the Company to establish and to close branch offices, to engage in new activities, to invest funds and, under certain circumstances, to accept brokered deposits. These restrictions may affect the ability of the Company and the Bank to respond to
changes in market or economic conditions. There are numerous proposals pending for changes in state and federal laws and regulations that may substantially impact the business and operations of the Company and the Bank.

Enforcement Policies and Actions

The FDIC and other state and federal depository institution
regulators monitor compliance with laws, rules and regulations. In the event the Company or the Bank violates a law, rule or regulation, or engages in unsafe or unsound practices, the regulators are authorized to impose fines or penalties, require
that the institution cease and desist from certain activities or use other enforcement powers. Under certain circumstances, the agencies may enforce these remedies directly against officers, directors, employees or others participating in the
affairs of a bank or bank holding company.

Deposit Insurance

The deposits of
the Bank are currently insured to a maximum of $100,000 per depositor, subject to certain aggregation rules. The FDIC assesses premiums against federally insured banks and thrifts for deposit insurance. Separate insurance funds, the Bank Insurance
Fund (BIF) and the Savings Association Insurance Fund (SAIF), are maintained for commercial banks and thrifts, respectively, with insurance premiums from the industry used to offset losses from insurance payouts when banks and thrifts fail. The Bank
is a member of the BIF.

Because of the current level of reserves in the BIF, and as the Banks risk classification is the lowest allowable, the Bank was
not required to pay an assessment for deposit insurance in 2001 and 2002. It is possible, given the recent number of bank failures and the growth of insured deposits among BIF-member banks, that deposit insurance assessments may be levied against
the Bank in the near future. The Bank does pay an assessment to the FDIC for the Financing Corporation (FICO) bonds issued as a result of the thrift crisis of the late 1980s and early 1990s. This premium is adjusted quarterly, with the
annual rate being set at $1.68 per $100 of insured deposits for the first quarter of 2003. This assessment is subject to change. Any increase in deposit insurance premiums (or related assessments such as the FICO obligation) for the Bank will
increase its cost of funds, and there can be no assurance that such cost can be passed on to the Banks customers.

Dividends

The principal source of the Companys cash revenues comes from dividends received from the Bank. The amount of dividends that may be paid by the Bank to the Company depends on the Banks
earnings and capital position and is limited by federal and state law, regulations, and

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policies. In addition, the Federal Reserve has stated that bank holding companies should refrain from or limit dividend increases or reduce or eliminate
dividends under circumstances in which the bank holding company fails to meet minimum capital requirements or in which its earnings are impaired.

Cash
dividends on the Banks common stock may be declared and paid only out of its retained earnings, and dividends may not be declared at any time at which the Banks paid-in capital and appropriated retained earnings do not, in combination,
equal at least 20% of its capital stock account. In addition, the Departments current rules and regulations require prior Department approval before cash dividends may be declared and paid if: (i) the Banks ratio of equity capital to
adjusted total assets is less than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that calendar year exceeds 50% of the Banks net profits, after taxes but before dividends, for the previous calendar year;
or (iii) the percentage of the Banks assets classified as adverse as to repayment or recovery by the Department at the most recent examination of the Bank exceeds 80% of the Banks equity capital as reflected at such examination. The Bank
is also prohibited from paying a cash dividend if, after paying the dividend, the Bank would be undercapitalized. See Capital Regulations below.

No cash dividends were declared in 2002 or 2001. The Company paid a 15% stock dividend on August 31, 2001.

Capital Regulations

The federal bank regulatory authorities have two sets of capital guidelines for banks and bank holding companies, a leverage test (measuring capital against assets) and a
risk-based test (measuring capital against risk-weighted assets and off-balance sheet items). The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs
should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimums. The current guidelines require all bank holding companies and federally regulated banks to maintain a ratio of total capital to
risk-weighted assets of not less than 8%, of which at least 4% must be Tier 1 capital, and meet a minimum leverage ratio of Tier 1 capital to assets of not less than 3%. For the purposes of these tests, Tier 1 capital includes common stockholders
equity, qualifying perpetual preferred stock, and minority interest in equity accounts of consolidated subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments, subordinated debt and intermediate term preferred stock, and general allowances for loan and lease losses up to 1.25% of
risk-weighted assets. Under the risk-based test, assets and off-balance sheet items are allocated certain percentages, reflecting perceived risks, ranging from 0% for U.S. government obligations, to 100% for most loans. Both the Company and the Bank
exceeded their respective regulatory capital requirements at December 31, 2002. See Managements Discussion and Analysis of Financial Condition and Results of Operations - Capital.

Provisions of federal law set forth a capital-based regulatory scheme designed to promote early intervention for troubled banks and requires the FDIC to choose the least expensive
resolution

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of bank failures. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements, including
well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. To qualify as a well-capitalized institution, a bank
must have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less than 6%, and a total risk-based capital ratio of no less than 10%, and the bank must not be under any order or directive from the appropriate regulatory agency to
meet and maintain a specific capital level. As of December 31, 2002, the Company and the Bank were qualified as well-capitalized.

Were the Company
or the Bank to be less than well-capitalized, they would fall under a series of increasing regulatory restrictions. Institutions that fall into one of the three undercapitalized categories may be required to (i) submit a capital restoration plan;
(ii) raise additional capital; (iii) restrict their growth, deposit interest rates, and other activities; (iv) improve their management; (v) eliminate management fees; or (vi) divest themselves of all or a part of their operations. Bank holding
companies controlling financial institutions can be called upon to boost the institutions capital and to partially guarantee the institutions performance under their capital restoration plans. The Company believes it important to remain
well-capitalized and avoid the imposition of such restrictions.

The federal banking regulators continue to refine the risk-based capital standards to take
into consideration various risks that may not be adequately addressed in the current framework. It is uncertain what effect these regulations, when implemented, would have on the Company and the Bank.

Fiscal and Monetary Policy

The earnings of the Bank depend in significant part on the difference between the interest
paid by the Bank on its deposits and its other borrowings and the interest received by the Bank on its loans, securities holdings, and the gain on sale of mortgage loans in the secondary market. Thus, the earnings and growth of the Company and the
Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The Federal Reserve conducts open
market dealings in U.S. government securities, and establishes certain interest rates and reserve requirements, all of which directly impact the operating results of the Bank. The conditions in the national and international economies and money
markets, as well as the actions and changes in policy by monetary and fiscal authorities, and their effect on the Company and the Bank cannot be predicted.

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Item 2.Description of Property

The Company currently
operates a main office, six branches and an operations center housed in a series of buildings adjacent to the main office. The principal administrative offices of the Company are located at 3530 Wheeler Road, Augusta, Georgia. The main office and
three branch offices are located in Augusta, Georgia, two branches are located in Martinez, Georgia and one branch is located in Evans, Georgia.

With the
exception of the Washington Road branch, each banking office is a brick building of Georgian architecture with a teller line, customer service area, offices for the Banks lenders, drive-in teller lanes, a vault with safe deposit boxes, and a
walk-up or drive-up automated teller machine. The banking offices are generally 3,000 to 5,000 square foot buildings except for the main office and the Washington Road branch. The main office contains approximately 14,000 square feet of space. The
Washington Road branch contains 1,800 square feet and was converted into a drive through only bank in May 2001 when the new Furys Ferry branch located in close proximity was opened. The new Furys Ferry branch is a 3,500 square feet, full-service
banking office on Furys Ferry Road in Columbia County.

In 1997, the Company acquired 24,000 square feet of commercial office space located at 3515 Wheeler
Road, across the street from the main office. The Company renovated 17,000 square feet of this newly acquired space to be utilized for a consolidation of all operational functions, including data processing, deposit operations, human resources, loan
operations, security, credit administration, audit and accounting. The objective of the Company in acquiring this property and planning the renovation was to provide adequate space for existing operations and to meet future requirements necessitated
by growth of the Company. Renovations were completed in June 1998 and operational functions were relocated. In June 2000, the mortgage operations were moved to this Operations Complex, and occupied 4,500 square feet. In August 2001, with the
expiration of a 3,000 square foot tenant lease, the mortgage department expanded operations and now occupies a total of 6,000 square feet. The remaining 1,500 square feet continue to be leased as commercial office space to an existing tenant.

In November 2002, the Bank purchased approximately 23,400 square feet of commercial office space on Walton Way Ext., located in close proximity to the
Operations Complex and Main Office. Approximately 12,500 square feet will be renovated in 2003 to accommodate operational functions. Approximately 3,500 square feet of this property is leased until late 2003. All properties owned by the Company are
adequately covered by the appropriate insurance for replacement value.

The Companys automated teller machine network includes four drive-up machines
located in major retail shopping areas in addition to those located in all branch offices.

See Note 5 to the Consolidated Financial Statements for additional
information concerning the Banks premises and equipment and Note 7 to the Consolidated Financial Statements for additional information concerning the Banks commitments under various equipment leases.

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##### Table of Contents

Item 3.Legal Proceedings

In the ordinary course of
business, the Company and the Bank are parties to various legal proceedings. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, there is no proceeding pending or, to the
knowledge of management, threatened in which an adverse decision would result in a material adverse change to the consolidated results of operations or financial condition of the Company and the Bank.

Item 4.Submission of Matters to a Vote of
Shareholders

There were no matters submitted to a vote of the shareholders of the Company during the fourth quarter of the Companys fiscal year
ended December 31, 2002.

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##### Table of Contents

PART II

Item
5.Market for the Companys Common Equity and Related Stockholder Matters

As of March 17, 2003, there were approximately 742 holders of record of the Companys common stock. As of March 17, 2003, there were 2,385,280 shares of the Companys common stock issued
and outstanding. Transactions in the Companys common stock are generally negotiated through UBS PaineWebber and SunTrust Robinson-Humphrey Company, Inc. via the over-the-counter bulletin board both firms make a market in the common stock of
the Company. The following table reflects the range of high and low bid quotations in the Companys common stock for the past two years:

Georgia Bank
Financial Corporation Stock Price



|Quarter ended      |  |    | Low |     | High |   
|------------------ |  | -- | --- | --- | ---- | --
|                   |  |    |     |     |      |   
|March 31, 2001     |  | $  | 24  |     | $    | 28
|June 30, 2001      |  | 29 | 1/2 | 31  |     
|September 30, 2001 |  | 28 | 1/2 | 32  |     
|December 31, 2001  |  | 31 |     | 33  | 1/2 
|                   |  |    |     |     |     
|March 31, 2002     |  | 33 |     | 35  |     
|June 30, 2002      |  | 36 |     | 42  |     
|September 30, 2002 |  | 36 | 3/4 | 44  | 1/2 
|December 31, 2002  |  | 38 |     | 44  |     
|                   |  |    |     |     |     
|Period ended       |  |    |     |     |     
|March 10, 2003     |  |    | 43  | 1/2 |      | 44

No cash dividends were paid on the common
stock of the Company in 2002, and the Company does not presently plan to pay such dividends in 2003. The Company currently has no source of income other than dividends and other payments received from the Bank. The amount of dividends that may be
paid by the Bank to the Company depends upon the Banks earnings and capital position and is limited by federal and state law, regulations and policies.

Cash dividends on the Banks common stock may be declared and paid only out of its retained earnings, and dividends may not be declared at any time when the Banks paid-in capital and appropriated earnings do not, in combination,
equal at least 20% of its capital stock account. In addition, the Georgia Department of Banking and Finances current rules and regulations require prior approval before cash dividends may be declared and paid if: (1) the Banks ratio of
equity capital to adjusted total assets is less than 6%; (ii) the aggregate amount of dividends declared or anticipated to be declared in that calendar year exceeds 50% of the Banks net profits, after taxes but before dividends, for the
previous calendar year; or (iii) the percentage of the Banks loans classified as adverse as to repayment or recovery by the Georgia Department of Banking and Finance at the most recent examination of the Bank exceeds 80% of the Banks
equity as reflected at such examination.

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##### Table of Contents

The following table provides information regarding compensation plans under which equity securities of the Company are authorized for
issuance. All data is presented as of December 31, 2002.



|                                                           |  | Equity Compensation Plan Table                                                              | 
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | 
|                                                           |  |                                                                                             | 
|                                                           |  | (a)                                                                                         | 
|                                                           |  |                                                                                             | 
|Plan Category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights | 
|Equity compensation plans approved by security holders     |  | 56,700                                                                                      | 
|Equity compensation plans not approved by security holders |  |                                                                                             | 
|                                                           |  |                                                                                             | 
|Total                                                      |  | 56,700                                                                                      | 
|                                                           |  |                                                                                             | 

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##### Table of Contents

Item 6.Selected Consolidated Financial Data



|                                                                 |  | 2002                                          |           | 2001    |   | 2000      |   | 1999    |           | 1998    |  
|---------------------------------------------------------------- |  | --------------------------------------------- | --------- | ------- | - | --------- | - | ------- | --------- | ------- | -
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  | (Dollars in thousands, except per share data) |          
|Earnings                                                         |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Total interest income                                            |  | $                                             | 31,370    |         | $ | 32,561    |   | $       | 29,863    |         | $
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Total interest expense                                           |  | 11,160                                        |           | 15,249  |   | 14,670    |   | 10,981  |           | 9,819   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Net interest income                                              |  | 20,210                                        |           | 17,312  |   | 15,193    |   | 13,186  |           | 11,681  |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Provision for loan losses                                        |  | 2,414                                         |           | 1,825   |   | 1,063     |   | 1,314   |           | 875     |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Noninterest income                                               |  | 11,436                                        |           | 7,829   |   | 4,199     |   | 5,148   |           | 3,614   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Noninterest expense                                              |  | 20,126                                        |           | 16,654  |   | 12,422    |   | 11,226  |           | 9,935   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Net income                                                       |  | 6,010                                         |           | 4,561   |   | 4,002     |   | 3,970   |           | 2,915   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Per Share Data                                                   |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Net income - Diluted                                             |  | $                                             | 2.51      |         | $ | 1.91      |   | $       | 1.67      |         | $
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Book value                                                       |  | 19.50                                         |           | 16.74   |   | 14.34     |   | 12.43   |           | 11.93   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Weighted average common and common equivalent shares outstanding |  |                                               | 2,397,613 |         |   | 2,389,149 |   |         | 2,398,260 |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Selected Average Balances                                        |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Assets                                                           |  | $                                             | 526,337   |         | $ | 449,322   |   | $       | 372,233   |         | $
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Loans (net of unearned income)                                   |  | 363,624                                       |           | 315,003 |   | 261,869   |   | 225,244 |           | 189,369 |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Deposits                                                         |  | 403,992                                       |           | 348,706 |   | 299,548   |   | 269,411 |           | 232,487 |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Stockholders equity                                             |  | 43,090                                        |           | 37,405  |   | 31,805    |   | 29,458  |           | 25,864  |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Selected Year-End Balances                                       |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Assets                                                           |  | $                                             | 569,832   |         | $ | 481,544   |   | $       | 405,791   |         | $
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Loans (net of unearned income)                                   |  | 396,699                                       |           | 339,670 |   | 283,573   |   | 239,032 |           | 208,967 |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Allowance for loan losses                                        |  | 6,534                                         |           | 5,109   |   | 4,143     |   | 3,592   |           | 2,715   |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Deposits                                                         |  | 439,557                                       |           | 369,149 |   | 310,928   |   | 283,121 |           | 251,505 |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Other borrowings                                                 |  | 78,988                                        |           | 68,456  |   | 57,046    |   | 27,331  |           | 12,614  |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Stockholders equity                                             |  | 46,748                                        |           | 39,999  |   | 34,384    |   | 29,817  |           | 28,627  |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Selected Ratios                                                  |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Return on average total assets                                   |  | 1.14                                          | %         | 1.02    | % | 1.08      | % | 1.21    | %         | 1.06    | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Return on average equity                                         |  | 13.95                                         | %         | 12.19   | % | 12.58     | % | 13.48   | %         | 11.27   | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Average earning assets to average total assets                   |  | 94.86                                         | %         | 93.38   | % | 93.71     | % | 92.27   | %         | 91.47   | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Average loans to average deposits                                |  | 90.01                                         | %         | 90.33   | % | 87.72     | % | 83.61   | %         | 81.45   | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Average equity to average total assets                           |  | 8.19                                          | %         | 8.32    | % | 8.56      | % | 9.83    | %         | 9.38    | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Net interest margin                                              |  | 4.04                                          | %         | 4.13    | % | 4.36      | % | 4.40    | %         | 4.64    | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Operating efficiency                                             |  | 64.02                                         | %         | 66.42   | % | 63.92     | % | 63.90   | %         | 65.20   | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Net charge-offs to average loans                                 |  | 0.27                                          | %         | 0.27    | % | 0.20      | % | 0.19    | %         | 0.14    | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Allowance for loan losses to net loans (year-end)                |  | 1.65                                          | %         | 1.50    | % | 1.46      | % | 1.50    | %         | 1.30    | %
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Risk-based capital                                               |  |                                               |           |         |   |           |   |         |           |         |  
|                                                                 |  |                                               |           |         |   |           |   |         |           |         |  
|Tier 1 capital                                                   |  | 10.15                                         | %         | 10.05   | % | 11.09     | % | 11.42   | %         | 11.43   | %

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##### Table of Contents

Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion is to focus on significant changes in the financial condition and results of operations of the Company and the Bank during the past three years. The discussion and
analysis is intended to supplement and highlight information contained in the accompanying consolidated financial statements and related notes to the consolidated financial statements.

Critical Accounting Policies

The accounting and financial reporting policies of Georgia Bank Financial Corporation and
subsidiary conform to generally accepted accounting principles and to general practices within the banking industry. Of these policies, management has identified the allowance for loan losses as a critical accounting policy that requires difficult
subjective judgment and is important to the presentation of the financial condition and results of operations of the Company.

The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the
allowance. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectibility of loans. The evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrowers ability to repay.

The Company segments its allowance for loan losses into the following five major categories: 1) identified losses for impaired loans; 2) general reserves for
Classified/Watch loans; 3) general reserves for loans with satisfactory ratings; 4) general reserves based on economic and market risk qualitative factors, and 5) an unallocated amount. Risk ratings are initially assigned in accordance with the
Banks loan and collection policy. An organizationally independent department reviews grade assignments on an ongoing basis. Management reviews current information and events regarding a borrowers financial condition and strengths, cash
flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual loan, management
classifies the loan accordingly. If the loan is determined to be impaired, management allocates a portion of the allowance for loan losses for that loan based upon the present value of future cash flows discounted at the loans effective
interest rate or the fair value of the collateral as the measure for the amount of the impairment. Impairment losses are included in the allowance for loan losses through a charge to the provision for losses on loans. Subsequent recoveries are added
to the allowance for loan losses. Cash receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are
applied first to principal and then to interest income. Impaired and Classified/Watch loans are aggressively monitored. The reserves for loans rated satisfactory are further subdivided into various types of loans as defined by call report codes. The
unallocated

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##### Table of Contents

component of the reserve decreased $648,000 in 2002 as the Company developed specific qualitative factors to apply to each individual component of the
reserve. These qualitative factors are based upon economic, market and industry conditions that are specific to the Companys local two county markets. These qualitative factors include, but are not limited to, national and local economic
conditions, bankruptcy trends, unemployment trends, loan concentrations, dependency upon government installations and facilities, and competitive factors in the local market. These allocations for the qualitative factors are included in the various
individual components of the allowance for loan losses. The qualitative factors are subjective in nature and require considerable judgment on the part of the Banks management. However, it is the Banks opinion that these factors do
represent uncertainties in the Banks business environment that must be factored into the Banks analysis of the allowance for loan losses. The Bank is committed to developing more historical data in the future to reduce the dependence on
these qualitative factors. The unallocated component of the allowance is established for losses that specifically exist in the remainder of the portfolio, but have yet to be identified.

Management believes that the allowance for loan losses is adequate. While the Company has 73.35% of its loan portfolio secured by real estate loans, this percentage is not significantly higher than in previous years.
Commercial real estate comprises 28.23 % of the loan portfolio and is primarily owner occupied properties where the operations of the commercial entity provide the necessary cash flow to service the debt. For this portion of real estate loans,
repayment is not dependent upon liquidation of the real estate. Construction and development (20.04%) has been an increasingly important portion of the real estate loan portfolio. The Company carefully monitors the loans in this category since the
repayment of these loans is generally dependent upon the liquidation of the real estate and is impacted by national and local economic conditions. The residential category represents those loans that Company chooses to maintain in its portfolio
rather than selling into the secondary market for marketing and competitive reasons. The residential held for sale comprises loans that are in the process of being sold into the secondary market. The credit has been approved by the investor and the
interest rate locked so the Company takes no credit or interest rate risk with respect to these loans. The Company has no large loan concentrations to individual borrowers or industries. Only 12.58% of the Companys portfolio consists of
consumer loans. Unsecured loans at December 31, 2002 were $8.5 million. While management uses available information to recognize losses on loans, future additions to the allowance 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 Banks allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.

Please see Provision for Loan Losses, Net Charge-offs, Non-Performing
Assets and Allowance for Loan Losses for a further discussion of the Companys loans, loss experience, and methodology in determining the allowance.

Overview

As a result of the mortgage operations expansion in 2000 and 2001 and the decrease in the interest rates during 2002, the Company
experienced an increase in the volume of loans

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##### Table of Contents

originated for sale and the resulting gain on sale of mortgage loans in the secondary market of $2.0 million over 2001. The Company continued conversion of
its core computer system through implementation of additional modules and continued to place special emphasis on quality asset growth and expense control to drive the improved earnings performance. Asset growth was achieved as total assets increased
$88.3 million (or 18.3%) in 2002 compared to 2001. Despite the expenses associated with the new branch and the continued expansion of the mortgage and trust operations, the Company continues to make improvements in expense controls. In 2002, the
Company implemented responsibility center budgeting to monitor expenses. The operating efficiency ratio of 64.02% in 2002 is a decrease of 2.4% from 2001, which is a reflection of the established mortgage, trust, and Furys Ferry branch operations,
as well as additional monitoring of expenses.

Results of Operations

The
Company had record net income of $6,010,000 in 2002, compared to $4,561,000 in 2001, an increase of $1.4 million or 31.8%.

The increase in net income during
2002 compared to 2001 resulted from an increased level of noninterest income and a decrease in interest expense somewhat offset by a decrease in interest income and an increase in noninterest expense. Net interest income increased $2.9 million
(16.7%) in 2002 on a net interest margin of 4.04%, a decrease from 4.13% in 2001. The increase in net interest income was the result of higher levels of interest earning assets somewhat offset by decreases in the prime rate. Noninterest income
increased $3.6 million (46.1%) in 2002 to $11.4 million compared to $7.8 million in 2001. The increase for 2002 resulted primarily from an increase in the gain on sale of mortgage loans in the secondary market of $2.0 million, due primarily to the
declining interest rate environment and the expanded mortgage department, as well as an increase in service charges and fees on deposits of $1.4 million, due to the Bounce Overdraft Protection program that started in October 2001.

The earnings performance of the Company is reflected in a return on average assets and average equity of 1.14% and 13.95%, respectively, during 2002 compared to 1.02% and
12.19%, respectively, during 2001. The return on average assets and average equity was 1.08% and 12.58%, respectively, in 2000. Basic net income per share on weighted average common shares outstanding improved to $2.52 in 2002 compared to $1.91 in
2001 and $1.67 in 2000. Diluted net income per share on weighted average common and common equivalent shares outstanding improved to $2.51 in 2002 compared to $1.91 in 2001 and $1.67 in 2000. The Companys average equity to average asset ratio
decreased to 8.19% in 2002 compared to 8.32% in 2001. The average equity to average asset ratio was 8.56% in 2000. A 15% stock dividend was paid by the Company on August 31, 2001.

The improvement in the earnings of the Company represents the continued leveraging of its investment in additional branch offices in prior and current years. The offices are continuing to generate higher levels of
interest earning assets and deposits. Also, the Company has continued to add services and products, such as Trust services, expanded mortgage operations, and the Bounce Overdraft Protection product.

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Net Interest Income

The primary source of earnings for the
Company is net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and interest expense incurred on interest-bearing sources of funds, such as deposits and borrowings. The
following table shows the average balances of interest-earning assets and interest-bearing liabilities, average yields earned and rates paid on those respective balances, and the resulting interest income and interest expense for the periods
indicated:

Average Balances, Income and Expenses, Yields and Rates



|                                                                     |  | Year Ended December 31, 2002 |         | Year Ended December 31, 2001 |      | Year Ended December 31, 2000 |       
|-------------------------------------------------------------------- |  | ---------------------------- | ------- | ---------------------------- | ---- | ---------------------------- | ------
|                                                                     |  |                              |         |                              |      |                              |       
|                                                                     |  | AverageAmount                |         | AverageYield orRate          |      | AmountPaid orEarned          |       
|                                                                     |  |                              |         |                              |      |                              |       
|                                                                     |  | (Dollars in thousands)       |        
|                                                                     |  |                              |         |                              |      |                              |       
|ASSETS                                                               |  |                              |         |                              |      |                              |       
|Interest-earning assets:                                             |  |                              |         |                              |      |                              |       
|Loans                                                                |  | $                            | 363,624 |                              | 6.75 | %                            | $     
|Investments                                                          |  |                              |         |                              |      |                              |       
|Taxable                                                              |  | 118,340                      |         | 5.32                         | %    | 6,291                        |       
|Tax-exempt                                                           |  | 9,035                        |         | 4.41                         | %    | 398                          |       
|Federal funds sold                                                   |  | 7,761                        |         | 1.61                         | %    | 125                          |       
|Interest-bearing deposits in other banks                             |  | 517                          |         | 3.29                         | %    | 17                           |       
|                                                                     |  |                              |         |                              |      |                              |       
|Total interest-earning assets                                        |  | 499,277                      |         | 6.28                         | %    | $                            | 31,370
|                                                                     |  |                              |         |                              |      |                              |       
|Cash and due from banks                                              |  | 12,063                       |         |                              |      |                              |       
|Premises and equipment                                               |  | 12,694                       |         |                              |      |                              |       
|Other                                                                |  | 8,083                        |         |                              |      |                              |       
|Allowance for loan losses                                            |  | (5,780                       | )       |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|Total assets                                                         |  | $                            | 526,337 |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                 |  |                              |         |                              |      |                              |       
|Interest-bearing liabilities:                                        |  |                              |         |                              |      |                              |       
|NOW accounts                                                         |  | $                            | 56,911  |                              | 0.94 | %                            | $     
|Savings and money management accounts                                |  | 167,556                      |         | 2.26                         | %    | 3,780                        |       
|Time deposits                                                        |  | 119,017                      |         | 3.61                         | %    | 4,295                        |       
|Federal funds purchased/ securities sold under repurchase agreements |  | 40,048                       |         | 1.60                         | %    | 640                          |       
|Other borrowings                                                     |  | 34,648                       |         | 5.51                         | %    | 1,910                        |       
|                                                                     |  |                              |         |                              |      |                              |       
|Total interest-bearing liabilities                                   |  | 418,180                      |         | 2.67                         | %    | 11,160                       |       
|                                                                     |  |                              |         |                              |      |                              |       
|Noninterest-bearing demand deposits                                  |  | 60,508                       |         |                              |      |                              |       
|Other liabilities                                                    |  | 4,559                        |         |                              |      |                              |       
|Stockholders equity                                                 |  | 43,090                       |         |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|Total liabilities and stockholders equity                           |  | $                            | 526,337 |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|                                                                     |  |                              |         |                              |      |                              |       
|Net interest spread                                                  |  |                              |         | 3.61                         | %    |                              |       
|Benefit of noninterest sources                                       |  |                              |         | 0.43                         | %    |                              |       
|Net interest margin/income                                           |  |                              |         |                              | 4.04 | %                            | $     
|                                                                     |  |                              |         |                              |      |                              |       

Average total assets for 2002 were $526.3 million, a
17.1% increase over 2001. Average interest earning assets for 2002 were $499.3 million which was 94.9% of average total assets. The increase in average loans of $48.6 million and the increase in average investments of $31.1

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million were funded by increases in average deposits of $55.3 million, securities sold under repurchase agreements of $13.1 million, and Federal Home Loan
Bank borrowings of $2.5 million. For 2001, average total assets were $449.3 million, a 20.9% increase over 2000. Average interest earning assets for 2001 were $419.6 million, or 93.4% of average total assets.

Interest income is the largest contributor to income. Interest income on loans decreased $1.8 million from 2001 to $24.5 million. The decrease in loan interest income resulted from the lower interest
rate environment despite the higher loan volume. This decrease in loan interest income was somewhat offset by an increase in investment income due to the large increase in investment volume although investment yields were lower in 2002 as compared
to 2001. Interest expense decreased $4.1 million from 2001 to $11.2 million in 2002. Despite higher volumes of interest-bearing liabilities, interest expense decreased due to lower interest rates. The result was an increase in net interest income of
$2.9 million or 16.7% in 2002 from 2001. Average yields on interest-earning assets decreased to 6.28% in 2002, compared to 7.76% in 2001.

Net interest income
increased $2.1 million in 2001 compared to 2000 as a result of the growth in the volume of average earning assets somewhat offset by a decrease in interest rates. Interest earning assets averaged $419.6 million in 2001, an increase of 20.3%, from
the $348.8 million averaged in 2000. Average yields on earning assets decreased to 7.76% in 2001, compared to 8.56% in 2000.

A key performance measure for
net interest income is the net interest margin, or net interest income divided by average interest-earning assets. Unlike the net interest spread, the net interest margin is affected by the level of non-interest sources of
funding used to support interest-earning assets. The Companys net interest margin decreased to 4.04% in 2002 from 4.13% in 2001. In 2000, the net interest margin was 4.36%. The net interest margin deteriorated in 2002, as the average rate
earned on interest earning assets decreased quicker than the average rate on interest-bearing deposits. In 2001, the net margin deteriorated as certificates of deposits repriced at a slower rate than variable rate loans and deposits. The high level
of competition in the local market for both loans and deposits continues to influence the net interest margin. The net interest margin continues to be supported by an increasing amount of demand deposits which provide a noninterest bearing source of
funds and helps prevent further deterioration in the net interest margin. The net interest spread measures the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing sources of funds. The net
interest spread eliminates the impact of noninterest bearing funds and gives a direct perspective on the effect of market interest rate movements. As a result of changes in interest rates in 2002, the net interest spread increased 14 basis points to
3.61% in 2002. The 2001 net interest spread of 3.47% represented a decrease from 2000s 3.48%.

Changes in the net interest income from period to period
result from increases or decreases in the volume of interest-earning assets and interest-bearing liabilities, increases in the average rates earned and paid on such assets and liabilities, the ability to manage the earning asset portfolio, and the
availability of particular sources of funds, such as noninterest bearing deposits. The following table: Analysis of Changes in Net Interest Income indicates the changes in the Companys net interest income as a result of changes in
volume and rate from 2002 to 2001, and 2001 to 2000. The analysis of changes in net interest income included in the

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following table indicates that on an overall basis in 2002, the increase in the balances or volumes created a positive impact in net income while the
decreases in interest rates of interest-earning assets created a negative impact on net interest income. The increases in the balances or volume of the interest-bearing liabilities were somewhat offset by the decrease in interest rates. Prime
savings and money market accounts are tied to the prime rate. Also in 2001 and 2000, the volume of interest-earning assets had a positive impact on the net interest income while decreases in interest rates had a negative impact on interest income.

Analysis of Changes in Net Interest Income



|                                                                      |  | 2002 vs. 2001Increase (Decrease) |       | 2001 vs. 2000Increase (Decrease) |        
|--------------------------------------------------------------------- |  | -------------------------------- | ----- | -------------------------------- | -------
|                                                                      |  |                                  |       |                                  |        
|                                                                      |  | AverageVolume                    |       | Rate                             |        
|                                                                      |  |                                  |       |                                  |        
|                                                                      |  | (Amounts in thousands)           |      
|Interest income from interest-earning assets:                         |  |                                  |       |                                  |        
|                                                                      |  |                                  |       |                                  |        
|Loans                                                                 |  | $                                | 4,053 |                                  | ($5,072
|Investments, taxable                                                  |  | 2,221                            |       | (885                             | )      
|Investments, tax-exempt                                               |  | (14                              | )     | (3                               | )      
|Federal funds sold                                                    |  | (141                             | )     | (273                             | )      
|Interest-bearing deposits in other banks                              |  | 0                                |       | (9                               | )      
|                                                                      |  |                                  |       |                                  |        
|Total                                                                 |  | $                                | 6,119 |                                  | ($6,242
|                                                                      |  |                                  |       |                                  |        
|                                                                      |  |                                  |       |                                  |        
|Interest expense on interest-bearing liabilities:                     |  |                                  |       |                                  |        
|                                                                      |  |                                  |       |                                  |        
|NOW accounts                                                          |  | $                                | 167   |                                  | ($187  
|Savings and money management accounts                                 |  | 1,359                            |       | (2,074                           | )      
|Time deposits                                                         |  | (81                              | )     | (2,732                           | )      
|Federal funds purchased/ securities sold under repurchase aggreements |  | 354                              |       | (296                             | )      
|Other borrowings                                                      |  | 165                              |       | (38                              | )      
|                                                                      |  |                                  |       |                                  |        
|Total                                                                 |  | $                                | 1,964 |                                  | ($5,327
|                                                                      |  |                                  |       |                                  |        
|Change in net interest income                                         |  |                                  |       |                                  |        
|                                                                      |  |                                  |       |                                  |        

The variances for each major category of
interest-earning assets and interest-bearing liabilities are attributable to (a) changes in volume (changes in volume times old rate), (b) changes in rate (changes in rate times old volume) and (c) changes in rate/volume (changes in rate times the
change in volume).

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##### Table of Contents

NonInterest Income

Noninterest income consists of revenues
generated from a broad range of financial services and activities, including service charges on deposit accounts, fee-based services, and products where commissions are earned through sales of products such as real estate mortgages, retail
investment services, trust services, and other activities. In addition, gains or losses realized from the sale of investment securities are included in noninterest income.

Noninterest income for 2002 was $11.4 million, an increase of $3.6 million or 46.1% from 2001. The increase is primarily attributable to a $2.0 million increase in the gain on sale of loans in the secondary mortgage
market. This $2.0 million increase is a product of the lower interest rates increasing both home purchases and mortgage refinancings, as well as the expanded mortgage operations in Augusta and Savannah, Georgia and Nashville, Tennessee. Service
charges and fees on deposits increased $1.4 million, primarily related to increases in NSF fees due to the Bounce Overdraft Protection program implemented in October 2001 and increases in service charges related to higher volumes of deposits. Trust
income increased $94,000 in 2002 compared to 2001 due to the second full year of operations. Investment security gains increased $138,000, retail investment income increased $46,000 due to increased volume, and miscellaneous income decreased $80,000
due to a conversion allowance from a check vendor in 2001, decreases in ATM surcharge income, and fees earned from an official check processing agreement slightly offset by an increase in credit card merchant fees.

Noninterest income for 2001 was $7.8 million, an increase of $3.6 million or 86.5% from 2000. The increase is primarily attributable to a $2.9 million increase in the gain on sale
of loans in the secondary mortgage market. This $2.9 million increase is a product of the lower interest rates increasing both home purchases and mortgage refinancings, as well as the expanded mortgage operations in Augusta and Savannah, Georgia and
Nashville, Tennessee in 2000 and 2001. Service charges and fees on deposits increased $552,000 in 2001, primarily related to increases in NSF fees due to the Bounce Overdraft Protection program implemented in October 2001 and increases in service
charges related to higher volumes of deposits. Trust income increased $115,000 in 2001 due to a full year of operations. The Trust department began offering services in March 2000. Investment security gains accounted for $110,000 of the
increase.

The following table presents the principal components of noninterest income for the last three years:

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Noninterest Income



|                                                           |  | Year EndedDecember 31, |       
|---------------------------------------------------------- |  | ---------------------- | ------
|                                                           |  |                        |       
|                                                           |  | 2002                   |       
|                                                           |  |                        |       
|                                                           |  | (Amounts in thousands) |       
|                                                           |  |                        |       
|Service charges on deposit accounts                        |  | $                      | 4,432 
|Gain on sale of loans                                      |  | 5,916                  |       
|Retail investment income                                   |  | 252                    |       
|Trust income                                               |  | 227                    |       
|Investment securities gains (losses)                       |  | 207                    |       
|Other                                                      |  | 402                    |       
|                                                           |  |                        |       
|Total noninterest income                                   |  | $                      | 11,436
|                                                           |  |                        |       
|                                                           |  |                        |       
|Noninterest income as a percentage of total average assets |  | 2.17                   | %     
|                                                           |  |                        |       
|Noninterest income as a percentage of total income         |  | 26.72                  | %     

Noninterest Expense

Noninterest expense totaled $20.1 million in 2002, an increase of 20.8% from 2001 noninterest expense of $16.7 million. Salaries and employee benefits account for $2.2 million of
this increase. The increase in salaries and employee benefits was the result of increases in mortgage commissions, additional employees in 2002 due to the Companys continued growth and expansion, an increase in the percentage contributed to
the 401K plan and the incentive compensation plan, as well as normal increases in salaries and benefits. Other operating expenses increased $1.2 million, an increase of 27.0% from 2001 primarily due to increases in professional fees, contributions,
loan costs, processing, and staff development.

Noninterest expense totaled $16.7 million in 2001, an increase of 34.1% from 2000 noninterest expense of $12.4
million. Salaries and employee benefits account for $3.0 million of this increase. The increase in salaries and employee benefits was the result of increases in mortgage commissions and additional employees in 2001 due to the Companys
continued growth and expansion, as well as normal increases in salaries and benefits. The increase in occupancy expense is due to increases in operating and depreciation expenses related to the Furys Ferry branch opening in May 2001, depreciation
expense on the new core computer system capitalized in May 2001, and increases in expenses to maintain facilities. Other operating expenses increased $1.0 million, an increase of 10.7% from 2000 primarily due to increases in processing, marketing
and business development, supplies and postage.

The Company has improved its ability to monitor expenditures in all organizational units by implementing more
specific cost accounting and reporting. In 2002, the Company has implemented a departmental budgeting system. In 2003, the Company will implement Customer, Product and Organization profitability systems. The implementation of these systems
emphasizes that management is committed to a continuing emphasis on expense control. The following table

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presents the principal components of noninterest expense for the years ended December 31, 2002, 2001 and 2000.

Noninterest Expense



|                                                            |  | Year EndedDecember 31, |       
|----------------------------------------------------------- |  | ---------------------- | ------
|                                                            |  |                        |       
|                                                            |  | 2002                   |       
|                                                            |  |                        |       
|                                                            |  | (Amounts in thousands) |       
|                                                            |  |                        |       
|Salaries and employee benefits                              |  | $                      | 12,446
|Occupancy expense                                           |  | 2,255                  |       
|Marketing & business development expense                    |  | 728                    |       
|Processing expense                                          |  | 946                    |       
|Legal and professional fees                                 |  | 579                    |       
|Supplies expense                                            |  | 410                    |       
|Other                                                       |  | 2,762                  |       
|                                                            |  |                        |       
|Total noninterest expense                                   |  | $                      | 20,126
|                                                            |  |                        |       
|                                                            |  |                        |       
|Noninterest expense as a percentage of total average assets |  | 3.82                   | %     
|                                                            |  |                        |       
|Operating efficiency ratio                                  |  | 64.02                  | %     

The Companys efficiency ratio (noninterest
expense as a percentage of net interest income and noninterest income, excluding gains and losses on the sale of investments) decreased to 64.02% in 2002 compared to 66.42% in 2001. In 2000, the efficiency ratio was 63.92%. The decrease in the
efficiency ratio in 2002 is due to the established mortgage, trust and Furys Ferry branch operations, as well as additional monitoring of expenses. The increase in the efficiency ratio in 2001 reflects the narrowing interest margin in a declining
rate environment coupled with additional operational expenses, associated with the mortgage, trust, and Furys Ferry branch expansions.

Income Taxes

Income tax expense increased $994,000 or 47.31% in 2002 from 2001, and increased $197,000 or 10.41% in 2001 from 2000. The effective tax rate as a percentage of pre-tax income was
34.0% in 2002, 31.5% in 2001, and 32.2% in 2000. The increase in the effective tax rate for 2002 as compared to 2001 is due to the decrease in tax-exempt interest income from securities and loans.

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Provision for Loan Losses, Net Charge-offs and Allowance for Loan Losses

The provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses. The allowance for loan losses represents a reserve for losses in the loan portfolio. The
Company has developed policies and procedures for evaluating the overall quality of its loan portfolio and the timely identification of problem credits. Management continues to review these policies and procedures and makes further improvements as
needed. The adequacy of the Companys allowance for loan losses and the effectiveness of the Companys internal policies and procedures are also reviewed periodically by the Companys regulators and the Companys internal loan
review personnel. The Companys regulators may require the Company to recognize additions to the allowance based upon their judgments about information available to them at the time of their examination.

The Companys Board of Directors, with the recommendation of management, approves the appropriate level for the allowance for loan losses based upon internal policies and procedures, historical
loan loss ratios, loan volume, size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, value of the collateral underlying the loans, specific problem loans and present or anticipated economic conditions
and trends. The Company continues to refine the methodology on which the level of the allowance for loan losses is based, by comparing historical loss ratios utilized to actual experience and by classifying loans for analysis based on similar risk
characteristics.

For significant problem loans, managements review consists of the evaluation of the financial condition and strengths of the borrower,
cash flows available for debt repayment, the related collateral supporting the loan and the effects of known and expected economic conditions. When the evaluation reflects a greater than normal risk associated with the individual problem loan,
management classifies the loan accordingly and allocates a portion of the allowance for loan losses for that loan based on the results of the evaluation described above plus the historical loss rates and regulatory guidance relating to classified
loans. The table below indicates those allowances allocated for loans classified as problem loans and the allocated general allowance for all non-classified loans according to loan type determined through the Companys comprehensive loan
methodology for the years indicated. The unallocated general allowance is based on managements evaluation at the balance sheet date of various conditions that are not directly measurable in determining the allocated allowance considering the
recognized uncertainty in estimating loan losses. These conditions include, but are not limited to, changes in interest rates; trends in volumes, credit concentrations and terms of loans in the portfolio; national and local economic conditions;
recent loss experience; and changes in lending policies and procedures. As reflected by the unallocated portion of the allowance, the adequacy of the Companys allowance for loan losses is evaluated on an overall portfolio basis. Because these
allocations are based upon estimates and subjective judgment, it is not necessarily indicative of the specific amounts or loan categories in which loan losses may occur.

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Allocation of the Allowance for Loan Losses



|                                    |  | December 31,           |      
|----------------------------------- |  | ---------------------- | -----
|                                    |  |                        |      
|                                    |  | 2002                   |      
|                                    |  |                        |      
|                                    |  | Amount                 |      
|                                    |  |                        |      
|                                    |  | (Amounts in thousands) |      
|Balance at End of Year              |  |                        |      
|Applicable to:                      |  |                        |      
|Commercial, financial, agricultural |  | $                      | 1,286
|Real estate-construction            |  | 1,187                  |      
|Real estate-mortgage                |  | 2,950                  |      
|Consumer loans to individuals       |  | 1,062                  |      
|Lease financing                     |  | 1                      |      
|Unallocated                         |  | 48                     |      
|                                    |  |                        |      
|                                    |  |                        |      
|Balance at end of year              |  | $                      | 6,534

(1)Percent of loans in each category to total loans

Additions to the allowance for loan losses, which are expensed on the Companys income statement as the provision for loan losses, are made periodically to maintain the allowance for loan losses at an appropriate level based
upon managements evaluation of the potential risk in the loan portfolio.

The Companys provision for loan losses in 2002 was $2,414,000, an
increase of $590,000 (32.3%) over the 2001 provision of $1,825,000. The provision for loan losses charged to earnings in 2000 was $1,063,000. The allocation of $3.0 million of the loan loss reserve to real estate-mortgage reflects the credit ratings
associated with these loans and the resulting higher reserve factor. The $648,000 decrease in the unallocated component of the loan loss reserve is due to allocations made to the loan components of the reserve based on qualitative factors. These
qualitative factors include, but are not limited to, national and local economic conditions, bankruptcy trends, unemployment trends, loan concentrations, dependency upon government installations and facilities, and competitive factors in the local
market. In 2002 and 2001, the Company made the decision to increase the provision for loan losses to provide a higher level of allowance for loan losses commensurate with the increasing risk in the Companys loan portfolio. This higher level
reflected managements overall evaluation of the loan portfolio and the significant growth of the loan portfolio.

The following table provides details
regarding charge-offs and recoveries by loan category during the most recent five year period, as well as supplemental information relating to both net loan losses, the provision and the allowance for loan losses during each of the past five years.
As the table indicates, net charge-offs for 2002 represented 0.27% of average loans outstanding, compared to 0.27% for 2001 and 0.20% for 2000. The Companys charge-off ratios continue to be below the average for the industry.

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|                                                                 |  | Allowances for Loan LossesAt December 31, |        
|---------------------------------------------------------------- |  | ----------------------------------------- | -------
|                                                                 |  |                                           |        
|                                                                 |  | 2002                                      |        
|                                                                 |  |                                           |        
|                                                                 |  | (Amounts in thousands)                    |        
|                                                                 |  |                                           |        
|Total loans outstanding at end of period, net of unearned income |  | $                                         | 396,699
|                                                                 |  |                                           |        
|                                                                 |  |                                           |        
|Average loans outstanding, net of unearned income                |  | $                                         | 363,624
|                                                                 |  |                                           |        
|                                                                 |  |                                           |        
|Balance of allowance for loan losses at beginning of year        |  | $                                         | 5,109  
|                                                                 |  |                                           |        
|Charge-offs:                                                     |  |                                           |        
|Commercial, financial and agricultural                           |  | 582                                       |        
|Real estate - construction                                       |  | 36                                        |        
|Real estate - mortgage                                           |  |                                          |        
|Consumer                                                         |  | 1,009                                     |        
|                                                                 |  |                                           |        
|Total charge-offs                                                |  | 1,627                                     |        
|                                                                 |  |                                           |        
|                                                                 |  |                                           |        
|Recoveries of previous loan losses:                              |  |                                           |        
|Commercial, financial and agricultural                           |  | 169                                       |        
|Real estate - construction                                       |  |                                          |        
|Real estate - mortgage                                           |  | 7                                         |        
|Consumer                                                         |  | 462                                       |        
|                                                                 |  |                                           |        
|Total recoveries                                                 |  | 638                                       |        
|                                                                 |  |                                           |        
|                                                                 |  |                                           |        
|Net loan losses                                                  |  | 989                                       |        
|                                                                 |  |                                           |        
|Provision for loan losses                                        |  | 2,414                                     |        
|Balance of allowance for loan losses at end of period            |  | 6,534                                     |        
|                                                                 |  |                                           |        
|                                                                 |  |                                           |        
|Allowance for loan losses to period end loans                    |  | 1.65                                      | %      
|Net charge-offs to average loans                                 |  | 0.27                                      | %      

At December 31, 2002, the allowance for loan losses
was 1.65% of outstanding loans, up from the 1.50% level at December 31, 2001 and the 1.46% level at December 31, 2000. The current economic environment has resulted in significantly higher levels of personal bankruptcy filings which translates into
higher levels of consumer loan losses than the bank has previously experienced. Management considers the allowance appropriate based upon its analysis of the potential risk in the portfolio using the methods previously discussed. Managements
judgment is based upon a number of assumptions about future events which are believed to be reasonable, but which may or may not prove correct. While it is the Companys policy to charge off in the current period the loans in which a loss is
considered probable, there are additional risks of future losses which cannot be quantified precisely or attributed to a particular loan or class of loans. Because these risks include present and forecasted economic conditions, managements
judgment as to the adequacy of the allowance is necessarily approximate and imprecise. Thus,

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there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the allowance will
not be required.

Financial Condition

Composition of the Loan Portfolio

Loans are the primary component of the Companys interest earning assets and generally are expected to provide higher yields than the other categories of earning
assets. Those higher yields reflect the inherent credit risks associated with the loan portfolio. Management attempts to control and balance those risks with the rewards associated with higher returns.

Loans outstanding averaged $363.6 million in 2002 compared to $315.0 million in 2001 and $261.9 million in 2000. At December 31, 2002, loans totaled $396.7 million compared to $339.7 million in 2001,
an increase of $57.0 million (16.8%). This compares to growth in 2001 of $56.1 million (19.8%), compared to $283.6 million at December 31, 2000.

The Company
continues to experience significant increases in loan volumes and balances. The increases are attributable to a stable local economy, the Companys relatively small market share and the desire of a segment of the community to do business with a
locally-owned and operated financial institution. Due to the low interest rates, residential real estate held for sale increased $15.1 million, a 164.5% increase over 2001. Average loans as a percentage of average interest earning assets and average
total assets was 72.8% and 69.1%, respectively, in 2002. This compares to average loans as a percentage of average interest earning assets and average total assets of 75.1% and 70.1%, respectively, in 2001.

The following table sets forth the composition of the Companys loan portfolio as of December 31 for the past five years. The Companys loan portfolio does not contain any concentrations of
loans exceeding 10% of total loans which are not otherwise disclosed as a category of loans in this table. The Company has not invested in loans to finance highly-leveraged transactions (HLT), such as leveraged buy-out transactions, as
defined by the Federal Reserve and other regulatory agencies. Loans made by a bank for re-capitalization or acquisitions (including acquisitions by management or employees) which result in a material change in the borrowers financial structure
to a highly-leveraged condition are considered HLT loans. The Company had no foreign loans or loans to lesser-developed countries as of December 31 of any of the years presented.

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Loan Portfolio CompositionAt December 31,



|                                       |  | 2002                                       |         | 2001  |        | 2000    |   | 1999    |   | 1998    |  
|-------------------------------------- |  | ------------------------------------------ | ------- | ----- | ------ | ------- | - | ------- | - | ------- | -
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|                                       |  | Amount                                     |         | %     |        | Amount  |   | %       |   | Amount  |  
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|                                       |  | (Amounts in thousands, except percentages) |        
|Commercial, financial and agricultural |  | $                                          | 55,702  |       | 14.04  | %       | $ | 49,345  |   | 14.53   | %
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|Real Estate                            |  |                                            |         |       |        |         |   |         |   |         |  
|Commercial                             |  | $                                          | 111,981 |       | 28.23  | %       | $ | 103,516 |   | 30.48   | %
|Residential                            |  | 75,224                                     |         | 18.96 | %      | 63,914  |   | 18.82   | % | 62,431  |  
|Residential held for sale              |  | 24,297                                     |         | 6.12  | %      | 9,185   |   | 2.70    | % | 1,961   |  
|Construction and development           |  | 79,483                                     |         | 20.04 | %      | 67,497  |   | 19.87   | % | 39,136  |  
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|Total real estate                      |  | 290,985                                    |         | 73.35 | %      | 244,112 |   | 71.87   | % | 188,089 |  
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|Lease financing                        |  | 106                                        |         | 0.03  | %      | 204     |   | 0.06    | % | 398     |  
|Consumer                               |  |                                            |         |       |        |         |   |         |   |         |  
|Direct                                 |  | 24,542                                     |         | 6.19  | %      | 21,514  |   | 6.33    | % | 18,144  |  
|Indirect                               |  | 24,709                                     |         | 6.23  | %      | 23,961  |   | 7.05    | % | 27,054  |  
|Revolving (1)                          |  | 655                                        |         | 0.17  | %      | 534     |   | 0.16    | % | 585     |  
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|Total consumer                         |  | 49,906                                     |         | 12.58 | %      | 46,009  |   | 13.55   | % | 45,783  |  
|                                       |  |                                            |         |       |        |         |   |         |   |         |  
|Total                                  |  | $                                          | 396,699 |       | 100.00 | %       | $ | 339,670 |   | 100.00  | %
|                                       |  |                                            |         |       |        |         |   |         |   |         |  

Loans may be periodically renewed with principal reductions and
appropriate interest rate adjustments. Loan maturities as of December 31, 2002 are set forth in the following table based upon contractual terms. Actual cash flows may differ as borrowers have the right to prepay without prepayment
penalties.

Loan Maturity ScheduleAt December 31, 2002



|($ in thousands)                               |  | WithinOne Year |         | One to FiveYears |   | After FiveYears |  | Total   |       
|---------------------------------------------- |  | -------------- | ------- | ---------------- | - | --------------- |  | ------- | ------
|                                               |  |                |         |                  |   |                 |  |         |       
|                                               |  |                |         |                  |   |                 |  |         |       
|Commercial, financial, agricultural and leases |  | $              | 31,353  |                  | $ | 16,442          |  | $       | 8,013 
|Real Estate                                    |  |                |         |                  |   |                 |  |         |       
|Construction and development                   |  | 69,891         |         | 8,947            |   | 645             |  | 79,483  |       
|Mortgage                                       |  | 81,207         |         | 74,162           |   | 56,133          |  | 211,502 |       
|Consumer                                       |  | 19,356         |         | 29,573           |   | 977             |  | 49,906  |       
|                                               |  |                |         |                  |   |                 |  |         |       
|Total loans                                    |  | $              | 201,807 |                  | $ | 129,124         |  | $       | 65,768
|                                               |  |                |         |                  |   |                 |  |         |       

The following table presents an interest rate sensitivity analysis of
the Companys loan portfolio at December 31, 2002. The loans outstanding are shown in the time period where they are first subject to repricing.

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Sensitivity of Loans to Changes in Interest RatesAt December 31, 2002



|($ in thousands)                      |  | WithinOne year |         | One to FiveYears |   | After FiveYears |  | Total   |       
|------------------------------------- |  | -------------- | ------- | ---------------- | - | --------------- |  | ------- | ------
|                                      |  |                |         |                  |   |                 |  |         |       
|                                      |  |                |         |                  |   |                 |  |         |       
|Loans maturing or repricing with:     |  |                |         |                  |   |                 |  |         |       
|Predetermined interest rates          |  | $              | 58,227  |                  | $ | 62,106          |  | $       | 34,027
|Floating or adjustable interest rates |  | 231,690        |         | 10,206           |   | 443             |  | 242,339 |       
|                                      |  |                |         |                  |   |                 |  |         |       
|Total loans                           |  | $              | 289,917 |                  | $ | 72,312          |  | $       | 34,470
|                                      |  |                |         |                  |   |                 |  |         |       

Non-Performing Assets.

As a result of managements ongoing review of the loan portfolio, loans are classified as nonaccrual when it is not reasonable to expect collections of interest and principal under the original
terms, generally when a loan becomes 90 days or more past due. These loans are classified as nonaccrual, even though the presence of collateral or the borrowers financial strength may be sufficient to provide for ultimate repayment. When a
loan is placed on nonaccrual, the interest which has been accrued but remains unpaid is reversed and deducted from current period interest income. No additional interest is accrued and recognized as income on the loan balance until the collection of
both principal and interest becomes reasonably certain. Also, there may be writedowns and, ultimately, the total charge-off of the principal balance of the loan, which could necessitate additional charges to earnings through the provision for loan
losses.

If nonaccruing loans had been accruing interest under their original terms, approximately $60,000 in 2002, $101,000 in 2001 and $38,000 in 2000 would
have been recognized as earnings.

The Company accounts for impaired loans under the provisions of Statement of Financial Accounting Standards (SFAS) No. 114
Accounting by Creditors for Impairment of a Loan as amended by SFAS No. 118 Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures, which requires that the Company evaluate the collectibility of
both contractual interest and principal of loans when assessing the need for a loss allowance. The provisions of SFAS No. 114 do not apply to large pools of smaller balance homogeneous loans which are collectively evaluated for impairment. A loan is
considered impaired, when based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement. All loans determined to be impaired are placed
on nonaccrual. The amount of the impairment is measured based on the present value of future cash flows discounted at the loans effective interest rate or the fair value of collateral, less estimated selling expenses, if the loan is collateral
dependent or foreclosure is probable.

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##### Table of Contents

Non-performing loans are defined as nonaccrual and renegotiated loans. When other real estate owned is included with non-performing
loans, the result is non-performing assets. The following table, Non-Performing Assets, presents information on these assets and loans past due 90 days or more and still accruing interest as of December 31, for the past five years.
Non-performing assets were $1.9 million at December 31, 2002 or 0.48% of total loans and other real estate owned. This compares to $2.0 million or 0.58% of total loans and other real estate owned at December 31, 2001.

The level of nonaccrual loans is due to an increase in consumer nonaccrual loans. This increase is the result of increased bankruptcies and the adoption of stricter internal
monitoring and reporting requirements.

At December 31, 2002 there were $30,000 of loans past due 90 days or more and still accruing. At December 31, 2001 and
2000, there were no loans past due 90 days or more and still accruing. All loans past due 90 days or more are now classified as nonaccrual loans. Management believes the Company will receive full payment of principal and accrued interest on the
nonaccrual loans because of the Companys collateral position and other factors, despite their past due status.



|                                                                     |  | Non-Performing AssetsYear Ended December 31, |      
|-------------------------------------------------------------------- |  | -------------------------------------------- | -----
|                                                                     |  |                                              |      
|                                                                     |  | 2002                                         |      
|                                                                     |  |                                              |      
|                                                                     |  | (Amounts in thousands, except percentages)   |      
|                                                                     |  |                                              |      
|Nonaccrual loans                                                     |  | $                                            | 1,897
|Restructured loans                                                   |  | 0                                            |      
|Other real estate owned                                              |  | 0                                            |      
|                                                                     |  |                                              |      
|Total nonperforming assets                                           |  | $                                            | 1,897
|                                                                     |  |                                              |      
|                                                                     |  |                                              |      
|Loans past due 90 days or more and still accruing interest           |  | $                                            | 30   
|                                                                     |  |                                              |      
|Allowance for loan losses to period end total loans                  |  | 1.65                                         | %    
|Allowance for loan losses to period end nonperforming loans          |  | 344.44                                       | %    
|Net charge-offs to average loans                                     |  | 0.27                                         | %    
|Nonperforming assets to period end loans                             |  | 0.48                                         | %    
|Nonperforming assets to period end loans and other real estate owned |  | 0.48                                         | %    

Management is not aware of any loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed which (1) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results,
liquidity, or capital resources, or (2) represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment
terms.

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##### Table of Contents

Commitments and Contractual Obligations

The Bank is party
to lines of credit with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Lines of credit are unfunded commitments to extend credit. These instruments involve, in varying degrees, exposure to
credit and interest rate risk in excess of the amounts recognized in the financial statements. The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded commitments to extend
credit and letters of credit is represented by the contractual amount of those instruments. The Bank follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Unfunded commitments to extend credit where contractual amounts represent potential credit risk totaled $68,054,000 and $69,645,000 at December 31, 2002 and 2001,
respectively. These commitments are primarily at variable interest rates.

The Companys commitments are funded through internal funding sources of
scheduled repayments of loans and sales and maturities of investment securities available for sale or external funding sources through acceptance of deposits from customers or borrowings from other financial institutions.

The following table is a summary of the Companys commitments to extend credit, commitments under contractual leases as well as the Company contractual obligations,
consisting of deposits, FHLB advances and borrowed funds by contractual maturity date for the next five years.



|Commitments and Contractual Obligations          |  | 2003        |             | 2004       |   | 2005       |   | 2006       |            | 2007       |  
|------------------------------------------------ |  | ----------- | ----------- | ---------- | - | ---------- | - | ---------- | ---------- | ---------- | -
|                                                 |  |             |             |            |   |            |   |            |            |            |  
|Lines of credit                                  |  | $           | 68,054,000  |            |  |            |  |            |           |            | 
|Lease agreements                                 |  | 153,172     |             | 131,635    |   | 61,353     |   | 38,460     |            | 30,700     |  
|Deposits                                         |  | 208,419,286 |             | 76,443,593 |   | 64,808,537 |   | 25,811,033 |            | 27,480,938 |  
|Securities sold under an agreement to repurchase |  | 42,987,681  |             |           |   |           |   |           |            |           |  
|FHLB advances                                    |  | 5,000,000   |             |           |   |           |   |           |            |           |  
|Other borrowings                                 |  | 1,000,000   |             |           |   |           |   |           |            |           |  
|                                                 |  |             |             |            |   |            |   |            |            |            |  
|Total commitments and contractual obligations    |  | $           | 325,614,139 |            | $ | 76,575,228 |   | $          | 64,869,890 |            | $
|                                                 |  |             |             |            |   |            |   |            |            |            |  

Although management regularly monitors the balance
of outstanding commitments to fund loans to ensure funding availability should the need arise, management believes that the risk of all customers fully drawing on all these lines of credit at the same time is remote.

Investment Securities

The Companys investment securities portfolio increased 26.2% or $29.1
million to $140.1 million at year-end 2002 from 2001. The Company maintains an investment strategy of seeking portfolio yields within acceptable risk levels, as well as providing liquidity. The Company maintains two classifications of investments:
Held to Maturity and Available for

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##### Table of Contents

Sale. Available for Sale securities are carried at fair market value with related unrealized gains or losses included in stockholders
equity as accumulated other comprehensive income, whereas the Held to Maturity securities are carried at amortized cost. As a consequence, with a higher percentage of securities being placed in the Available for Sale
category, the Companys stockholders equity is more volatile than it would be if a larger percentage of investment securities were placed in the Held to Maturity category. Although equity is more volatile, management has
discretion, with respect to the Available for Sale securities, to proactively adjust to favorable market conditions in order to provide liquidity and realize gains on the sales of securities. The changes in values in the investment
securities portfolio are not taken into account in determining regulatory capital requirements. As of December 31, 2002, except for the U.S. Government agencies, there was no issuer who represented 10% or more of stockholders equity within the
investment portfolio. As of December 31, 2002 and 2001, the estimated fair value of investment securities as a percentage of their amortized cost was 102.4 % and 101.9%, respectively. At December 31, 2002, the investment securities portfolio had
gross unrealized gains of $3,357,000 and gross unrealized losses of $103,000, for a net unrealized gain of $3,254,000. As of December 31, 2001, the investment securities portfolio had a net unrealized gain of $1,975,000. As of December 31, 2000, the
investment securities portfolio had a net unrealized gain of $303,000. The following table presents the amortized cost of investment securities held by the Company at December 31, 2002, 2001, and 2000.

Investment Securities



|                                                 |  | December 31, |        
|------------------------------------------------ |  | ------------ | -------
|                                                 |  |              |        
|(Amounts in thousands)                           |  | 2002         |        
|                                                 |  |              |        
|Available for sale:                              |  |              |        
|U.S. Government Agencies                         |  | $            | 49,036 
|Obligations of states and political subdivisions |  | 5,783        |        
|Mortgage-backed securities                       |  | 55,292       |        
|Corporate Bonds                                  |  | 15,868       |        
|Equity securities                                |  | 4,985        |        
|                                                 |  |              |        
|Total                                            |  | $            | 130,964
|                                                 |  |              |        



|                                                 |  | December 31, |      
|------------------------------------------------ |  | ------------ | -----
|                                                 |  |              |      
|                                                 |  | 2002         |      
|                                                 |  |              |      
|Held to maturity:                                |  |              |      
|Obligations of states and political subdivisions |  | $            | 6,139
|                                                 |  |              |      
|Total                                            |  | $            | 6,139
|                                                 |  |              |      

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##### Table of Contents

The following table represents maturities and weighted average yields of debt securities at December 31, 2002. Yields are based on the
amortized cost of securities. Maturities are based on the contractual maturities. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment
penalties.

Maturity Distribution and Yields ofInvestment Securities



|                                 |  | December 31, 2002 |            
|-------------------------------- |  | ----------------- | -----------
|                                 |  |                   |            
|                                 |  | Amortized Cost    |            
|                                 |  |                   |            
|Available for Sale               |  |                   |            
|U.S. Government Agencies         |  |                   |            
|One year or less                 |  | $                 | 999,924    
|Over one through five years      |  |                   | 14,145,084 
|Over five through ten years      |  |                   | 32,196,111 
|Over ten years                   |  |                   | 1,694,750  
|                                 |  |                   |            
|Total U. S. Government Agencies  |  | $                 | 49,035,869 
|                                 |  |                   |            
|                                 |  |                   |            
|Municipal Securities(1)          |  |                   |            
|One year or less                 |  | $                 | 201,070    
|Over one through five years      |  |                   | 2,444,053  
|Over five through ten years      |  |                   | 805,714    
|Over ten years                   |  |                   | 2,332,627  
|                                 |  |                   |            
|Total Municipal Securities       |  | $                 | 5,783,464  
|                                 |  |                   |            
|                                 |  |                   |            
|Corporate Bonds                  |  |                   |            
|One year or less                 |  | $                 | 1,621,039  
|Over one through five years      |  |                   | 11,739,690 
|Over five through ten years      |  |                   | 2,507,690  
|                                 |  |                   |            
|Total Corporate Bonds            |  | $                 | 15,868,419 
|                                 |  |                   |            
|                                 |  |                   |            
|Trust Preferred                  |  |                   |            
|Over five through ten years      |  | $                 | 500,000    
|Over ten years                   |  |                   | 1,750,000  
|                                 |  |                   |            
|Total Trust Preferred Securities |  | $                 | 2,250,000  
|                                 |  |                   |            
|                                 |  |                   |            
|Mortgage Backed Securities       |  |                   |            
|Over one through five years      |  | $                 | 11,023,226 
|Over five through ten years      |  |                   | 11,273,048 
|Over ten years                   |  |                   | 32,995,619 
|                                 |  |                   |            
|Total Mortgage Backed Securities |  | $                 | 55,291,893 
|                                 |  |                   |            
|                                 |  |                   |            
|                                 |  |                   |            
|Total Available for Sale         |  | $                 | 128,229,645
|                                 |  |                   |            
|                                 |  |                   |            
|Held to Maturity                 |  |                   |            
|Municipal Securities(1)          |  |                   |            
|One year or less.                |  | $                 | 701,793    
|Over one through five years      |  |                   | 1,968,596  
|Over five through ten years      |  |                   | 1,659,609  
|Over ten years.                  |  |                   | 1,808,891  
|                                 |  |                   |            
|Total Municipal Securities       |  | $                 | 6,138,889  
|                                 |  |                   |            
|                                 |  |                   |            
|                                 |  |                   |            
|Total Held to Maturity           |  | $                 | 6,138,889  
|                                 |  |                   |            
|                                 |  |                   |            
|                                 |  |                   |            
|Total Investment Securities      |  | $                 | 134,368,534
|                                 |  |                   |            

(1)Tax-equivalent yield

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##### Table of Contents

Asset/Liability Management, Interest Rate Sensitivity and Liquidity

General.It is the objective of the Company to manage assets and liabilities to preserve the integrity and safety of the deposit and capital base of the Company by protecting the Company from
undue exposure to poor asset quality and interest rate risk. Additionally, the Company pursues a consistent level of earnings as further protection for the depositors and to provide an appropriate return to stockholders on their
investment.

These objectives are achieved through compliance with an established framework of asset/liability, interest rate risk, loan, investment, and
capital policies. Management is responsible for monitoring policies and procedures that result in proper management of the components of the asset/liability function to achieve stated objectives. The Companys philosophy is to support quality
asset growth primarily through growth of core deposits, which include non-volatile deposits of individuals, partnerships and corporations. Management seeks to invest the largest portion of the Companys assets in loans that meet the
Companys quality standards. Alternative investments are made in the investment portfolio. The Companys asset/liability function and related components of liquidity and interest rate risk are monitored on a continuous basis by management.
The Board of Directors reviews and monitors these functions on a monthly basis.

Interest Rate Sensitivity.The process of
asset/liability management involves monitoring the Companys balance sheet in order to determine the potential impact that changes in the interest rate environment would have on net interest income so that the appropriate strategies to minimize
any negative impact can be implemented. The primary objective of asset/liability management is to continue the steady growth of net interest income, the Companys primary earnings component within a context of liquidity requirements.

In theory, interest rate risk can be minimized by maintaining a nominal level of interest rate sensitivity. In practice, however, this is made difficult because of
uncontrollable influences on the Companys balance sheet, including variations in both loan demand and the availability of funding sources.

The
measurement of the Companys interest rate sensitivity is one of the primary techniques employed by the Company in asset/liability management. The dollar difference between assets and liabilities which are subject to interest rate repricing
within a given time period, including both floating rate or adjustable instruments and instruments which are approaching maturity determine the interest sensitivity gap.

The Company manages its sensitivity to interest rate movements by adjusting the maturity of, and establishing rates on, the interest-earning asset portfolio and interest-bearing liabilities in line with
managements expectations relative to market interest rates. The Company would generally benefit from increasing market interest rates when the balance sheet is asset sensitive and would benefit from decreasing market rates when it is liability
sensitive. At December 31, 2002, the Companys interest rate sensitivity position was liability sensitive within the one-year horizon.

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##### Table of Contents

The following table Interest Sensitivity Analysis details the interest rate sensitivity of the Company at December 31, 2002.
The principal balances of the various interest-earning and interest-bearing balance sheet instruments are shown in the time period where they are first subject to repricing, whether as a result of floating or adjustable rate contracts. Time deposits
do not reprice and are presented according to their contractual maturity. Prime savings accounts reprice with the prime rate and are shown as repricing within three months. Regular savings, money management and NOW accounts do not have a contractual
maturity date, therefore, cash flows are based on managements judgement regarding their decay rates. All other borrowings are shown in the first period in which they could reprice. In the one-year time period, the pricing mismatch on a
cumulative basis was liability sensitive $33,244,000 or 10.2% of total interest-earning assets. Management has procedures in place to carefully monitor the Companys interest rate sensitivity as the rate environment changes. It should also be
noted that all interest rates do not adjust at the same velocity. As an example, the majority of the savings category listed below is priced on an adjustable basis that is fifty to sixty percent of tiered Prime Rate. Therefore, as the Prime Rate
adjusts 100 basis points, the rate on this liability only adjusts 50 - 60 basis points. Moreover, varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities which are not reflected in the interest
sensitivity analysis report. Prepayments may have significant effects on the Companys net interest margin. Hence, gap is only a general indicator of interest rate sensitivity and cannot be interpreted as an absolute measurement of the
Companys interest rate risk.

Interest Sensitivity AnalysisAt December 31, 2002



|                                                                   |  | WithinThreeMonths                     |         | AfterThreeThroughSixMonths |       | After SixThroughTwelveMonths |       | WithinOne Year |        | One YearThroughFive Years |        | Over FiveYears |   | Total   |        
|------------------------------------------------------------------ |  | ------------------------------------- | ------- | -------------------------- | ----- | ---------------------------- | ----- | -------------- | ------ | ------------------------- | ------ | -------------- | - | ------- | -------
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|                                                                   |  | (Amounts in thousands, except ratios) |        
|Interest-earning assets:                                           |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|Loans                                                              |  | $                                     | 239,214 |                            | $     | 27,628                       |       | $              | 23,075 |                           | $      | 289,917        |   | $       | 72,312 
|Investment securities                                              |  | 11,426                                |         | 6,298                      |       | 15,563                       |       | 33,287         |        | 58,999                    |        | 47,825         |   | 140,111 |        
|Federal Funds sold                                                 |  | 3,691                                 |         |                           |       |                             |       | 3,691          |        |                          |        |               |   | 3,691   |        
|Interest-bearing deposits in other banks                           |  | 517                                   |         | 0                          |       | 0                            |       | 517            |        | 0                         |        | 0              |   | 517     |        
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|Total interest-earning assets                                      |  | $                                     | 254,831 |                            | $     | 33,926                       |       | $              | 38,638 |                           | $      | 327,395        |   | $       | 131,311
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|Interest-bearing liabilities:                                      |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|Money management accounts                                          |  | $                                     | 4,447   |                            | 3,758 |                              | 5,858 |                | 14,063 |                           | 13,635 |                | $ | 989     |        
|Savings accounts                                                   |  | 146,481                               |         | 654                        |       | 1,076                        |       | 148,211        |        | 3,322                     |        | 711            |   | 152,244 |        
|NOW accounts                                                       |  | 7,915                                 |         | 6,918                      |       | 11,348                       |       | 26,181         |        | 32,606                    |        | 4,329          |   | 63,116  |        
|Time deposits                                                      |  | 33,919                                |         | 15,542                     |       | 43,735                       |       | 93,196         |        | 31,693                    |        | 285            |   | 125,174 |        
|Federal funds purchased/securities sold under repurchase ageements |  | 42,988                                |         | 0                          |       | 0                            |       | 42,988         |        | 0                         |        | 0              |   | 42,988  |        
|Federal Home Loan Bank advances                                    |  | 5,000                                 |         | 0                          |       | 0                            |       | 35,000         |        | 0                         |        | 30,000         |   | 35,000  |        
|Notes and bonds payable                                            |  | 1,000                                 |         | 0                          |       | 0                            |       | 1,000          |        | 0                         |        | 0              |   | 1,000   |        
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        
|Total interest-bearing liabilities                                 |  | $                                     | 241,750 |                            | $     | 26,872                       |       | $              | 62,017 |                           | $      | 360,639        |   | $       | 81,256 
|                                                                   |  |                                       |         |                            |       |                              |       |                |        |                           |        |                |   |         |        

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|Period gap                                               |  |          | ($16,919 | )       | $ | 7,054    |   | ($23,379 | ) | ($33,244 | )      | $ | 50,055 |   | $ | 75,981 |  
|-------------------------------------------------------- |  | -------- | -------- | ------- | - | -------- | - | -------- | - | -------- | ------ | - | ------ | - | - | ------ | -
|Cumulative gap                                           |  | ($16,919 | )        | ($9,865 | ) | ($33,244 | ) | ($33,244 | ) | $        | 16,811 |   | 92,792 |  
|Ratio of cumulative gap to total interest-earning assets |  |          | -3.13    | %       |   | -1.82    | % | -6.14    | % | -10.15   | %      |   | 3.11   | % |   | 17.15  | %

Liquidity.Management of
the Companys liquidity position is closely related to the process of asset/liability management. Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to provide
sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. The Company intends to meet its liquidity needs by managing cash and due from banks, federal funds sold and purchased, maturity of investment securities,
paydowns received from mortgage-backed securities and lines of credit as necessary. The Company maintains a line of credit with the Federal Home Loan Bank at 10% of the Banks total assets. Federal Home Loan Bank advances are collateralized by
75% of eligible first mortgages, specific commercial loans and investment securities. The Company also uses securities sold under repurchase agreements to fund loan growth. The Company had a federal funds purchased accommodation with The Bankers
Bank, Atlanta, Georgia, for advances up to $12,800,000 and with SunTrust Bank, Atlanta, Georgia, for advances up to $10,000,000. The Company maintains repurchase lines of credit with SunTrust Robinson Humphrey, Atlanta, Georgia, for advances up to
$11,000,000 and with The Bankers Bank, Atlanta, Georgia, for advances up to $10,000,000. At December 31, 2002, securities sold under repurchase agreements included $11.0 million in reverse repurchase agreements with SunTrust Robinson Humphrey,
Atlanta, Georgia. Additionally, liquidity needs can be satisfied by the structuring of the maturities of investment securities and the pricing and maturities on loans and deposits offered to customers.

Average liquid assets (cash and amounts due from banks, federal funds sold, investment securities and other short term investments) were maintained at 30.9% of average deposits in 2002 compared to
28.7% in 2001 and 30.0% in 2000.

Deposits

The Companys average deposits
and other borrowings increased $71.3 million or 17.5% from 2001 to 2002. Average interest-bearing liabilities increased $62.5 million or 17.6% while average noninterest-bearing deposits increased $8.8 million or 17.0%. Average deposits and
borrowings increased $70.2 million or 20.8% from 2000 to 2001. Average interest-bearing liabilities increased $66.6 million or 23.0% from 2000 to 2001, while average noninterest bearing deposits increased $3.6 million or 7.4% during the same period.
The majority of the growth in deposits since 1997 reflects the Companys strategy of consistently emphasizing deposit growth, as deposits are the primary source of funding for balance sheet growth. Borrowed funds consist of short-term
borrowings, securities sold under agreements to repurchase with the Banks commercial customers and reverse repurchase agreements with SunTrust Robinson Humphrey, and borrowings from the Federal Home Loan Bank. Brokered certificates of deposit
included in Time Deposits over $100,000 at December 31, 2002 were $15.0 million.

The following table presents the average amount outstanding and the average
rate paid on deposits and borrowings by the Company for the years 2002, 2001 and 2000:

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Average Deposit and Borrowing Balances and Rates



|                                                                    |  | Year ended December 31,                    |        
|------------------------------------------------------------------- |  | ------------------------------------------ | -------
|                                                                    |  |                                            |        
|                                                                    |  | 2002                                       |        
|                                                                    |  |                                            |        
|                                                                    |  | AverageAmount                              |        
|                                                                    |  |                                            |        
|                                                                    |  | (Amounts in thousands, except percentages) |        
|Noninterest-bearing demand deposits                                 |  | $                                          | 60,508 
|Interest-bearing liabilities:                                       |  |                                            |        
|NOW accounts                                                        |  | 56,911                                     |        
|Savings, money management accounts                                  |  | 167,556                                    |        
|Time deposits                                                       |  | 119,017                                    |        
|Federal funds purchased/securities sold under repurchase agreements |  | 40,048                                     |        
|Other borrowings                                                    |  | 34,648                                     |        
|                                                                    |  |                                            |        
|Total interest-bearing liabilities                                  |  | $                                          | 418,180
|                                                                    |  |                                            |        
|Total noninterest & interest-bearing liabilites                     |  | $                                          | 478,688

The following table presents
the maturities of the Companys time deposits over $100,000 and other time deposits at December 31, 2002:

Maturities of Time Deposits



|                          |  | Time Depositsover $100,000 |        | Other TimeDeposits |   | Total  | 
|------------------------- |  | -------------------------- | ------ | ------------------ | - | ------ | 
|                          |  |                            |        |                    |   |        | 
|Months to Maturity        |  |                            |        |                    |   |        | 
|Within 3 months           |  | $                          | 24,455 |                    | $ | 9,464  | 
|After 3 through 6 months  |  | 9,797                      |        | 5,745              |   | 15,542 | 
|After 6 through 12 months |  | 31,939                     |        | 11,796             |   | 43,735 | 
|                          |  |                            |        |                    |   |        | 
|Within one year           |  | 66,191                     |        | 27,005             |   | 93,196 | 
|After 12 months           |  | 21,556                     |        | 10,423             |   | 31,979 | 
|                          |  |                            |        |                    |   |        | 
|                          |  |                            |        |                    |   |        | 
|Total                     |  | $                          | 87,747 |                    | $ | 37,428 | 
|                          |  |                            |        |                    |   |        | 

This table indicates that the majority of time
deposits, regardless of size, have a maturity of less than twelve months. This is reflective of both the Companys market and recent interest rate environments. Large time deposit customers tend to be extremely rate sensitive, making these
deposits a volatile source of funding for liquidity planning purposes. However, dependent upon pricing, these deposits are virtually always available in the Companys market. At December 31, 2002, the Bank had $15.0 million of brokered
certificates of deposit that matured after 12 months.

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Capital

Total stockholders equity was $46.7 million
at December 31, 2002, increasing $6.7 million or 16.9% from the previous year. The increase was the combination of earnings in the amount of $6.0 million and an increase in accumulated other comprehensive income of $739,000. The increase in
accumulated other comprehensive income represents unrealized gains in the available for sale investment portfolio. The Company purchased 18,771 shares of treasury stock in 2000 at a cost of $507,000, which is shown as a reduction of
stockholders equity.

The Companys average equity to average total assets was 8.19% in 2002 compared to 8.32% in 2001 and 8.56% in 2000. The
decreases reflect the overall growth of the Company. Capital is considered to be adequate to meet present operating needs and anticipated future operating requirements. Management is not aware of any trends, events or uncertainties that are
reasonably likely to have a material effect on the Companys capital resources or operations. The following table presents the return on equity and assets for the years 2002, 2001 and 2000.

Return on Equity and Assets



|                                       |  | Years ended December 31, |  
|-------------------------------------- |  | ------------------------ | -
|                                       |  |                          |  
|                                       |  | 2002                     |  
|                                       |  |                          |  
|                                       |  |                          |  
|Return on average total assets         |  | 1.14                     | %
|                                       |  |                          |  
|Return on average equity               |  | 13.95                    | %
|                                       |  |                          |  
|Average equity to average assets ratio |  | 8.19                     | %

At December 31, 2002, the Company
was well above the minimum capital ratios required under the regulatory risk-based capital guidelines. The following table presents the capital ratios for the Company and the Bank.

ANALYSIS OF CAPITAL



|                                   |  | Required               |        | Actual |      | Excess |  
|---------------------------------- |  | ---------------------- | ------ | ------ | ---- | ------ | -
|                                   |  |                        |        |        |      |        |  
|                                   |  | Amount                 |        | %      |      | Amount |  
|                                   |  |                        |        |        |      |        |  
|                                   |  | (Dollars in thousands) |       
|Georgia Bank Financial Corporation |  |                        |        |        |      |        |  
|12/31/2002                         |  |                        |        |        |      |        |  
|Risk-based capital:                |  |                        |        |        |      |        |  
|Tier 1 capital                     |  | $                      | 17,583 |        | 4.00 | %      | $
|Total capital                      |  | 35,165                 |        | 8.00   | %    | 50,130 |  
|Tier 1 leverage ratio              |  | 22,429                 |        | 4.00   | %    | 44,623 |  
|12/31/2001                         |  |                        |        |        |      |        |  
|Risk-based capital                 |  |                        |        |        |      |        |  
|Tier 1 capital                     |  | $                      | 15,328 |        | 4.00 | %      | $
|Total capital                      |  | 30,655                 |        | 8.00   | %    | 43,300 |  
|Tier 1 leverage ratio              |  | 19,217                 |        | 4.00   | %    | 38,506 |  

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|Georgia Bank & Trust Company |  |        |        |      |      |        |   |        |   |        |   |      |       
|---------------------------- |  | ------ | ------ | ---- | ---- | ------ | - | ------ | - | ------ | - | ---- | ------
|12/31/2002                   |  |        |        |      |      |        |   |        |   |        |   |      |       
|Risk-based capital:          |  |        |        |      |      |        |   |        |   |        |   |      |       
|Tier 1 capital               |  | $      | 17,517 |      | 4.00 | %      | $ | 42,899 |   | 9.80   | % | $    | 25,382
|Total capital                |  | 35,034 |        | 8.00 | %    | 48,386 |   | 11.05  | % | 13,352 |   | 3.05 | %     
|Tier 1 leverage ratio        |  | 22,363 |        | 4.00 | %    | 42,899 |   | 7.67   | % | 20,536 |   | 3.67 | %     
|12/31/2001                   |  |        |        |      |      |        |   |        |   |        |   |      |       
|Risk-based capital           |  |        |        |      |      |        |   |        |   |        |   |      |       
|Tier 1 capital               |  | $      | 15,260 |      | 4.00 | %      | $ | 36,757 |   | 9.63   | % | $    | 21,497
|Total capital                |  | 30,520 |        | 8.00 | %    | 41,530 |   | 10.89  | % | 11,010 |   | 2.89 | %     
|Tier 1 leverage ratio        |  | 19,151 |        | 4.00 | %    | 36,757 |   | 7.68   | % | 17,606 |   | 3.68 | %     

Forward-Looking Statements

The Company may from time to time make written or oral forward-looking statements, including statements contained in the Companys filings with the Securities and Exchange
Commission (the Commission) and its reports to shareholders. Statements made other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking
statements are made based upon managements belief as well as assumptions made by, and information currently available to, management pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Companys actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values,
securities portfolio values, interest rate risk management; the effects of competition in the banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities
brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Companys market area and elsewhere, including institutions operating through the Internet; changes in governmental regulation
relating to the banking industry, including regulations relating to branching and acquisitions; failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans; and other
factors. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, the Company.

Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145,Rescission of
FASB Statements No.4, 44, and 64, Amendment of FASB Statement No.13, and Technical Corrections. SFAS No. 145
updates, clarifies, and simplifies existing accounting pronouncements. SFAS No. 145 requires that in certain circumstances previous items classified as extraordinary that do not meet the criteria in APB Opinion 30 must be
reclassified. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Management does not expect the adoption of SFAS No. 145 to have a material effect on the Companys financial condition or results of
operations.

In July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal
Activities. SFASNo. 146 addresses financial accounting and reporting for costs

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associated with exit or disposal activities. SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity
when the liability is incurred, as opposed to when the entity commits to an exit plan. SFAS No. 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002. Management does not anticipate that
SFAS No. 146 will have a material impact on the Companys financial condition or results of operations.

In October 2002, the FASB issued SFAS
No. 147,Acquisitions of Certain Financial Institutions. SFAS No. 147 removes acquisitions of financial institutions from the scope of both SFAS No. 72,Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No.9, Applying APB Opinions No.16 and 17,
When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Methodand requires that those transactions be accounted for in accordance with SFAS
No. 141,Business Combinations,and SFAS No. 142, Goodwill and Other Intangible Assets.In addition, SFAS No. 147 amends SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and
borrower-relationship intangible assets and credit cardholder intangible assets. SFAS No. 147s transition provisions require affected institutions to reclassify their SFAS No. 72 goodwill as SFAS No. 142 goodwill as of the date
the Company initially applied SFAS No. 142 in its entirety. The adoption of SFAS No. 147 did not have any impact on the Companys financial condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45,Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others(FIN 45). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantee. FIN 45 also requires additional
disclosure about the guarantors obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002 and the disclosure requirements are effective after December 15, 2002. Management does not anticipate that FIN 45 will have a material impact on the Companys financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities and Interpretation of ARB No. 51(FIN 46). FIN 46 establishes the criteria for consolidating variable interest entities. FIN 46 is effective for fiscal years or interim periods beginning after June 15, 2003, to variable entities that were acquired before February 1, 2003.
Management does not anticipate that FIN 46 will have a material impact on the Companys financial condition or results of operations.

Effects of Inflation and Changing
Prices

Inflation generally increases the cost of funds and operating overhead, and to the extent loans and other assets bear variable rates, the yields on
such assets. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on the performance of a financial
institution than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction and to the same extent as the prices of goods and services, increases in inflation generally have resulted in
increased interest rates. In addition,

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inflation can increase a financial institutions cost of goods and services purchased, the cost of salaries and benefits, occupancy expense and similar
items. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and stockholders equity. Mortgage originations and refinancings tend to
slow as interest rates increase, and can reduce the Companys earnings from such activities and the income from the sale of residential mortgage loans in the secondary market.

Various information shown elsewhere herein will assist in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends. In particular, the summary of net interest
income, the maturity distributions and compositions of the loan and security portfolios and the data on the interest sensitivity of loans and deposits should be considered.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Market risk reflects the risk of loss due to changes in the market prices and interest rates. This loss could be reflected in diminished current market values or reduced net
interest income in future periods.

The Companys market risk arises primarily from the interest rate risk inherent in its lending and deposit activities.
This risk is managed primarily by careful periodic analysis and modeling of the various components of the entire balance sheet. The investment portfolio is utilized to assist in minimizing interest rate risk in both loans and deposits due to the
flexibility afforded in structuring the investment portfolio with regards to various maturities, cash flows and fixed or variable rates.

The table below
presents all rate sensitive assets and liabilities by contractual amounts and maturity dates. Cash flows from mortgage backed securities reflect anticipated prepayments. For core deposits, without a contractual maturity date, cash flows are based on
managements judgement regarding their decay rates or repricing behavior. The fair value of rate sensitive assets and liabilities is presented in total. The fair value of investment securities is based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The fair value of loans is calculated using discounted cash flows by loan type. The discount rate used to determine the present value
of the loan portfolio is an estimated market rate that reflects the credit and interest rate risk inherent in the loan portfolio. Fair values for certificates of deposit have been determined using discounted cash flows. The discount rate used is
based on estimated market rates for deposits of similar remaining maturities. The carrying amounts of all other deposits, securities sold under repurchase agreements and variable interest rate borrowings approximated their fair values. The fair
value of the fixed interest rate borrowings is calculated by discounting contractual cash flows using an estimated interest rate based on the current rates available to the Bank for debt of similar remaining maturities and collateral terms.

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Market Risk



|(Amounts in thousands)                            |  | 2003    |   | 2004   |   | 2005   |   | 2006   |   | 2007   |   | Thereafter |   | Total   |   | FairValue | 
|------------------------------------------------- |  | ------- | - | ------ | - | ------ | - | ------ | - | ------ | - | ---------- | - | ------- | - | --------- | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Rate Sensitive Assets:                            |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest rate loans                         |  | 57,928  |   | 31,896 |   | 15,397 |   | 8,533  |   | 4,879  |   | 22,749     |   | 141,382 |   | 155,565   | 
|Average interest rate                             |  | 7.73    | % | 7.63   | % | 7.78   | % | 7.68   | % | 7.27   | % | 6.48       | % | 7.49    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Variable interest rate loans                      |  | 143,879 |   | 39,064 |   | 17,645 |   | 6,647  |   | 5,064  |   | 43,018     |   | 255,317 |   | 242,367   | 
|Average interest rate                             |  | 4.86    | % | 4.86   | % | 4.88   | % | 5.04   | % | 5.01   | % | 5.42       | % | 4.97    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest rate securities                    |  | 23,322  |   | 18,939 |   | 13,362 |   | 12,485 |   | 10,869 |   | 47,749     |   | 126,726 |   | 126,638   | 
|Average interest rate                             |  | 4.02    | % | 4.87   | % | 5.03   | % | 5.11   | % | 5.04   | % | 5.19       | % | 4.89    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Variable interest rate securities                 |  | 3,199   |   | 2,138  |   | 1,430  |   | 955    |   | 639    |   | 5,023      |   | 13,384  |   | 13,720    | 
|Average interest rate                             |  | 5.02    | % | 5.02   | % | 5.02   | % | 5.02   | % | 5.02   | % | 4.38       | % | 4.61    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Variable federal funds sold                       |  | 3,691   |   | 0      |   | 0      |   | 0      |   | 0      |   | 0          |   | 3,691   |   | 3,691     | 
|Average interest rate                             |  | 1.47    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 1.47    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest-bearing deposits in other banks    |  | 500     |   | 0      |   | 0      |   | 0      |   | 0      |   | 0          |   | 500     |   | 500       | 
|Average interest rate                             |  | 2.92    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 2.92    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Variable interest-bearing deposits in other banks |  | 17      |   | 0      |   | 0      |   | 0      |   | 0      |   | 0          |   | 17      |   | 17        | 
|Average interest rate                             |  | 1.06    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 1.06    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Rate Sensitive Liabilities:                       |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Noninterest-bearing deposits                      |  | 23,668  |   | 12,716 |   | 12,724 |   | 5,687  |   | 5,680  |   | 9,860      |   | 70,335  |   | 70,335    | 
|Average interest rate                             |  | 0.00    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 0.00    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Money market accounts                             |  | 14,062  |   | 5,410  |   | 5,410  |   | 1,409  |   | 1,406  |   | 990        |   | 28,687  |   | 28,687    | 
|Average interest rate                             |  | 1.75    | % | 1.75   | % | 1.75   | % | 1.75   | % | 1.75   | % | 1.75       | % | 1.75    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Savings accounts                                  |  | 51,312  |   | 27,631 |   | 27,646 |   | 12,271 |   | 12,256 |   | 21,128     |   | 152,244 |   | 152,244   | 
|Average interest rate                             |  | 2.06    | % | 2.06   | % | 2.06   | % | 2.07   | % | 2.07   | % | 2.07       | % | 2.06    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|NOW accounts                                      |  | 26,180  |   | 12,144 |   | 12,144 |   | 4,159  |   | 4,159  |   | 4,330      |   | 63,116  |   | 63,116    | 
|Average interest rate                             |  | 0.69    | % | 0.69   | % | 0.69   | % | 0.69   | % | 0.69   | % | 0.69       | % | 0.69    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest rate time deposits < $100M         |  | 27,005  |   | 5,674  |   | 1,247  |   | 1,466  |   | 1,750  |   | 286        |   | 37,428  |   | 37,872    | 
|Average interest rate                             |  | 2.96    | % | 3.50   | % | 5.30   | % | 4.77   | % | 4.36   | % | 1.72       | % | 3.25    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest rate time deposits > $100M         |  | 66,191  |   | 12,868 |   | 5,639  |   | 819    |   | 2,230  |   | 0          |   | 87,747  |   | 88,400    | 
|Average interest rate                             |  | 2.71    | % | 3.60   | % | 3.82   | % | 4.64   | % | 3.97   | % | 0.00       | % | 2.96    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Securities sold under repurchase agreements       |  | 42,988  |   | 0      |   | 0      |   | 0      |   | 0      |   | 0          |   | 42,988  |   | 42,988    | 
|Average interest rate                             |  | 1.50    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 1.50    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Fixed interest rate borrowings                    |  | 5,000   |   | 0      |   | 0      |   | 0      |   | 0      |   | 30,000     |   | 35,000  |   | 35,896    | 
|Average interest rate                             |  | 1.41    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 6.30       | % | 5.60    | % |           | 
|                                                  |  |         |   |        |   |        |   |        |   |        |   |            |   |         |   |           | 
|Variable interest rate borrowings                 |  | 1,000   |   | 0      |   | 0      |   | 0      |   | 0      |   | 0          |   | 1,000   |   | 1,000     | 
|Average interest rate                             |  | 1.03    | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00   | % | 0.00       | % | 1.03    | % |           | 

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##### Table of Contents

ITEM 8.

GEORGIA BANK FINANCIAL CORPORATION AND
SUBSIDIARY

Consolidated Financial Statements

December 31,
2002, 2001, and 2000

(With Independent Auditors Report Thereon)

48



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##### Table of Contents



GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

Table of Contents



|                                                                         | Page
|------------------------------------------------------------------------ | ----
|                                                                         |     
|Independent Auditors Report                                             | 50  
|                                                                         |     
|Consolidated Balance Sheets                                              | 51  
|                                                                         |     
|Consolidated Statements of Income                                        | 53  
|                                                                         |     
|Consolidated Statements of Stockholders Equity and Comprehensive Income | 55  
|                                                                         |     
|Consolidated Statements of Cash Flows                                    | 57  
|                                                                         |     
|Notes to Consolidated Financial Statements                               | 59  

49



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##### Table of Contents

Independent Auditors Report

The Board of DirectorsGeorgia Bank Financial Corporation:

We have audited the accompanying consolidated balance sheets of Georgia Bank Financial Corporation and subsidiary (the Bank) as of December 31, 2002 and 2001, and the related consolidated
statements of income, stockholders equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2002. These consolidated financial statements are the responsibility of the Banks
management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 Georgia Bank Financial Corporation and subsidiary as of December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.



|                 |  |  |            
|---------------- |  |  | -----------
|                 |  |  | /s/ KPMGLLP
|Atlanta, Georgia |  |  |            
|January 17, 2003 |  |  |            

50



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##### Table of Contents

GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

December 31, 2002 and 2001



|Assets                                                                                                           |  | 2002        |             | 2001        |           
|---------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ----------- | ----------
|                                                                                                                 |  |             |             |             |           
|Cash and due from banks (note 2)                                                                                 |  | $           | 12,942,512  |             | 13,844,022
|Federal funds sold                                                                                               |  | 3,691,000   |             | 1,149,000   |           
|Interest-bearing deposits in other banks                                                                         |  | 517,179     |             | 516,878     |           
|                                                                                                                 |  |             |             |             |           
|Cash and cash equivalents                                                                                        |  | 17,150,691  |             | 15,509,900  |           
|                                                                                                                 |  |             |             |             |           
|Investment securities (note 3):                                                                                  |  |             |             |             |           
|Available-for-sale                                                                                               |  | 133,971,802 |             | 103,599,535 |           
|Held-to-maturity, at cost (fair values of $6,385,650 and $7,569,719 at December
31, 2002 and 2001, respectively) |  | 6,138,889   |             | 7,453,215   |           
|Loans held for sale                                                                                              |  | 24,296,598  |             | 9,185,059   |           
|Loans (note 4)                                                                                                   |  | 372,402,679 |             | 330,484,798 |           
|Less allowance for loan losses                                                                                   |  | 6,534,417   |             | 5,109,447   |           
|                                                                                                                 |  |             |             |             |           
|Loans, net                                                                                                       |  | 365,868,262 |             | 325,375,351 |           
|                                                                                                                 |  |             |             |             |           
|Premises and equipment, net (note 5)                                                                             |  | 13,882,987  |             | 12,418,033  |           
|Accrued interest receivable                                                                                      |  | 3,688,630   |             | 3,330,411   |           
|Intangible assets, net (note 6)                                                                                  |  | 139,883     |             | 246,635     |           
|Other assets                                                                                                     |  | 4,694,668   |             | 4,425,732   |           
|                                                                                                                 |  |             |             |             |           
|                                                                                                                 |  | $           | 569,832,410 |             |           
|                                                                                                                 |  |             |             |             |           

See accompanying notes to consolidated financial
statements.

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|Liabilities and Stockholders Equity                                                                               |  | 2002        |             | 2001        |            
|------------------------------------------------------------------------------------------------------------------ |  | ----------- | ----------- | ----------- | -----------
|                                                                                                                   |  |             |             |             |            
|Deposits (note 8):                                                                                                 |  |             |             |             |            
|Noninterest-bearing                                                                                                |  | $           | 70,334,882  |             | 56,802,063 
|Interest-bearing:                                                                                                  |  |             |             |             |            
|NOW accounts                                                                                                       |  | 63,115,877  |             | 48,819,392  |            
|Savings                                                                                                            |  | 152,244,387 |             | 127,052,190 |            
|Money management accounts                                                                                          |  | 28,687,166  |             | 23,819,452  |            
|Time deposits over $100,000                                                                                        |  | 87,746,760  |             | 61,635,262  |            
|Other time deposits                                                                                                |  | 37,427,629  |             | 51,020,238  |            
|                                                                                                                   |  |             |             |             |            
|                                                                                                                   |  | 439,556,701 |             | 369,148,597 |            
|Securities sold under repurchase agreements (note 9)                                                               |  | 42,987,681  |             | 32,456,383  |            
|Advances from Federal Home Loan Bank (note 9)                                                                      |  | 35,000,000  |             | 35,000,000  |            
|Other borrowed funds (note 9)                                                                                      |  | 1,000,000   |             | 1,000,000   |            
|Accrued interest and other liabilities                                                                             |  | 4,539,968   |             | 3,940,297   |            
|                                                                                                                   |  |             |             |             |            
|Total liabilities                                                                                                  |  | 523,084,350 |             | 441,545,277 |            
|                                                                                                                   |  |             |             |             |            
|Stockholders equity (notes 12, 14, and 16):                                                                       |  |             |             |             |            
|Common stock, $3.00 par value; 10,000,000 shares authorized; 2,404,051 shares issued; 2,385,280
shares outstanding |  | 7,212,153   |             | 7,212,153   |            
|Additional paid-in capital                                                                                         |  | 30,586,925  |             | 30,586,925  |            
|Retained earnings                                                                                                  |  | 7,471,434   |             | 1,461,309   |            
|Treasury stock, at cost 18,771 shares                                                                              |  | (507,360    | )           | (507,360    | )          
|Accumulated other comprehensive income                                                                             |  | 1,984,908   |             | 1,245,567   |            
|                                                                                                                   |  |             |             |             |            
|Total stockholders equity                                                                                         |  | 46,748,060  |             | 39,998,594  |            
|Commitments (note 7)                                                                                               |  |             |             |             |            
|                                                                                                                   |  |             |             |             |            
|                                                                                                                   |  | $           | 569,832,410 |             | 481,543,871
|                                                                                                                   |  |             |             |             |            

52



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GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARYConsolidated Statements of IncomeYears ended December 31, 2002, 2001, and 2000



|                                                                                                                                            |  | 2002       |            | 2001       |            | 2000       |           
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ---------- | ---------- | ---------- | ---------- | ----------
|                                                                                                                                            |  |            |            |            |            |            |           
|Interest income:                                                                                                                            |  |            |            |            |            |            |           
|Loans, including fees                                                                                                                       |  | $          | 24,538,585 |            | 26,341,470 |            | 24,449,106
|Investment securities:                                                                                                                      |  |            |            |            |            |            |           
|Taxable                                                                                                                                     |  | 6,291,398  |            | 5,324,731  |            | 4,523,260  |           
|Tax-exempt                                                                                                                                  |  | 398,281    |            | 415,160    |            | 338,585    |           
|Federal funds sold                                                                                                                          |  | 124,931    |            | 453,551    |            | 519,522    |           
|Interest-bearing deposits in other banks                                                                                                    |  | 17,253     |            | 26,388     |            | 32,286     |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Total interest income                                                                                                                       |  | 31,370,448 |            | 32,561,300 |            | 29,862,759 |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Interest expense:                                                                                                                           |  |            |            |            |            |            |           
|Deposits (including interest on time deposits over $100,000 of $2,682,828, $3,513,577, and $2,970,112
in 2002, 2001, and 2000,respectively) |  | 8,609,816  |            | 12,736,646 |            | 12,677,348 |           
|Federal funds purchased and securities sold under repurchase
agreements                                                                     |  | 639,785    |            | 726,439    |            | 868,367    |           
|Other borrowings                                                                                                                            |  | 1,910,452  |            | 1,785,867  |            | 1,123,923  |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Total interest expense                                                                                                                      |  | 11,160,053 |            | 15,248,952 |            | 14,669,638 |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Net interest income                                                                                                                         |  | 20,210,395 |            | 17,312,348 |            | 15,193,121 |           
|Provision for loan losses (note 4)                                                                                                          |  | 2,414,297  |            | 1,824,650  |            | 1,063,000  |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Net interest income after provision for loan losses                                                                                         |  | 17,796,098 |            | 15,487,698 |            | 14,130,121 |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Noninterest income:                                                                                                                         |  |            |            |            |            |            |           
|Service charges and fees on deposits                                                                                                        |  | 4,431,475  |            | 2,988,622  |            | 2,437,064  |           
|Gain on sale of loans                                                                                                                       |  | 5,915,445  |            | 3,949,316  |            | 1,063,505  |           
|Investment securities gains (losses), net (note 3)                                                                                          |  | 207,241    |            | 68,608     |            | (41,587    | )         
|Retail investment income                                                                                                                    |  | 252,138    |            | 206,454    |            | 249,652    |           
|Trust services fees                                                                                                                         |  | 227,136    |            | 133,064    |            | 17,596     |           
|Miscellaneous income                                                                                                                        |  | 402,076    |            | 482,516    |            | 472,297    |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Total noninterest income                                                                                                                    |  | 11,435,511 |            | 7,828,580  |            | 4,198,527  |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Noninterest expense:                                                                                                                        |  |            |            |            |            |            |           
|Salaries                                                                                                                                    |  | 9,274,273  |            | 8,057,879  |            | 5,668,567  |           
|Employee benefits                                                                                                                           |  | 3,171,480  |            | 2,207,595  |            | 1,642,905  |           
|Occupancy expenses                                                                                                                          |  | 2,255,203  |            | 2,082,547  |            | 1,811,970  |           
|Other operating expenses (note 15)                                                                                                          |  | 5,424,880  |            | 4,305,757  |            | 3,298,910  |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Total noninterest expense                                                                                                                   |  | 20,125,836 |            | 16,653,778 |            | 12,422,352 |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Income before income taxes                                                                                                                  |  | 9,105,773  |            | 6,662,500  |            | 5,906,296  |           
|Income tax expense (note 10)                                                                                                                |  | 3,095,648  |            | 2,101,496  |            | 1,904,000  |           
|                                                                                                                                            |  |            |            |            |            |            |           
|Net income                                                                                                                                  |  | $          | 6,010,125  |            |            | 4,561,004  |           
|                                                                                                                                            |  |            |            |            |            |            |           

53



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GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARYConsolidated Statements of IncomeYears ended December 31, 2002, 2001, and 2000



|                                           |  | 2002 |           | 2001 |  | 2000      | 
|------------------------------------------ |  | ---- | --------- | ---- |  | --------- | 
|                                           |  |      |           |      |  |           | 
|Basic net income per share                 |  | $    | 2.52      |      |  | 1.91      | 
|Diluted net income per share               |  | 2.51 |           | 1.91 |  | 1.67      | 
|Weighted average common shares outstanding |  |      | 2,385,280 |      |  | 2,385,280 | 

54



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GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARYConsolidated Statements of Stockholders Equity and Comprehensive IncomeYears ended December 31, 2002, 2001,
and 2000

|                                                                                                                                           |  |                     |           | Common stock    |   | Additionalpaid-incapital |           |            |                  |             |               | Accumulatedothercomprehensiveincome (loss) |          | Totalstockholdersequity |          
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------- | --------- | --------------- | - | ------------------------ | --------- | ---------- | ---------------- | ----------- | ------------- | ------------------------------------------ | -------- | ------------------------ | ---------
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                           
|                                                                                                                                           |  | Comprehensiveincome |           | Numberof shares |   | Amount                   |           |            | Retainedearnings |             | Treasurystock |                                            |          |                         
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Balance, December 31, 1999                                                                                                                 |  |                     |           | 2,093,152       |   | $                        | 6,279,456 |            | 21,259,955       |             | 3,166,195     |                                            |         |                          | (888,875 
|Comprehensive income:                                                                                                                      |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Net income                                                                                                                                 |  | $                   | 4,002,296 |                 |  |                          |          |            |                 |             | 4,002,296     |                                            |         |                          |         
|Other comprehensive income  unrealized gain on investment securities available for sale, net of
income tax effect of $552,178 (see below) |  | 1,071,877           |           |                |   |                         |           |           |                  |            |               |                                           |          | 1,071,877                |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Total comprehensive income                                                                                                                 |  | $                   | 5,074,173 |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Purchase of treasury stock                                                                                                                 |  |                     |           |                |   |                         |           |           |                  |            |               | (507,360                                   | )        |                         |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Balance, December 31, 2000                                                                                                                 |  |                     |           | 2,093,152       |   | 6,279,456                |           | 21,259,955 |                  | 7,168,491   |               | (507,360                                   | )        | 183,002                  |          
|Comprehensive income:                                                                                                                      |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Net income                                                                                                                                 |  | $                   | 4,561,004 |                 |  |                          |          |            |                 |             | 4,561,004     |                                            |         |                          |         
|Other comprehensive income  unrealized gain on investment securities available for sale, net of
income tax effect of $541,274 (see below) |  | 1,062,565           |           |                |   |                         |           |           |                  |            |               |                                           |          | 1,062,565                |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Total comprehensive income                                                                                                                 |  | $                   | 5,623,569 |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Stock dividend declared  15%                                                                                                              |  |                     |           | 310,899         |   | 932,697                  |           | 9,326,970  |                  | (10,259,667 | )             |                                           |          |                         |          
|Cash paid for fractional shares                                                                                                            |  |                     |           |                |   |                         |           |           |                  | (8,519      | )             |                                           |          |                         |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Balance, December 31, 2001                                                                                                                 |  |                     |           | 2,404,051       |   | 7,212,153                |           | 30,586,925 |                  | 1,461,309   |               | (507,360                                   | )        | 1,245,567                |          
|Comprehensive income:                                                                                                                      |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Net income                                                                                                                                 |  | $                   | 6,010,125 |                 |  |                          |          |            |                 |             | 6,010,125     |                                            |         |                          |         
|Other comprehensive income  unrealized gain on investment securities
available for sale, net of income tax effect of $409,478 (see below) |  | 739,341             |           |                |   |                         |           |           |                  |            |               |                                           |          | 739,341                  |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Total comprehensive income                                                                                                                 |  | $                   | 6,749,466 |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          
|Balance, December 31, 2002                                                                                                                 |  |                     |           | 2,404,051       |   | $                        | 7,212,153 |            | 30,586,925       |             | 7,471,434     |                                            | (507,360 | )                        | 1,984,908
|                                                                                                                                           |  |                     |           |                 |   |                          |           |            |                  |             |               |                                            |          |                          |          



55



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GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARYConsolidated Statements of Stockholders Equity and
Comprehensive IncomeYears ended December 31, 2002, 2001, and 2000



|                                                                                         |  | 2002    |         | 2001   |           | 2000    |          
|---------------------------------------------------------------------------------------- |  | ------- | ------- | ------ | --------- | ------- | ---------
|                                                                                         |  |         |         |        |           |         |          
|Disclosure of reclassification amount:                                                   |  |         |         |        |           |         |          
|Unrealized holding gains arising during period, net of taxes                             |  | $       | 876,120 |        | 1,107,846 |         | 1,044,430
|                                                                                         |  |         |         |        |           |         |          
|Less reclassification adjustment for gains (losses) included in net income, net
of taxes |  | 136,779 |         | 45,281 |           | (27,447 | )        
|                                                                                         |  |         |         |        |           |         |          
|Net unrealized gains in securities                                                       |  | $       | 739,341 |        | 1,062,565 |         | 1,071,877
|                                                                                         |  |         |         |        |           |         |          

See accompanying notes to consolidated financial
statements.

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GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended December 31, 2002, 2001, and 2000



|                                                                                            |  | 2002         |            | 2001         |   | 2000        |  
|------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ------------ | - | ----------- | -
|                                                                                            |  |              |            |              |   |             |  
|                                                                                            |  |              |            |              |   |             |  
|Cash flows from operating activities:                                                       |  |              |            |              |   |             |  
|Net income                                                                                  |  | $            | 6,010,125  |              |   | 4,561,004   |  
|Adjustments to reconcile net income to net cash (used in) provided by operating
activities: |  |              |            |              |   |             |  
|Depreciation and amortization                                                               |  | 1,376,645    |            | 1,245,835    |   | 1,140,369   |  
|Deferred income tax benefit                                                                 |  | (443,926     | )          | (428,192     | ) | (259,366    | )
|Provision for loan losses                                                                   |  | 2,414,297    |            | 1,824,650    |   | 1,063,000   |  
|Net investment securities (gains) losses                                                    |  | (207,241     | )          | (68,608      | ) | 41,587      |  
|Net amortization (accretion) of premium/discount on investment securities                   |  | 501,313      |            | 8,528        |   | (50,661     | )
|Loss (gain) on disposal of premises and equipment                                           |  | 31,935       |            | 69,817       |   | (16,732     | )
|(Gain) loss on the sale of other real estate                                                |  | (18,420      | )          | 8,042        |   | (17,570     | )
|Gain on sale of loans                                                                       |  | (5,915,445   | )          | (3,949,316   | ) | (1,063,505  | )
|Real estate loans originated for sale                                                       |  | (267,233,862 | )          | (208,613,336 | ) | (51,560,617 | )
|Proceeds from sales of real estate loans                                                    |  | 258,037,768  |            | 205,338,175  |   | 51,331,790  |  
|(Increase) decrease in accrued interest receivable                                          |  | (358,219     | )          | 206,973      |   | (744,406    | )
|(Increase) decrease in other assets                                                         |  | (230,275     | )          | 10,387       |   | (739,751    | )
|Increase in accrued interest and other liabilities                                          |  | 599,671      |            | 506,144      |   | 1,601,908   |  
|                                                                                            |  |              |            |              |   |             |  
|                                                                                            |  |              |            |              |   |             |  
|Net cash (used in) provided by operating activities                                         |  | (5,435,634   | )          | 720,103      |   | 4,728,342   |  
|                                                                                            |  |              |            |              |   |             |  
|                                                                                            |  |              |            |              |   |             |  
|Cash flows from investing activities:                                                       |  |              |            |              |   |             |  
|Proceeds from sales of available for sale securities                                        |  | 14,281,961   |            | 8,991,600    |   | 5,914,311   |  
|Proceeds from maturities of available for sale securities                                   |  | 45,001,836   |            | 33,425,337   |   | 5,797,962   |  
|Proceeds from maturities of held to maturity securities                                     |  | 1,305,000    |            | 1,150,808    |   | 523,022     |  
|Purchase of held to maturity securities                                                     |  |             |            |             |   | (1,864,517  | )
|Purchase of available for sale securities                                                   |  | (88,796,204  | )          | (70,132,464  | ) | (23,353,969 | )
|Purchase of FHLB stock                                                                      |  |             |            | (550,000     | ) | (321,600    | )
|Net increase in loans                                                                       |  | (43,457,091  | )          | (49,876,632  | ) | (43,841,211 | )
|Purchase of Company-owned life insurance                                                    |  |             |            | (1,155,000   | ) | (878,292    | )
|Purchases of premises and equipment                                                         |  | (2,824,783   | )          | (2,933,835   | ) | (2,045,163  | )
|Proceeds from sale of other real estate                                                     |  | 568,303      |            | 218,604      |   | 34,512      |  
|Proceeds from sale of premises and equipment                                                |  | 58,001       |            | 33,981       |   | 815,026     |  
|                                                                                            |  |              |            |              |   |             |  
|                                                                                            |  |              |            |              |   |             |  
|Net cash used in investing activities                                                       |  | (73,862,977  | )          | (80,827,601  | ) | (59,219,919 | )
|                                                                                            |  |              |            |              |   |             |  
|                                                                                            |  |              |            |              |   |             |  
|Cash flows from financing activities:                                                       |  |              |            |              |   |             |  
|Net increase in noninterest-bearing deposits                                                |  | 13,532,819   |            | 6,663,587    |   | 6,967,290   |  
|Net increase in NOW accounts                                                                |  | 14,296,485   |            | 8,499,845    |   | 5,659,642   |  
|Net increase in savings accounts                                                            |  | 25,192,197   |            | 30,171,446   |   | 2,870,336   |  
|Net increase in money management accounts                                                   |  | 4,867,714    |            | 8,573,321    |   | 571,414     |  
|Net increase in time deposits over $100,000                                                 |  |              | 26,111,498 |              |   | 7,309,851   |  

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|                                                                                        |  | 2002        |            | 2001        |            | 2000        |           
|--------------------------------------------------------------------------------------- |  | ----------- | ---------- | ----------- | ---------- | ----------- | ----------
|                                                                                        |  |             |            |             |            |             |           
|Net (decrease) increase in other time deposits                                          |  | (13,592,609 | )          | (2,997,217  | )          | 2,866,981   |           
|                                                                                        |  |             |            |             |            |             |           
|Net increase in federal funds purchased and securities sold under repurchase agreements |  | 10,531,298  |            | 360,831     |            | 20,764,164  |           
|Proceeds from other borrowed funds                                                      |  |            |            | 50,000      |            |            |           
|Advances from Federal Home Loan Bank                                                    |  | 5,000,000   |            | 11,000,000  |            | 29,000,000  |           
|Payments of Federal Home Loan Bank advances                                             |  | (5,000,000  | )          |            |            | (20,000,000 | )         
|Principal payments on other borrowed funds                                              |  |            |            |            |            | (50,000     | )         
|Purchase of treasury stock                                                              |  |            |            |            |            | (507,360    | )         
|Cash paid for fractional shares                                                         |  |            |            | (8,519      | )          |            |           
|                                                                                        |  |             |            |             |            |             |           
|                                                                                        |  |             |            |             |            |             |           
|Net cash provided by financing activities                                               |  | 80,941,404  |            | 69,625,146  |            | 57,015,823  |           
|                                                                                        |  |             |            |             |            |             |           
|                                                                                        |  |             |            |             |            |             |           
|Net increase (decrease) in cash and cash equivalents                                    |  | 1,642,793   |            | (10,482,352 | )          | 2,524,246   |           
|                                                                                        |  |             |            |             |            |             |           
|Cash and cash equivalents at beginning of year                                          |  | 15,509,900  |            | 25,994,253  |            | 23,472,007  |           
|                                                                                        |  |             |            |             |            |             |           
|Cash and cash equivalents at end of year                                                |  | $           | 17,152,693 |             | 15,511,901 |             | 25,996,253
|                                                                                        |  |             |            |             |            |             |           
|                                                                                        |  |             |            |             |            |             |           
|                                                                                        |  |             |            |             |            |             |           
|Supplemental disclosures of cash paid during the year for:                              |  |             |            |             |            |             |           
|Interest                                                                                |  | $           | 11,425,787 |             | 15,575,863 |             | 14,262,422
|Income taxes                                                                            |  | 3,625,000   |            | 2,381,406   |            | 1,918,100   |           
|                                                                                        |  |             |            |             |            |             |           
|Supplemental information on noncash investing activities:                               |  |             |            |             |            |             |           
|Loans transferred to other real estates                                                 |  | $           | 549,883    |             | 146,236    |             | 80,410    

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Georgia Bank Financial Corporation and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2002, 2001 and 2000

(1)Summary of Significant Accounting Policies

Georgia Bank Financial Corporation (the
Company) and subsidiary (collectively the Bank) offer a wide range of lending services, including real estate, commercial, and consumer loans to individuals and small to medium-sized businesses and professionals that are located in, or conduct a
substantial portion of their business in, the Richmond and Columbia County areas of Georgia. The Bank is subject to competition from other financial institutions and is also subject to the regulations of certain Federal and state agencies and
undergoes periodic examinations by those regulatory authorities.

The accounting and reporting policies of the Bank conform to accounting principles generally
accepted in the United States of America and to general practice within the banking industry. The following is a description of the more significant of those policies the Bank follows in preparing and presenting its consolidated financial
statements.

(a)Basis of Presentation

The consolidated financial statements include the accounts of Georgia Bank Financial Corporation and its wholly owned subsidiary, Georgia Bank & Trust Company of Augusta.
Significant intercompany transactions and accounts are eliminated in consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing
the consolidated financial statements, management is required 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 date of the balance sheet
and revenues and expenses for the period. Actual results could differ significantly 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. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant
properties.

A substantial portion of the Banks loans is secured by real estate in Augusta, Georgia, and the surrounding area. Accordingly, the ultimate
collectibility of a substantial portion of the Banks loan portfolio is susceptible to changes in real estate market conditions in the Augusta, Georgia, and surrounding area.

(b)Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, federal funds sold, and short-term interest-bearing deposits in other banks. Generally, federal funds are sold for one-day periods.

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(c)Investment Securities

The Bank classifies its investment securities into one of three categories: available for sale, held to maturity, or trading. Held to maturity securities are those
securities for which the Bank has the ability and intent to hold the security until maturity. All other securities are classified as available for sale. The Bank does not hold any trading securities.

Held to maturity securities are recorded at cost adjusted for the amortization or accretion of premiums or discounts. Available for sale securities are recorded at fair value. Unrealized holding
gains and losses, net of related tax effects, on securities available for sale are excluded from earnings and are reported within stockholders equity as a component of accumulated other comprehensive income until realized.

A decline in the fair value of any available for sale or held to maturity security below cost that is deemed other than temporary results in a charge to earnings and the
establishment of a new cost basis for the security.

Premiums and discounts are amortized or accreted over the life of the related investment security as an
adjustment to yield using a method which approximates the effective interest method and takes into consideration prepayment assumptions. Dividends and interest income are recognized when earned. Realized gains and losses for investment securities
available for sale which are sold are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

(d)Loans and Allowance for Loan Losses

Loans are stated at the amount of unpaid principal outstanding, reduced by an allowance for loan losses. Interest on loans is calculated using the simple interest method. Accrual of interest is discontinued on loans
that become past due 90 days or more and for which collateral is inadequate to cover principal and interest, or immediately if management believes, after considering economic and business conditions and collection efforts, that a
borrowers financial condition is such that collection is doubtful. When a loan is placed on nonaccrual status, all previously accrued but uncollected interest is reversed against current period interest income. Future collections are applied
first to principal and then to interest until such loans are brought current, at which time loans may be returned to accrual status.

The allowance for loan
losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to
the allowance. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that become uncollectible, based on evaluations of the collectibility of loans. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, historical loss rates, overall portfolio quality, review of specific problem loans, and current economic conditions and trends that may affect a borrowers ability to pay. The
allowance is evaluated on a regular basis utilizing estimated loss factors for specific types of loans. Such loss factors are periodically reviewed and adjusted as necessary based on actual losses.

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 may be necessary based
on changes in economic conditions. In addition, various regulatory agencies,

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as an integral part of their examination process, periodically review the Banks allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The
Bank originates mortgages to be held for sale only for loans that have been individually pre-approved by the investor. The Bank bears minimal interest rate risk on these loans and only holds the loans temporarily until documentation can be completed
to finalize sale to the investor. Such loans are stated at the lower of cost or aggregate fair value.

The Bank accounts for impaired loans under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 114,Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the note agreement. The provisions of SFAS No. 114 do not apply to large pools of smaller balance homogeneous loans, such as consumer and installment loans, which are collectively evaluated for impairment.
Impairment losses are included in the allowance for loan losses through a charge to the provision for loan losses, and are measured based on the present value of expected future cash flows, discounted at the loans effective interest rate, or
the loans observable market price, or the fair value of the collateral if the loan is collateral dependent. Cash receipts on impaired loans which are accruing interest are applied to principal and interest under the contractual terms of the
loan agreement. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to reduce the principal amount of such loans until all contractual principal payments have been brought current.

(e)Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful lives of the related assets, which range from
three to forty years.

(f)Other Real Estate

Other real estate is carried at the lower of its cost or fair value less estimated costs to sell. Any excess of the loan balance at the time of foreclosure over the fair
value of the collateral is treated as a loan loss and is charged against the allowance for loan losses. A provision for estimated losses on other real estate is charged to earnings upon subsequent declines in value. Costs related to the development
and improvement of property are capitalized; holding costs are charged to expense.

(g)Intangible Assets

Intangible assets relate to certain acquisitions and consist of
goodwill and deposit base premiums. The core deposit intangible is being amortized on a straight-line basis over the estimated lives of the related deposits, which is estimated to be 10 years.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142,Goodwill and Other Intangible Assets, which eliminates
amortization of goodwill and intangible assets that have indefinite useful lives and requires annual tests of impairments of those assets. SFAS No. 142 also provides specific guidance about how to determine and measure goodwill and intangible
asset impairments, and requires additional disclosures of

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information about goodwill and other intangible assets. The provisions of SFAS No. 142 are required to be applied starting with
fiscal years beginning after December 15, 2001 and applied to all goodwill and other intangible assets recognized in financial statements at the date of adoption. Due to the insignificance of the Banks intangible assets at
December 31, 2001, the adoption of SFAS No. 142 by the Bank did not have a material effect on the Banks consolidated results of operations, financial position, or cash flows.

(h)Stock-Based Compensation

In December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No.123. SFAS No. 148 amends SFAS No. 123,Accounting for Stock-Based Compensation, to provide alternative methods of transition for an
entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net
income of an entitys accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 also amends Accounting Principles Board (APB) Opinion No. 28,Interim Financial
Reporting, to require disclosure about those effects in the interim financial information. The Bank adopted the provisions of SFAS No. 148 effective December 31, 2002.

The Bank applies APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock option
plans. Accordingly, compensation cost is measured as the excess, if any, of the quoted market price of the Banks stock at the date of grant over the amount an employee must pay to acquire the stock. Had compensation cost been determined based
upon the fair value of the options at the grant dates consistent with the method recommended by SFAS No. 123, on a pro forma basis, the Banks net income and income per share for the years ended December 31, 2002, 2001, and 2000 is indicated
below:



|                                                                                                                   |  | 2002    |           | 2001    |      | 2000      |     
|------------------------------------------------------------------------------------------------------------------ |  | ------- | --------- | ------- | ---- | --------- | ----
|                                                                                                                   |  |         |           |         |      |           |     
|Net income                                                                                                         |  | $       | 6,010,125 |         |      | 4,561,004 |     
|Deduct: Total stock-based compensation expense determined under fair value based method, net of
related tax effect |  | (93,175 | )         | (26,816 | )    | (8,354    | )   
|                                                                                                                   |  |         |           |         |      |           |     
|Pro forma                                                                                                          |  | $       | 5,916,950 |         |      | 4,534,188 |     
|                                                                                                                   |  |         |           |         |      |           |     
|Basic net income per share:                                                                                        |  |         |           |         |      |           |     
|As reported                                                                                                        |  | $       | 2.52      |         | 1.91 |           | 1.67
|Pro forma                                                                                                          |  | 2.48    |           | 1.90    |      | 1.67      |     
|Diluted net income per share:                                                                                      |  |         |           |         |      |           |     
|As reported                                                                                                        |  | 2.51    |           | 1.91    |      | 1.67      |     
|Pro forma                                                                                                          |  |         | 2.47      |         |      | 1.90      |     

(i)Income Taxes

The Bank accounts for income taxes
under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are

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expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. A deferred tax valuation allowance is provided to the extent it is more likely than not that deferred tax assets will not be realized.

(j)Income Per Share

Basic net income per share is computed on the weighted average number of shares outstanding in accordance with SFAS No. 128,Earnings Per Share. Diluted net income per share is computed by
dividing net income by weighted average shares outstanding plus common share equivalents resulting from dilutive stock options, determined using the treasury stock method.

On July 18, 2001, the Companys board of directors approved a 15% stock dividend payable on August 10, 2001 to shareholders of record on August 31, 2001. All weighted average share and per share
information in the accompanying financial statements has been restated to reflect the effect of the additional shares outstanding from the stock dividend.

(k)Other Comprehensive Income

Other comprehensive income
for the Bank consists of items recorded directly in equity under SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities.

(l)Segment Disclosures

SFAS No. 131 establishes standards for the disclosures made by public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Bank operates as a
single segment.

(m)Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No.4, 44, and
64, Amendment of FASB Statement No.13, and Technical Corrections. SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. SFAS No. 145
requires that in certain circumstances previous items classified as extraordinary that do not meet the criteria in APB Opinion 30 must be reclassified. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002.
Management does not expect the adoption of SFAS No. 145 to have a material effect on the Companys financial condition or results of operations.

In
July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with
exit or disposal activities. SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan. SFAS No. 146 is
effective prospectively for exit or disposal activities initiated after December 31, 2002. Management does not anticipate that SFAS No. 146 will have a material impact on the Companys financial condition or results of
operations.

In October 2002, the FASB issued SFAS No. 147,Acquisitions of Certain Financial Institutions.
SFAS No. 147 removes acquisitions of financial institutions from the scope of

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both SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9,
Applying APB Opinions No. 16 and 17, When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method and requires that those transactions be accounted for in accordance
with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. In addition, SFAS No. 147 amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in
its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. SFAS No. 147s transition provisions require
affected institutions to reclassify their SFAS No. 72 goodwill as SFAS No. 142 goodwill as of the date the Company initially applied SFAS No. 142 in its entirety. The adoption of SFAS No. 147 did not have any impact on the
Companys financial condition or results of operations.

In November 2002, the FASB issued Interpretation No. 45,Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for
the fair value of the obligation undertaken in issuing such guarantee. FIN 45 also requires additional disclosure about the guarantors obligations under certain guarantees that it has issued. The initial recognition and measurement provisions
of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective after December 15, 2002. Management does not anticipate that FIN 45 will have a
material impact on the Companys financial condition or results of operations.

In January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities and Interpretation of ARB No. 51(FIN 46). FIN 46 establishes the criteria for consolidating variable interest entities. FIN 46 is effective for fiscal years or interim
periods beginning after June 15, 2003, to variable entities that were acquired before February 1, 2003. Management does not anticipate that FIN 46 will have a material impact on the Companys financial condition or results of
operations.

(2)Cash and Due From Banks

The subsidiary bank is required by the Federal Reserve Bank to maintain average daily cash balances. These required balances were $25,000 at December 31, 2002 and 2001.

(3)Investment Securities

A summary of investment securities as of December 31, 2002 and 2001 is as follows:

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|                                                 |  | 2002          |            
|------------------------------------------------ |  | ------------- | -----------
|                                                 |  |               |            
|                                                 |  | Amortizedcost |            
|                                                 |  |               |            
|Held to maturity:                                |  |               |            
|Obligations of states and political subdivisions |  | $             | 6,138,889  
|                                                 |  |               |            
|                                                 |  | $             | 6,138,889  
|                                                 |  |               |            
|Available for sale:                              |  |               |            
|Obligations of U.S. Government agencies          |  | $             | 49,035,869 
|Obligations of states and political subdivisions |  | 5,783,464     |            
|Mortgage-backed securities                       |  | 55,291,893    |            
|Corporate bonds                                  |  | 15,868,419    |            
|Equity securities                                |  | 4,984,721     |            
|                                                 |  |               |            
|                                                 |  | $             | 130,964,366
|                                                 |  |               |            



|                                                 |  | 2001          |            
|------------------------------------------------ |  | ------------- | -----------
|                                                 |  |               |            
|                                                 |  | Amortizedcost |            
|                                                 |  |               |            
|Held to maturity:                                |  |               |            
|Obligations of states and political subdivisions |  | $             | 7,453,215  
|                                                 |  |               |            
|                                                 |  | $             | 7,453,215  
|                                                 |  |               |            
|Available for sale:                              |  |               |            
|Obligations of U.S. Government agencies          |  | $             | 37,651,284 
|Obligations of states and political subdivisions |  | 3,175,416     |            
|Mortgage-backed securities                       |  | 40,639,249    |            
|Corporate bonds                                  |  | 16,290,248    |            
|Equity securities                                |  | 3,984,721     |            
|                                                 |  |               |            
|                                                 |  | $             | 101,740,918
|                                                 |  |               |            

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The amortized cost and estimated fair value of securities held to maturity and available for sale, other than equity securities, as of
December 31, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.



|                                   |  | Securities held to maturity |           | Securities available for sale |          
|---------------------------------- |  | --------------------------- | --------- | ----------------------------- | ---------
|                                   |  |                             |           |                               |          
|                                   |  | Amortizedcost               |           | Estimatedfair value           |          
|                                   |  |                             |           |                               |          
|One year or less                   |  | $                           | 701,793   |                               | 715,704  
|After one year through five years  |  | 1,968,596                   |           | 2,050,460                     |          
|After five years through ten years |  | 1,659,609                   |           | 1,757,785                     |          
|After ten years                    |  | 1,808,891                   |           | 1,861,701                     |          
|                                   |  |                             |           |                               |          
|                                   |  | 6,138,889                   |           | 6,385,650                     |          
|Mortgage-backed securities         |  |                            |           |                              |          
|                                   |  |                             |           |                               |          
|                                   |  | $                           | 6,138,889 |                               | 6,385,650
|                                   |  |                             |           |                               |          

Proceeds from sales of investment securities during
2002, 2001, and 2000 were $14,281,961, $8,991,600, and $5,914,311, respectively. Gross realized gains of $228,439 and $89,425 were realized on those sales in 2002 and 2001, respectively, and gross realized losses of $21,198, $20,817, and $41,587,
were realized on those sales in 2002, 2001, and 2000, respectively.

Investment securities with a carrying amount of approximately $90,077,000 and $73,636,000
at December 31, 2002 and 2001, respectively, were pledged to secure public and trust deposits, and for other purposes required by law.

(4)Loans

Loans at December 31, 2002 and 2001 are summarized as
follows:



|                                        |  | 2002        |             | 2001        |            
|--------------------------------------- |  | ----------- | ----------- | ----------- | -----------
|                                        |  |             |             |             |            
|Commercial, financial, and agricultural |  | $           | 55,807,756  |             | 49,549,945 
|Real estate  construction/development  |  | 79,483,205  |             | 67,497,286  |            
|Other loans secured by real estate:     |  |             |             |             |            
|Single-family                           |  | 75,224,104  |             | 63,913,659  |            
|Commercial                              |  | 111,981,495 |             | 103,515,795 |            
|Consumer installment                    |  | 49,906,119  |             | 46,008,113  |            
|                                        |  |             |             |             |            
|                                        |  | 372,402,679 |             | 330,484,798 |            
|Less allowance for loan losses          |  | 6,534,417   |             | 5,109,447   |            
|                                        |  |             |             |             |            
|                                        |  | $           | 365,868,262 |             | 325,375,351
|                                        |  |             |             |             |            

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As of December 31, 2002 and 2001, the Bank had nonaccrual loans aggregating $1,896,670 and $1,952,622, respectively. Interest that
would have been recorded on nonaccrual loans had they been in accruing status was approximately $60,000 in 2002, $101,000 in 2001, and $38,000 in 2000.

At
December 31, 2002 and 2001, the Bank had impaired loans with an outstanding balance of $518,000 and $609,000, respectively, with a related valuation allowance of $155,000 and $209,000 at December 31, 2002 and 2001. The average balance of
impaired loans was approximately $380,000, $847,000, and $903,000 for the years ended December 31, 2002, 2001, and 2000, respectively. The interest recognized on such loans in 2002, 2001, and 2000 was immaterial.

The following is a summary of the activity in the allowance for loan losses for the years ended December 31, 2002, 2001, and 2000:



|                           |  | 2002       |           | 2001       |           | 2000      |          
|-------------------------- |  | ---------- | --------- | ---------- | --------- | --------- | ---------
|                           |  |            |           |            |           |           |          
|Balance, beginning of year |  | $          | 5,109,447 |            | 4,142,841 |           | 3,591,613
|Provision for loan losses  |  | 2,414,297  |           | 1,824,650  |           | 1,063,000 |          
|Charge-offs                |  | (1,626,813 | )         | (1,069,925 | )         | (622,328  | )        
|Recoveries                 |  | 637,486    |           | 211,881    |           | 110,556   |          
|                           |  |            |           |            |           |           |          
|Balance, end of year       |  | $          | 6,534,417 |            |           | 5,109,447 |          
|                           |  |            |           |            |           |           |          

In the ordinary course of business, the Bank has
direct and indirect loans outstanding to certain executive officers, directors, and principal holders of equity securities (including their associates). Management believes such loans are made substantially on the same terms, including interest rate
and collateral, as those prevailing at the time for comparable transactions with other customers.

The following is a summary of the activity in loans
outstanding to officers, directors, and their associates for the year ended December 31, 2002:



|Balance at beginning of year |  | $           | 13,448,018 | 
|---------------------------- |  | ----------- | ---------- | 
|New loans                    |  | 23,296,399  |           
|Principal repayments         |  | (19,789,824 | )         
|                             |  |             |           
|Balance at end of year       |  | $           | 16,954,593 | 
|                             |  |             |            | 

The Bank is also committed to extend credit to
certain directors and executives of the Bank, including companies in which they are principal owners, through personal lines of credit, letters of credit, and other loan commitments. As of December 31, 2002, available balances on these
commitments to these persons aggregated approximately $4,472,000.

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(5)Premises and Equipment

Premises and equipment at December 31, 2002 and 2001 are summarized as follows:



|                              |  | 2002 |            | 2001 | 
|----------------------------- |  | ---- | ---------- | ---- | 
|                              |  |      |            |      | 
|Land                          |  | $    | 2,278,905  |      | 
|Buildings                     |  |      | 10,868,094 |      | 
|Furniture and equipment       |  |      | 6,513,146  |      | 
|                              |  |      |            |      | 
|                              |  |      | 19,660,145 |      | 
|Less accumulated depreciation |  |      | 5,777,158  |      | 
|                              |  |      |            |      | 
|                              |  | $    | 13,882,987 |      | 
|                              |  |      |            |      | 

Depreciation expense amounted to $1,269,893,
$1,122,749, and $1,017,284 in 2002, 2001, and 2000, respectively.

(6)Intangible
Assets

Intangible assets, net of accumulated amortization, at December 31, 2002 and 2001 are summarized as follows:



|                     |  | 2002    |         | 2001    |        
|-------------------- |  | ------- | ------- | ------- | -------
|                     |  |         |         |         |        
|Core deposit premium |  | $       |        |         | 106,752
|Goodwill             |  | 139,883 |         | 139,883 |        
|                     |  |         |         |         |        
|                     |  | $       | 139,883 |         |        
|                     |  |         |         |         |        

Amortization expense of core deposit premium
amounted to $106,752 in each of 2002, 2001, and 2000. Amortization expense of goodwill amounted to $16,334 in 2001 and $16,333 in 2000.

(7)Commitments

The Bank is committed under various operating leases for office space
and equipment. At December 31, 2002, minimum future lease payments under noncancelable real property and equipment operating leases are as follows:



|2003 |  | $       | 153,172 | 
|---- |  | ------- | ------- | 
|2004 |  | 131,635 |        
|2005 |  | 61,353  |        
|2006 |  | 38,460  |        
|2007 |  | 30,700  |        
|     |  |         |        
|     |  | $       | 415,320 | 
|     |  |         |         | 

Rent expense for all building, equipment, and
furniture rentals totaled $237,171, $210,801, and $196,940 for the years ended December 31, 2002, 2001, and 2000, respectively.

The Bank is party to
lines of credit with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Lines of credit are unfunded commitments to extend



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credit. These instruments involve, in varying degrees, exposure to credit and interest rate risk in excess of the amounts recognized in
the financial statements. The Banks exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded commitments to extend credit is represented by the contractual amount of those instruments.
The Bank follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Unfunded commitments
to extend credit where contract amounts represent potential credit risk totaled $68,054,000 and $69,645,000 at December 31, 2002 and 2001, respectively. These commitments are primarily at variable interest rates.

Lines of credit are legally binding contracts to lend to a customer, as long as there is no violation of any condition established in the contract. These commitments have fixed
termination dates and generally require payment of a fee. As commitments often expire prior to being drawn, the amounts above do not necessarily represent the future cash requirements of the commitments. Credit worthiness is evaluated on a case by
case basis, and if necessary, collateral is obtained to support the commitment.

(8)Deposits

At December 31, 2002, scheduled maturities of certificates of deposit are as follows:



|Years ending December 31: |  |            |             | 
|------------------------- |  | ---------- | ----------- | 
|2003                      |  | $          | 93,195,681  | 
|2004                      |  | 18,542,461 |            
|2005                      |  | 6,885,369  |            
|2006                      |  | 2,285,033  |            
|2007                      |  | 3,980,032  |            
|Thereafter                |  | 285,813    |            
|                          |  |            |            
|Total                     |  | $          | 125,174,389 | 
|                          |  |            |             | 

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(9)Borrowings

The securities sold under repurchase agreements at December 31, 2002 are collateralized by obligations of the U.S. Government or its corporations and agencies, state and municipal securities, or
mortgage-backed securities with an aggregate carrying value of $45,154,995, which are held by independent trustees. Under such agreements, the Bank agrees to repurchase identical securities as those sold. The repurchase agreements at December 31,
2002 mature on demand. The following summarizes pertinent data related to the securities sold under the agreements to repurchase as of and for the years ended December 31, 2002, 2001, and 2000.



|                                            |  | 2002 |            | 2001 |            | 2000 |           
|------------------------------------------- |  | ---- | ---------- | ---- | ---------- | ---- | ----------
|                                            |  |      |            |      |            |      |           
|                                            |  |      |            |      |            |      |           
|Weighted average borrowing rate at year-end |  | 1.59 | %          | 1.66 | %          | 4.42 | %         
|                                            |  |      |            |      |            |      |           
|Average daily balance during the year       |  | $    | 39,540,854 |      | 26,916,000 |      | 18,967,000
|                                            |  |      |            |      |            |      |           
|Maximum month-end balance during the year   |  |      | 48,079,709 |      | 35,527,000 |      | 32,096,000
|                                            |  |      |            |      |            |      |           
|Balance at year-end                         |  | $    | 42,987,681 |      | 32,456,383 |      | 32,095,552

At December 31, 2002, the Bank had
securities sold under agreements to repurchase with one counterparty aggregating approximately $22,954,000.

The Bank has an available line of credit from the
Federal Home Loan Bank of Atlanta (FHLB) in an amount not to exceed 10% of total assets. The line of credit is reviewed annually by the FHLB. The following fixed-rate advances were outstanding under this line at December 31, 2002 and
2001.



|                              |  | 2002      |            | 2001      |           
|----------------------------- |  | --------- | ---------- | --------- | ----------
|                              |  |           |            |           |           
|Due May 19, 2003, 4.95%       |  | $         |           |           | 5,000,000 
|Due December 30, 2003, 1.41%  |  | 5,000,000 |            |          |           
|Due March 22, 2010, 6.18%     |  | 7,000,000 |            | 7,000,000 |           
|Due March 30, 2010, 6.02%     |  | 5,000,000 |            | 5,000,000 |           
|Due September 29, 2010, 5.82% |  | 5,000,000 |            | 5,000,000 |           
|Due October 18, 2010, 5.46%   |  | 7,000,000 |            | 7,000,000 |           
|Due May 2, 2011, 4.80%        |  | 6,000,000 |            | 6,000,000 |           
|                              |  |           |            |           |           
|                              |  | $         | 35,000,000 |           | 35,000,000
|                              |  |           |            |           |           
|Weighted average rate         |  | 5.04      | %          | 5.55      | %         

Required principal payments under
the FHLB advances for the next five years and thereafter are as follows:

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|Years ending December 31: |  |            |            | 
|------------------------- |  | ---------- | ---------- | 
|2003                      |  | $          | 5,000,000  | 
|2004                      |  |           |           
|2005                      |  |           |           
|2006                      |  |           |           
|2007                      |  |           |           
|Thereafter                |  | 30,000,000 |           
|                          |  |            |           
|Total                     |  | $          | 35,000,000 | 
|                          |  |            |            | 

The FHLB has the option to convert the fixed-rate
advances to three-month, LIBOR-based floating-rate advances at various dates throughout the terms of the advances.

At December 31, 2002 and 2001, the
Bank has pledged, under a blanket floating lien, first mortgage loans with unpaid balances which, when discounted at 75% of such unpaid principal balances, equals or exceeds the advances outstanding.

Other borrowed funds at December 31, 2002 and 2001 consist of a treasury, tax, and loan account with the Federal Reserve Bank of $1,000,000.

(10)Income Taxes

Income tax expense
(benefit) for the years ended December 31, 2002, 2001, and 2000 consists of the following:



|                         |  | 2002      |           | 2001      |           | 2000      |          
|------------------------ |  | --------- | --------- | --------- | --------- | --------- | ---------
|                         |  |           |           |           |           |           |          
|Current tax expense:     |  |           |           |           |           |           |          
|Federal                  |  | $         | 3,106,235 |           | 2,314,823 |           | 2,019,704
|State                    |  | 433,339   |           | 214,865   |           | 143,662   |          
|                         |  |           |           |           |           |           |          
|Total current            |  | 3,539,574 |           | 2,529,688 |           | 2,163,366 |          
|                         |  |           |           |           |           |           |          
|Deferred tax benefit:    |  |           |           |           |           |           |          
|Federal                  |  | (376,939  | )         | (364,064  | )         | (220,584  | )        
|State                    |  | (66,987   | )         | (64,128   | )         | (38,782   | )        
|                         |  |           |           |           |           |           |          
|Total deferred           |  | (443,926  | )         | (428,192  | )         | (259,366  | )        
|                         |  |           |           |           |           |           |          
|Total income tax expense |  | $         | 3,095,648 |           |           | 2,101,496 |          
|                         |  |           |           |           |           |           |          

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Income tax expense differed from the amount computed by applying the statutory Federal corporate tax rate of 34% to income before income
taxes as follows:



|                                                   |  | Years ended December 31 |          
|-------------------------------------------------- |  | ----------------------- | ---------
|                                                   |  |                         |          
|                                                   |  | 2002                    |          
|                                                   |  |                         |          
|Computed expected tax expense                    |  | $                       | 3,095,963
|Increase (decrease) resulting from:                |  |                         |          
|Tax-exempt interest income                         |  | (249,304                | )        
|Nondeductible interest expense                     |  | 23,506                  |          
|State income tax, net of Federal tax effect        |  | 241,792                 |          
|Earnings on cash surrender value of life insurance |  | (51,580                 | )        
|Meals, entertainment, and club dues                |  | 31,622                  |          
|Other, net                                         |  | 3,649                   |          
|                                                   |  |                         |          
|                                                   |  | $                       | 3,095,648
|                                                   |  |                         |          

The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001 are presented below:

|                                                            |  | 2002       |           | 2001      |  
|----------------------------------------------------------- |  | ---------- | --------- | --------- | -
|                                                            |  |            |           |           |  
|Deferred tax assets:                                        |  |            |           |           |  
|Allowance for Loan losses                                   |  | $          | 2,238,801 |           |  
|Deferred compensation                                       |  | 289,113    |           | 252,880   |  
|Other                                                       |  | 10,042     |           | 74,515    |  
|Depreciation                                                |  |           |           | 52,501    |  
|                                                            |  |            |           |           |  
|Total deferred tax assets                                   |  | 2,537,956  |           | 1,975,058 |  
|                                                            |  |            |           |           |  
|Deferred tax liabilities:                                   |  |            |           |           |  
|Depreciation                                                |  | (118,972   | )         |          |  
|Unrealized gain on investment securities available for sale |  | (1,022,528 | )         | (613,050  | )
|                                                            |  |            |           |           |  
|Total deferred tax liabilities                              |  | (1,141,500 | )         | (613,050  | )
|                                                            |  |            |           |           |  
|Net deferred tax asset                                      |  | $          | 1,396,456 |           |  
|                                                            |  |            |           |           |  

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers taxes paid in the carryback period, the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and projection for future taxable income over the periods which the temporary differences resulting in the deferred tax assets are deductible, management believes it is more
likely than not that the Bank will realize the benefits of these deductible differences.

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(11)Related Parties

Deposits include accounts with certain directors and executives of the Bank, including companies in which they are principal owners. As of December 31, 2002, these deposits totaled approximately
$7,464,000.

During the years ended December 31, 2002, 2001, and 2000, the Bank paid approximately $26,000, $12,000, and $15,000, respectively, in legal
fees in the normal course of business to a law firm in which a director is a member.

(12)Regulatory Capital Requirements

The Bank is 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 Banks consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy, require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2002, that the
Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2002, the most recent notification from the Federal Reserve Bank
of Atlanta categorized the bank subsidiary as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the bank subsidiary must maintain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios as set forth in the table below. Management is not aware of the existence of any conditions or events occurring subsequent to December 31, 2002 which would affect the bank subsidiarys well capitalized
classification.

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Actual capital amounts and ratios for the Bank are presented in the table below as of December 31, 2002 and 2001, on a consolidated basis and for the
bank subsidiary individually (dollars in thousands):



|                                                                |  | Actual |        | For capital adequacypurposes |   | To be well capitalized underprompt corrective actionprovisions |  
|--------------------------------------------------------------- |  | ------ | ------ | ---------------------------- | - | -------------------------------------------------------------- | -
|                                                                |  |        |        |                              |   |                                                                |  
|                                                                |  | Amount |        | Ratio                        |   | Amount                                                         |  
|                                                                |  |        |        |                              |   |                                                                |  
|                                                                |  |        |        |                              |   |                                                                |  
|Georgia Bank Financial Corporation and subsidiary consolidated: |  |        |        |                              |   |                                                                |  
|As of December 31, 2002:                                        |  |        |        |                              |   |                                                                |  
|Total Capital (to risk-weighted assets)                         |  | $      | 50,130 |                              |   | 11.40                                                          | %
|Tier I Capital - risk-based (to risk-weighted assets)           |  | 44,623 |        | 10.15                        | % | 17,583                                                         |  
|Tier I Capital - leverage (to average assets)                   |  | 44,623 |        | 7.96                         | % | 22,429                                                         |  
|As of December 31, 2001:                                        |  |        |        |                              |   |                                                                |  
|Total Capital (to risk-weighted assets)                         |  | 43,300 |        | 11.30                        | % | 30,655                                                         |  
|Tier I Capital - risk-based (to risk-weighted assets)           |  | 38,506 |        | 10.05                        | % | 15,328                                                         |  
|Tier I Capital - leverage (to average assets)                   |  |        | 38,506 |                              |   | 8.02                                                           | %



|                                                      |  | Actual |        | For capital adequacypurposes |       | To be well capitalized underprompt corrective actionprovisions |       
|----------------------------------------------------- |  | ------ | ------ | ---------------------------- | ----- | -------------------------------------------------------------- | ------
|                                                      |  |        |        |                              |       |                                                                |       
|                                                      |  | Amount |        | Ratio                        |       | Amount                                                         |       
|                                                      |  |        |        |                              |       |                                                                |       
|                                                      |  |        |        |                              |       |                                                                |       
|Georgia Bank & Trust Company:                         |  |        |        |                              |       |                                                                |       
|As of December 31, 2002:                              |  |        |        |                              |       |                                                                |       
|Total Capital (to risk-weighted assets)               |  | $      | 48,386 |                              | 11.05 | %                                                              | $     
|Tier I Capital - risk-based (to risk-weighted assets) |  | 42,899 |        | 9.80                         | %     | 17,517                                                         |       
|Tier I Capital - leverage (to average assets)         |  |        | 42,899 |                              |       | 7.67                                                           | %     
|As of December 31, 2001:                              |  |        |        |                              |       |                                                                |       
|Total Capital (to risk- (to risk-weighted assets)     |  | 41,530 |        | 10.89                        | %     | 30,520                                                         |       
|Tier I Capital - risk-based (to risk-weighted assets) |  |        | 36,757 |                              |       | 9.63                                                           | %     
|Tier I Capital - leverage (to average assets)         |  |        | 36,757 |                              | 7.68  | %                                                              | 19,151

(13)Employee Benefit Plans

The Bank has an employee savings plan (the Plan) that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, participating employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. The Bank has the
option to make an annual discretionary payment to the Plan. For the years ended December 31, 2002, 2001, and 2000, the Bank contributed $437,238, $264,834, and $174,373, respectively, to the Plan, which is 5% of the annual salary of all
eligible employees for 2002 and 4% in 2001 and 2000.

In 1997, the Bank established a nonqualified Long-Term Incentive Plan designed to motivate and sustain
high levels of individual performance and align the interests of key officers with those of shareholders by rewarding capital appreciation and earnings growth. Stock appreciation rights may

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be awarded annually to those key officers whose performance during the year has made a significant contribution to the Banks
growth. Such stock appreciation rights are granted at a strike price equal to the trading price of the Companys stock at date of grant, and are earned over a five-year appreciation period. Officers vest in such rights over a 10-year period.
The Bank recognized expense of $143,729, $185,438, and $60,000 during 2002, 2001, and 2000, respectively, related to this plan.

(14)Stock Option Plan

During 2000, the Bank adopted the 2000 Long-Term Incentive Plan (the 2000
Plan) which allows for stock option awards for up to 100,000 shares of the Companys common stock to key employees of the Bank. Under the provisions of the 2000 Plan, the option price is determined by a committee of the board of directors at
the time of grant and may not be less than 100% of the fair market value of the common stock on the date of grant of such option. When granted, these options vest over a five-year period. All options must be exercised within a ten-year
period.

The following table summarizes activity in the 2000 Plan by shares under option and weighted average exercise price per share:



|                                        |  | Shares |        | Exerciseprice |      
|--------------------------------------- |  | ------ | ------ | ------------- | -----
|                                        |  |        |        |               |      
|Options outstanding  December 31, 1999 |  |        |        | $             |     
|Granted in 2000                         |  |        | 14,375 |               | 20.72
|                                        |  |        |        |               |      
|Options outstanding  December 31, 2000 |  | 14,375 |        | 20.72         |      
|Granted in 2001                         |  | 6,325  |        | 28.60         |      
|                                        |  |        |        |               |      
|Options outstanding  December 31, 2001 |  |        | 20,700 |               | 23.13
|Granted in 2002                         |  | 36,000 |        | 33.10         |      
|                                        |  |        |        |               |      
|Options outstanding  December 31, 2002 |  |        | 56,700 |               | $    
|                                        |  |        |        |               |      

The following options are exercisable at December
31, 2002:



|Shares |  | Exerciseprice |      
|------ |  | ------------- | -----
|       |  |               |      
|5,750  |  | $             | 20.72
|1,265  |  | 28.60         |      
|       |  |               |      
|7,015  |  |               | 22.14
|       |  |               |      

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The following table summarizes information about options outstanding under the 2000 Plan at December 31, 2002:



|Numberoutstanding atDecember
31,2002 |        | Weightedaverageremainingcontractuallife in years |  | Exercise price | 
|------------------------------------ | ------ | ------------------------------------------------ |  | -------------- | 
|                                     |        |                                                  |  |                | 
|                                     | 14,375 |                                                  |  | 7.4            | 
|6,325                                |        | 8.3                                              |  | 28.60          | 
|36,000                               |        | 9.1                                              |  | 33.10          | 
|                                     |        |                                                  |  |                | 
|                                     | 56,700 |                                                  |  | 8.6            | 
|                                     |        |                                                  |  |                | 

SFAS No. 123,Accounting
for Stock-Based Compensation, encourages but does not require entities to compute the fair value of options at the date of grant and to recognize such costs as compensation expense immediately if there is no vesting period or
ratably over the vesting period of the options. The Bank has chosen not to adopt the cost recognition principles of this statement.

The fair value of each
option grant is estimated on the date of grant using a minimum value option price assessment with weighted average assumptions used and estimated fair values as follows:



|                                       |  | 2002     |       | 2001     |   | 2000     |  
|-------------------------------------- |  | -------- | ----- | -------- | - | -------- | -
|                                       |  |          |       |          |   |          |  
|Risk-free interest rate                |  |          | 3.82  | %        |   | 4.92     | %
|Dividend yield                         |  | 0.00     | %     | 0.00     | % | 0.00     | %
|Expected life at date of grant         |  | 10 years |       | 10 years |   | 10 years |  
|Volatility                             |  | 23.02    | %     | 23.93    | % | 18.00    | %
|Weighted average grant-date fair value |  | $        | 14.12 |          | $ | 13.58    |  

(15)Other Operating Expenses

Components of other operating expenses exceeding 1% of total revenues
include the following for the years ended December 31, 2002, 2001, and 2000:



|                                           |  | 2002    |         | 2001    |  | 2000    | 
|------------------------------------------ |  | ------- | ------- | ------- |  | ------- | 
|                                           |  |         |         |         |  |         | 
|Marketing and business development expense |  | $       | 728,122 |         |  | 684,095 | 
|Processing expense                         |  | 946,217 |         | 809,504 |  | 609,773 | 
|Legal and professional fees                |  |         | 578,970 |         |  | 331,349 | 

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(16)Condensed Financial Statements of Georgia Bank Financial Corporation
(Parent Only)

The following represents Parent Company only condensed financial information of Georgia Bank Financial Corporation:

Condensed Balance Sheets



|                                                                                                                   |  | December 31 |           
|------------------------------------------------------------------------------------------------------------------ |  | ----------- | ----------
|                                                                                                                   |  |             |           
|                                                                                                                   |  | 2002        |           
|                                                                                                                   |  |             |           
|                                                                                                                   |  |             |           
|Assets                                                                                                             |  |             |           
|Cash and due from banks                                                                                            |  | $           | 99,550    
|Investment securities available for sale                                                                           |  | 500,000     |           
|Investment in subsidiary                                                                                           |  | 45,024,241  |           
|Premises and equipment, net                                                                                        |  | 1,124,269   |           
|                                                                                                                   |  |             |           
|                                                                                                                   |  | $           | 46,748,060
|                                                                                                                   |  |             |           
|                                                                                                                   |  |             |           
|Liabilities and Stockholders
Equity                                                                               |  |             |           
|Liabilities:                                                                                                       |  |             |           
|Accrued interest and other                                                                                         |  | $           |          
|                                                                                                                   |  |             |           
|Stockholders equity:                                                                                              |  |             |           
|Common stock, $3.00 par value; 10,000,000 shares authorized; 2,404,051 shares
issued; 2,385,280 shares outstanding |  | 7,212,153   |           
|Additional paid-in capital                                                                                         |  | 30,586,925  |           
|Retained earnings                                                                                                  |  | 7,471,434   |           
|Treasury stock, at cost; 18,771 shares                                                                             |  | (507,360    | )         
|Accumulated other comprehensive income                                                                             |  | 1,984,908   |           
|                                                                                                                   |  |             |           
|Total stockholders equity                                                                                         |  | 46,748,060  |           
|                                                                                                                   |  |             |           
|                                                                                                                   |  | $           | 46,748,060
|                                                                                                                   |  |             |           

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Condensed Statements of Income



|                                                           |  | Years ended December 31 |          
|---------------------------------------------------------- |  | ----------------------- | ---------
|                                                           |  |                         |          
|                                                           |  | 2002                    |          
|                                                           |  |                         |          
|Income:                                                    |  |                         |          
|Interest income on investment securities                   |  | $                       | 302      
|Miscellaneous income                                       |  | 91,200                  |          
|Investment securities gains                                |  |                        |          
|                                                           |  |                         |          
|                                                           |  | 91,502                  |          
|                                                           |  |                         |          
|Expense:                                                   |  |                         |          
|Occupancy expense                                          |  | 44,800                  |          
|Other operating expense                                    |  | 72,181                  |          
|                                                           |  |                         |          
|                                                           |  | 116,981                 |          
|                                                           |  |                         |          
|                                                           |  |                         |          
|Loss before equity in undistributed earnings of subsidiary |  | (25,479                 | )        
|Equity in undistributed earnings of subsidiary             |  | 6,035,604               |          
|                                                           |  |                         |          
|Net income                                                 |  | $                       | 6,010,125
|                                                           |  |                         |          

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##### Table of Contents

Condensed Statements of Cash Flows



|                                                                                            |  | Years ended December 31 |          
|------------------------------------------------------------------------------------------- |  | ----------------------- | ---------
|                                                                                            |  |                         |          
|                                                                                            |  | 2002                    |          
|                                                                                            |  |                         |          
|Cash flows from operating activities:                                                       |  |                         |          
|Net income                                                                                  |  | $                       | 6,010,125
|Adjustments to reconcile net income to net cash provided by (used in) operating
activities: |  |                         |          
|Depreciation and amortization                                                               |  | 44,800                  |          
|Equity in undistributed earnings of subsidiary                                              |  | (6,035,604              | )        
|Net investment securities gains                                                             |  |                        |          
|(Decrease) increase in other liabilities                                                    |  | (2,435                  | )        
|Decrease in other assets                                                                    |  |                        |          
|                                                                                            |  |                         |          
|Net cash provided by (used in) operating activities                                         |  | 16,886                  |          
|                                                                                            |  |                         |          
|Cash flows from investing activities:                                                       |  |                         |          
|Proceeds from sales and maturities of available for sale securities                         |  |                        |          
|                                                                                            |  |                         |          
|Net cash provided by investing activities                                                   |  |                        |          
|                                                                                            |  |                         |          
|Cash flows from financing activities:                                                       |  |                         |          
|Cash paid for fractional shares                                                             |  |                        |          
|Purchase of treasury stock                                                                  |  |                        |          
|                                                                                            |  |                         |          
|Net cash used in financing activities                                                       |  |                        |          
|                                                                                            |  |                         |          
|Net increase (decrease) in cash and cash equivalents                                        |  | 16,886                  |          
|Cash and cash equivalents at beginning of year                                              |  | 82,664                  |          
|                                                                                            |  |                         |          
|Cash and cash equivalents at end of year                                                    |  | $                       | 99,550   
|                                                                                            |  |                         |          

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The Department of Banking and Finance of the State of Georgia (DBF) requires that state banks in Georgia generally maintain a minimum
ratio of primary capital, as defined, to total assets of six percent (6%). Additionally, banks and their holding companies are subject to certain risk-based capital requirements based on their respective asset composition.

The DBF requires its prior approval for a bank to pay dividends in excess of 50% of the preceding years earnings. Based on this limitation, the amount of cash dividends
available from the bank subsidiary for payment in 2003 is approximately $3,018,000, subject to maintenance of the minimum capital requirements. As a result of this restriction, at December 31, 2002, approximately $42,006,000 of the Parent
Companys investment in its subsidiary was restricted from transfer in the form of dividends.

(17)Fair Value of Financial Instruments

SFAS No. 107,Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Banks entire holdings of a particular financial
instrument. Because no market exists for a portion of the Banks financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect
the estimates. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. The assumptions used
in the estimation of the fair value of the Banks financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow and other valuation techniques. Discounted
cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be
considered representative of the liquidation value of the Banks financial instruments, but rather a good-faith estimate of the fair value of financial instruments held by the Bank. SFAS No. 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements.

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

(a)Cash and Cash
Equivalents

Fair value equals the carrying value of such assets due to their nature.

(b)Investment Securities

The
fair value of investment securities is based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

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(c)Loans

The fair value of loans is calculated using discounted cash flows by loan type. The discount rate used to determine the present value of the loan portfolio is an estimated market
rate that reflects the credit and interest rate risk inherent in the loan portfolio. The estimated maturity is based on the Banks historical experience with repayments adjusted to estimate the effect of current market conditions. The carrying
amount of related accrued interest receivable approximates its fair value. The carrying amount of real estate loans originated for sale approximates their fair value.

(d)Deposits

Fair values for
certificates of deposit have been determined using discounted cash flows. The discount rate used is based on estimated market rates for deposits of similar remaining maturities. The carrying amounts of all other deposits, due to their short-term
nature, approximate their fair values. The carrying amount of related accrued interest payable approximates its fair value.

(e)Federal Funds Sold and Securities Sold Under Repurchase Agreements

Fair value
approximates the carrying value of such liabilities due to their short-term nature.

(f)Other Borrowed Funds

Fair value approximates the carrying value of such
liabilities as the borrowings are at a variable rate of interest.

(g)Advances from FHLB

The fair value of the fixed rate advances from the FHLB is calculated by discounting contractual cash flows using an
estimated interest rate based on the current rates available to the Bank for debt of similar remaining maturities and collateral terms.

(h)Commitments

The carrying values and fair values of
commitments to extend credit are not significant.

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The carrying amounts and estimated fair values of the Banks financial instruments at December31, 2002 and 2001 are as follows:



|                                                                   |  | December 31    |           
|------------------------------------------------------------------ |  | -------------- | ----------
|                                                                   |  |                |           
|                                                                   |  | 2002           |           
|                                                                   |  |                |           
|                                                                   |  | Carryingamount |           
|                                                                   |  |                |           
|Financial assets:                                                  |  |                |           
|Cash and cash equivalent                                           |  | $              | 17,150,691
|Investment securities                                              |  | 140,110,691    |           
|Loans, net                                                         |  | 390,164,860    |           
|Financial liabilities:                                             |  |                |           
|Deposits                                                           |  | 439,556,701    |           
|Federal funds sold and securities sold under repurchase agreements |  | 42,987,681     |           
|Other borrowed funds                                               |  | 1,000,000      |           
|Advances from FHLB                                                 |  |                | 35,000,000

(18)Quarterly Financial Data (Unaudited)

The supplemental quarterly financial data for the years
ended December 31, 2002 and 2001 is summarized as follows:



|                               |  | Quarters ended |          
|------------------------------ |  | -------------- | ---------
|                               |  |                |          
|                               |  | March 31,2002  |          
|                               |  |                |          
|Interest income                |  | $              | 7,537,000
|Interest expense               |  | 2,869,237      |          
|Net interest income            |  | 4,667,763      |          
|Provision for loan losses      |  | 669,990        |          
|Noninterest income             |  | 2,413,236      |          
|Noninterest expense            |  | 4,544,289      |          
|Net income                     |  | 1,260,720      |          
|Net income per share  basic   |  | 0.53           |          
|Net income per share  diluted |  |                | 0.53     

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|                               |  | Quarters ended |          
|------------------------------ |  | -------------- | ---------
|                               |  |                |          
|                               |  | March 31,2001  |          
|                               |  |                |          
|Interest income                |  | $              | 8,030,439
|Interest expense               |  | 4,093,266      |          
|Net interest income            |  | 3,937,173      |          
|Provision for loan losses      |  | 390,000        |          
|Non-interest income            |  | 1,406,486      |          
|Non-interest expense           |  | 3,527,599      |          
|Net income                     |  | 985,336        |          
|Net income per share  basic   |  | 0.41           |          
|Net income per share  diluted |  |                | 0.41     

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Item 9:Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

PART III

Item 10:Directors and Executive Officers of the Registrant

Information in response to this item is incorporated by reference to the Companys definitive Proxy Statement for use in connection with the 2003 annual meeting of shareholders (which definitive
Proxy Statement shall be filed with the commission not later than April 30, 2003).

Item 11:Executive Compensation

Information in response to this item is
incorporated by reference to the Companys definitive Proxy Statement for use in connection with the 2003 annual meeting of shareholders (which definitive Proxy Statement shall be filed with the commission not later than April 30,
2003).

Item 12:Security
Ownership of Certain Beneficial Owners and Management

Information in response to this item is incorporated by reference to the Companys definitive
Proxy Statement for use in connection with the 2003 annual meeting of shareholders (which definitive Proxy Statement shall be filed with the commission not later than April 30, 2003).

Item 13:Certain Relationships and Related Transactions

Information in response to this item is incorporated by reference to the Companys definitive Proxy Statement for use in connection with the 2003 annual meeting of
shareholders (which definitive Proxy Statement shall be filed with the commission not later than April 30, 2003).

Item
14.Controls and Procedures

Within 90 days prior
to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Operation Officer (who serves as the
Companys principal financial officer), of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Companys Chief
Executive Officer and Chief Operation Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) that
is required to be included in the Companys periodic filings with the Securities and Exchange

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Commission. There have been no significant changes in the Companys internal controls or, to the Companys knowledge, in other factors that could
significantly affect those internal controls subsequent to the date the Company carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.

Item 15:Principal Accountant Fees and
Services

Information in response to this item is incorporated by reference to the Companys definitive Proxy Statement for use in connection with the
2003 annual meeting of shareholders (which definitive Proxy Statement shall be filed with the Commission not later than April 30, 2003).

PART
IV

Item 16:Exhibits,
Financial Statement Schedules and Reports on Form 8-K

(a)(1)  See Item 8 for a list of the financial statements as filed as
a part of this report.

(2)  No financial statement schedules are applicable as the required information
is included in the financial statements in Item 8.

(3)  The following exhibits are filed as part of
this report:

Exhibit No. and Document

3.1Articles of Incorporation of the Company (Incorporated by reference to the Companys registration statement on Form SB-2 filed August 20, 1997 (Registration
No. 333-34037))

3.2Bylaws of the Company (Incorporated by
reference to the Companys Form 10-SB, dated April 29, 1994)

10.1Blanton Employment Contract (Incorporated by reference to the Companys Annual Report on Form 10-K, filed on March 29, 2001)

10.2Thigpen Employment Contract (Incorporated by reference to the Companys Annual Report on Form 10-K, filed on March 29, 2001)

10.32000 Long Term Incentive Plan (Incorporated by reference to the Companys definitive Proxy Statement,
filed on March 29, 2001)

11.1Statement Re: Computation of Net Income Per
Share

21.1Subsidiaries of the Company

99.1Certifications by the Chief Executive Officer (principal executive officer) and Chief
Operating Officer (principal financial officer)

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(b)Reports on Form 8-K

None.

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SIGNATURES

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



| |  | GEORGIA BANK FINANCIAL CORPORATION
| |  | ----------------------------------
| |  | By:                               
| |  |                                   
| |  |                                   

March 17, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.

March 17, 2003



|SIGNATURE               |  | TITLE                                                                                                   
|----------------------- |  | --------------------------------------------------------------------------------------------------------
|                        |  |                                                                                                         
|/s/ ROBERTW.POLLARD,JR. |  | Chairman of the Boardand Director                                                                       
|                       
|Robert W. Pollard, Jr. 
|                        |  |                                                                                                         
|/s/ EDWARDG.MEYBOHM     |  | Vice Chairman of the Boardand Director                                                                  
|                       
|Edward G. Meybohm      
|                        |  |                                                                                                         
|/s/ R.DANIELBLANTON     |  | President, Chief Executive Officerand Director                                                          
|                       
|Daniel Blanton         
|                        |  |                                                                                                         
|/s/ RONALDL.THIGPEN     |  | Executive Vice President, ChiefOperating Officer (PrincipalFinancial and
Accounting Officer)and Director
|                       
|Ronald L. Thigpen      
|                       
|                        |  |                                                                                                         
|/s/ WILLIAMJ.BADGER     |  | Director                                                                                                
|                       
|William J. Badger      

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##### Table of Contents



|/s/ WARRENA.DANIEL      |  | Director
|----------------------- |  | --------
|                       
|Warren A. Daniel       
|                        |  |         
|/s/RANDOLPHR.SMITH,M.D. |  | Director
|                       
|Randolph R. Smith, M.D.
|                        |  |         
|/s/ JOHNW.TRULOCK,JR.   |  | Director
|                       
|John W. Trulock, Jr.   

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Certification

I, R. Daniel Blanton, certify that:

1.I have reviewed this annual report on Form 10-K of Georgia
Bank Financial Corporation;

2.Based on my
knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.The registrants other
certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):

a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants internal controls; and

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6.The registrants
other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|Date: March 17, 2003 |                                     | 
|-------------------- | ----------------------------------- | 
|                     | /s/ R.DANIELBLANTON                 | 
|                     |                                     | 
|                     | President & Chief Executive Officer | 

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Certification

I, Ronald L. Thigpen, certify that:

1.I have reviewed this annual report on Form 10-K of Georgia
Bank Financial Corporation;

2.Based on my
knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;

4.The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of this annual report (the Evaluation Date); and

c)presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.The registrants other
certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):

a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants internal controls; and

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6.The registrants
other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



|Date: March 17, 2003 |                                                                                | 
|-------------------- | ------------------------------------------------------------------------------ | 
|                     | /s/ RONALDL.THIGPEN                                                            | 
|                     |                                                                                | 
|                     | Executive Vice President &Chief Operating Officer(Principal Financial Officer) | 

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EXHIBIT INDEX



|    |  |          |  |                                                                                                                                                                              |  | Page
|--- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|(a) |  | Exhibits |  |                                                                                                                                                                              |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 3.1      |  | Articles of Incorporation of the Company (Incorporated by reference to the Companys registration statement on Form SB-2
filed August 20, 1997 (Registration No. 333-34037)) |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 3.3      |  | Bylaws of the Company (Incorporated by reference to the Companys Form 10-SB, dated April 29, 1994)                                                                          |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 10.4     |  | Blanton Employment Contract (Incorporated by reference to the Companys Annual Report on Form 10-K, filed on March 29,
2001)                                                 |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 10.5     |  | Thigpen Employment Contract (Incorporated by reference to the Companys Annual Report on Form 10-K, filed on March 29,
2001)                                                 |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 10.6     |  | 2000 Long Term Incentive Plan (Incorporated by reference to the Companys definitive Proxy Statement, filed on March 29,
2001)                                               |  |     
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 11.1     |  | Statement Re: Computation of Net Income Per Share                                                                                                                            |  | 93  
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 21.1     |  | Subsidiaries of the Company                                                                                                                                                  |  | 94  
|    |  |          |  |                                                                                                                                                                              |  |     
|    |  | 99.1     |  | Certifications by the Chief Executive Officer (principal executive officer) and Chief Operating Officer (principal financial
officer)                                        |  | 95