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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

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

X  Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
-
of 1934 (Fee Required) for the fiscal year ended December 31, 1999 or

__  Transition 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
                                                -------

                       GEORGIA BANK FINANCIAL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

GEORGIA                                                      58-2005097
-------                                                      ----------
(State or Other Jurisdiction                                 (I.R.S. Employer
of Incorporation or Organization                             Identification No.)

3530 Wheeler Road
Augusta, Georgia                                             30909
----------------                                             -----
(Address of Principal                                        (Zip Code)
Executive Office)

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
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
                                                 --         --

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.

     Issuer's revenues for its most recent fiscal year.  $29,314,642.
     The number of shares outstanding of the Registrant's Common Stock, as of
March 26, 2000 was 2,093,152.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 26, 2000, based on the last sale price of $25.00 per
share on such date was approximately $51,626,212.

     Transitional Small Business Disclosure Format (check one):
Yes X      No
    -          --
     Incorporated Documents                    Where Incorporated in Form 10-KSB
     ----------------------                    ---------------------------------
1.  Certain portions of the Company's          Part III, Items 9, 10,11 and 12
    Proxy Statement for Annual Meeting
    of Shareholders to be held on
    April 19,2000.
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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 $342.1 million, total deposits of $283.1 million and total stockholders'
equity of $29.8 million at December 31, 1999.  Through its wholly-owned
subsidiary, Georgia Bank and Trust Company of Augusta (the "Bank"), the Company
operates a total of seven banking offices in the greater Augusta area of
Richmond and Columbia Counties, Georgia.

     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 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 an additional
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 Bank opened its seventh location, July 1996, in a newly constructed
Wal-Mart SuperCenter located at 3029 Deans Bridge Road.

     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, and its Group Vice President and Director
of Marketing, Patricia E. Leopard, have worked together for over ten years with
the Bank and before that with a predecessor to First Union National Bank,
Georgia State Bank, for over 12 years.  With the acquisition of First Columbia,
the Bank obtained its Executive Vice President and Chief 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-Branch Administration/Business Development, joined the team in 1994.
He previously served for six years as President of Citizens Bank & Trust Company
in Evans,

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Georgia, and had prior experience with First Union National Bank and its
predecessors. The Bank's senior loan officer, Tom C. McLaughlin, Group Vice
President, has been associated with the Bank for nine years, and worked together
previously with Mr. Blanton and Mrs. Leopard at Georgia State Bank, a
predecessor to First Union National Bank.

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 315 metropolitan
statistical areas (MSA) in the United States and its 1997 population of 455,133
ranked 106th in the nation.  During the 1990 to 1996 period, the Aiken-Augusta
metropolitan area had the third fastest growing population among Georgia's
metropolitan areas.  It is estimated that the population of the area will grow
to 481,600 by 2001.  The Augusta market area has a diversified economy based
principally on health care, education, government, military, manufacturing,
wholesale and retail trade concerns. Augusta is one of the leading medical
centers in the Southeast with more than 25,000 people employed in the medical
community.  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 P. King Manufacturing (textile
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 6.0% in 1997, but dropped to 5.5% in 1998. Between June 1989 and
June 1998 (the latest date for which FDIC information is available), total
commercial bank and thrift deposits in Richmond County increased 22.2% from $1.8
billion  to $2.2 billion, and total commercial bank and thrift deposits in
Columbia County increased 158.9% from $229 million to $593 million.  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.

Lending Activities

General

     The Bank offers 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 Bank's market area.  The Bank's total loans at
December 31, 1999, were $239.0 million, or 78.0% of total 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 $138.3 million, or 57.9% of the Bank's total loans, at
December 31, 1999.  These loans

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consist of commercial real estate loans, construction and development loans and
residential real estate loans, but exclude home equity loans, which are
classified as consumer loans. See "-Consumer Loans."

     Commercial Real Estate Loans.  At December 31, 1999, the Bank held $70.0
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 29.3% of the Bank's total loans at December 31,
1999.  Loan terms are generally limited to seven years and often do not exceed
three years, although the installment payments may be structured on a 20-year
amortization basis with a balloon.  Interest rates may be fixed or adjustable,
and tend to be fixed in the case of three-year term loans and adjustable in the
case of five or seven year term loans.  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 no
net loan charge offs on commercial real estate loans during 1999 and 1998.

     Construction and Development Loans.  Construction and development real
estate loans comprise $28.3 million, or 11.8% of the Bank's total loans at
December 31, 1999.  Of this segment, only $10.5 million, or 4.4% of total loans,
are development loans.  These are generally used to finance the development of
residential subdivision infrastructures. The remaining $17.8 million, or 7.5% of
total loans, represent residential construction loans.

     A construction and development loan portfolio represents special problems
and risks.  This 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 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
generally, the Bank 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.

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     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 no net
loan charge offs on these loans during 1999 and 1998.

     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 12 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 $300,000 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, 1999, the Bank held $39.2
million of such loans (exclusive of home equity loans), representing 16.4% of
the Bank's loan portfolio, as compared to $34.9 million, or 16.7% of the Bank's
loan portfolio at December 31, 1998.  The growth in this portfolio is due to the
relative importance of residential real estate lending in the Columbia County
market.  This portfolio includes, typically 15 or 30-year adjustable rate
mortgage loans whose terms mirror those prevalent in the secondary 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.

     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 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.

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Commercial Loans

     The Bank makes loans for commercial purposes in various lines of
businesses.  At December 31, 1999, the Bank held $45.7 million of these loans,
representing 19.2% of the total loan portfolio, excluding for these purposes
commercial loans secured by real estate.  See "-Real Estate."  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 $89,000 during 1999 and $98,000 during 1998.

Consumer Loans

     The Bank makes a variety of loans to individuals for personal and household
purposes, including secured and unsecured installment and term loans, home
equity loans and lines of credit, 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, 1999, the Bank held $54.3 million of consumer
loans, representing 22.7% of total loans.  These loans typically carry balances
of less than $25,000 and earn interest at a fixed rate.  Non-revolving loans are
either amortized over a period not exceeding 48 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).   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 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, 1999, indirect loans
outstanding totaled $25.0 million an increase of $9.5 million over the $15.5
million outstanding at December 31, 1998.  The Bank experienced net loan charge
offs on consumer loans of $309,000 during 1999 and $159,000 during 1998.

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 Officers' Loan Committee.  Individual officers' lending limits range from
$5,000 to $300,000 depending on seniority and type of loan.  The Officers' Loan
Committee has a lending limit of $100,000 for unsecured and $300,000 for secured
loans.  Any loan in excess of the lending limit of the Officers' Loan Committee
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
loans or lines of credit of $250,000 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
Officers' Loan Committee approval.

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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,
                                      1999         1998        1997
                                      ----         ----        ----

     Non-interest bearing demand     15.26%       16.19%       17.41%
     Interest checking               12.26        14.28        12.51
     Money management                 5.19         6.18         4.95
     Savings                         33.20        32.02        29.73
     Time Deposits
     Under $100,000                  18.09        17.72        18.46
     $100,000 and over               16.07        13.61        16.94
                                    ------       ------       ------
                                    100.00%      100.00%      100.00%
                                    ------       ------       ------

     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.  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

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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 151 full-time equivalent employees at
December 31, 1999.  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.

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 operations.  These laws and regulations are generally intended to
protect depositors, not stockholders.  To the extent that the following summary
describes statutory or regulatory provisions, it 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, economic
control, or new federal or state legislation 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 and the Bank'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.  With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company.

     In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the

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circumstances, no notice of disapproval) prior to any person or company
acquiring "control" of a bank holding company, such as the Company. Control is
conclusively presumed to exist if an individual or company acquires 25% or more
of any class of voting securities of the bank holding company. In the case of
the Company, under Federal Reserve regulations, control will be rebutably
presumed to exist if a person acquires at least 10% of the outstanding shares of
any class of voting securities. The regulations provide a procedure for
challenge of the rebutable control presumption.

     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 and brokerage activities,
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.

     The Federal Reserve has approved applications by bank holding companies to
engage through nonbank subsidiaries, in certain securities-related activities
(underwriting of municipal revenue bonds, commercial paper, consumer receivable-
related securities and one-to-four family mortgage-backed securities), provided
that the affiliates would not be "principally engaged" in such activities for
purposes of Section 20 of the Glass-Steagall Act.  Holding companies are also
permitted in certain circumstances to underwrite and deal in corporate debt and
equity securities.

     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, 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.

     Gramm-Leach-Bliley Act. In November, 1999, Congress enacted the
Gramm-Leach-Bliley Act ("GLB"), which made substantial revisions to the
statutory restrictions separating banking activities from certain other
financial activities. Under GLB, 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 underwriting and distribution, travel

                                       8
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agency activities, broad insurance agency activities, merchant banking, and
other activities that the Federal Reserve determines to be financial in nature
or complementary thereto. Financial holding companies continue to be subject to
the overall oversight and supervision of the Federal Reserve, but GLB applies
the concept of functional regulation to the activities conducted by
subsidiaries. For example, insurance activities would be subject to supervision
and regulation by state insurance authorities. 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.

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.  The FDIC is also required to
develop with other appropriate agencies a method for insured depository
institutions to provide supplemental disclosure of the estimated fair market
value of assets and liabilities, to the extent feasible and practicable, in any
balance sheet, financial statement, report of condition or any other report of
any insured depository institution.  The federal banking regulatory agencies
must also prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating, among other
things, to:  (i) internal controls, information systems, and audit systems; (ii)
loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure;
and (v) asset quality.

     Transactions With Affiliates and Insiders.  The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits 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.  In addition,
most of these loans and certain other transactions must be secured in prescribed
amounts.  The Bank is also subject to the provisions of Section 23B of the
Federal Reserve Act that, among other things, prohibit an institution from
engaging in certain transactions with certain affiliates unless the transactions
are on terms substantially the same, or at least as favorable to such
institution or its subsidiaries, as those 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

                                       9
<PAGE>

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 four
branches in Richmond County and two branches in Columbia County.  Under current
Georgia law, banks may establish branches throughout the state.  Although the
Bank currently has no definitive plans for opening any other branch offices,
depending on profitability and community needs, other branches may be
considered.  The Company, with prior regulatory approval, is also permitted to
acquire an interest in and operate banks throughout the State of Georgia.  Under
Georgia law, any bank acquired by the Company could be merged into the Bank and
its offices could then be operated as branches of the Bank.  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 BHCA, as amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branch Efficiency Act of 1994 ("Interstate Banking
Act), permits any bank holding company located in Georgia (including the
Company) to acquire a bank located in any other state, and permits any bank
holding company located outside of Georgia to acquire a bank located in Georgia,
in either case subject to certain deposit-percentage, aging requirements and
other restrictions. The Interstate Banking Act also generally provides that
national and state-chartered banks may branch interstate through acquisitions of
banks in other states, subject to the right of states to "opt out" of such
provisions, and permits states to allow banks from other states to enter their
states through de-novo branches. Georgia law permits Georgia banks to establish
branches in other states and permits out of state banks to establish branches in
Georgia through merger with existing banks. Once in the State, the bank may
establish branches or expand through merger similarly to other Georgia-based
banks. The Georgia law does not permit an out-of-state bank to enter the State
of Georgia through a de-novo branch or through the acquisition of less than
substantially all of the assets of an existing 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. Interest and certain other charges
collected or contracted for by the Bank are subject to state usury laws and
certain federal laws concerning interest rates. The Bank's loan operations are
also subject to certain federal laws applicable to credit transactions, such as
the federal Truth-In-Lending Act governing disclosures of credit terms to
consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of 1978 governing the
use and provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records

                                       10
<PAGE>

and prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E issued
by the Federal Reserve Board to implement that act, which governs automatic
deposits to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services. The Bank is also subject to the Bank Secrecy Act,
requiring it to make reports of certain large or suspicious transactions. GLB
requires the Bank and its affiliated companies to adopt and disclose policies
regarding the sharing of personal information it obtains from its customers with
third parties. GLB also permits the Bank to engage in "financial activities"
through subsidiaries similar to that permitted financial holding ocmpanies. See
"Gramm-Leach-Bliley" above.

     The Federal Deposit Insurance Company Improvement Act requires each federal
banking regulatory agency to prescribe standards for depository institutions and
depository institution holding companies relating to internal controls,
information systems, internal audit system, loan documentation, credit
underwriting, interest rate exposure, asset growth compensation, a maximum ratio
of classified assets to capital, minimum earnings sufficient to absorb losses, a
minimum ratio of market value to book value for publicly traded shares, and such
other standards as the agency deems appropriate.  This Act also contains a
variety of other provisions that may affect the operations of the Company and
the Bank, including reporting requirements, regulatory standards for estate
lending, "truth in savings" provisions, the requirement that a depository
institution give 90 days prior notice to customers and regulatory authorities
before closing any branch, and a prohibition on the acceptance or renewal of
brokered deposits by depository institutions that are not well capitalized or
are adequately capitalized and have not received a waiver from FDIC.  As noted
above, virtually every aspect of the operations of the Company and the Bank are
affected by the pervasive statutory and regulatory framework.  Future
legislative and regulatory changes could substantially affect the business,
operations and prospects of the Company and the Bank.

Enforcement Policies and Actions
--------------------------------

     The FDIC and other federal depository institution regulators monitor
compliance with laws, rules and regulations.  In the event the Company or the
Bank violates a law, rule or regulations, 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.

     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 1999 and currently is not required to do so
in 2000.  The Bank does, however, pay an assessment for the

                                       11
<PAGE>

Financing Corporation (FICO) bonds issued as a result of the thrift crisis of
the late 1980's and early 1990's. Currently, the amount of this premium is
$.0212 per $100 of insured deposits. 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 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 1999 or 1998. The Company paid a 15%
stock dividend on August 28, 1999 to commemorate the tenth anniversary of the
Bank.

Capital Regulations
-------------------

     The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets.  The resulting capital
ratios represent qualifying capital as a percentage of total 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 minimum risk-based total capital ratio
equal to 8% of which at least 4% must be Tier 1 capital.  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

                                       12
<PAGE>

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 these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50%, or 100%.  In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply.  These computations
result in the total risk-weighted assets.  Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating.  Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.

     The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines.  The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base.  The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points resulting in a capital requirement of 4% to 5%.

     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 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, 1999, the
Company and the Bank were qualified as "well-capitalized." See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital."

     Under applicable regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. 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.

     These capital guidelines can affect the Company in several ways.  Rapid
growth, poor loan portfolio performance, or poor earnings performance, or a
combination of these factors, could change

                                       13
<PAGE>

the Company's capital position in a relatively short period of time, making an
additional capital infusion necessary or requiring other corrective action.

     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 affect these
regulations, when implemented, would have on the Company and the Bank.

     Both the Company and the Bank exceeded their respective regulatory capital
requirements at December 31, 1999.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital."

                                       14
<PAGE>

Fiscal and Monetary Policy

     Banking is a business which depends on interest rate differentials.  In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings.  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 regulates the supply of money through
various means, including open market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits.

     The monetary policies of the Federal Reserve historically have had a
significant effect on the operating results of commercial banks and will
continue to do so in the future.  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.


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 four branch offices are located in
Augusta, Georgia, one branch is located in Martinez, Georgia and one branch is
located in Evans, Georgia. With the exception of the Fury's Ferry and the Wal-
Mart branches, 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, the Fury's Ferry and
Wal-Mart branches. The main office contains approximately 14,000 square feet of
space. The Fury's Ferry branch contains 1,800 square feet with all the
facilities of the other branches except safe deposit boxes. The Wal-Mart branch,
located inside the Wal-Mart SuperCenter, contains 517 square feet and provides
teller, customer service and lending areas. An automated teller machine is also
located on the premises. 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 operations
functions were relocated. The previous location, consisting of 5,000 square feet
has been placed on the market for sale. The remaining 9,000 square feet continue
to be leased as commercial office space to the existing tenants. All properties
owned by the Company are adequately covered by the appropriate insurance for
replacement value.

                                       15
<PAGE>

     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.


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, 1999.

                                       16
<PAGE>

                                    PART II

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


     As of March 29, 2000, there were approximately 767 holders of record of the
Company's Common Stock.  As of March 29, 2000, there were 2,093,152 shares of
the Company's Common Stock issued and outstanding.  Transactions in the
Company's Common Stock are generally negotiated through J. C. Bradford & Co. and
The Robinson-Humphrey Company, Inc.  Both firms make a market in the Common
Stock of the Company.  The following table reflects the range of quotations in
the Company's Common Stock for the past two years:

              Georgia Bank Financial Corporation Stock Price (1)

                    Quarter ended           Low       High
                    -------------           ---       ----
                    1998
                    ----
                    March 31, 1998          18 1/4    21 1/2
                    June 30, 1998           20 1/2        28
                    September 30, 1998      24 1/4    26 1/2
                    December 31, 1998           24        28

                    1999
                    ----
                    March 31, 1999        22 25/32  24 11/32
                    June 30, 1999          23 1/32  23 13/16
                    September 30, 1999    23 15/32   31 5/16
                    December 31, 1999           28        24
           --------------------------------
                    (1)  The prices reflect inter-dealer prices, without retail
                         markup, mark-down or commission and may not represent
                         actual transactions.



     No cash dividends have been paid to date on the Common Stock of the
Company, and it is anticipated that earnings will be retained for the
foreseeable future to support the Company's rapid growth and expansion. 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, regulation 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 at which
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 Department at the most
recent examination of the Bank exceeds 80 percent of the Bank's equity as
reflected at such examination.

                                       17
<PAGE>

Item 6.  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 operation 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.

Overview

     In 1999, management of the Company continued to place special emphasis on
quality asset growth and expense control to help drive the improving earnings
performance.  Growth was achieved as assets increased $46.7 million (or 15.8%)
and earnings increased $1.1 million (or 36.2%) over 1998 levels.  This
significant increase in earnings includes gains from the sale of investment
equity securities as further described under "Non-Interest Income."  The growth
in assets  was accomplished by continuing to grow the business at existing
branch facilities.  No additional branches were opened in 1999.  Geographically,
the Company's branch facilities are strategically located throughout the Metro
Augusta market.  The Company continues to make improvements in expense controls
which were reflected in the reduction in the operating efficiency ratio to 63.9%
in 1999 (exclusive of a $480,000 charitable contribution) from 65.2% in 1998.
Non-interest expense as a percentage of total average assets decreased to 3.45%
in 1999 from 3.60% in 1998.

Results of Operations

     The Company had record net income of $3,970,000 in 1999, compared to
$2,915,000 in 1998, an increase of $1,055,000 or 36.2%.  The 1998 earnings of
$2,915,000 was an increase of $560,000 or 23.8% over 1997 earnings of
$2,355,000.

     The earnings increase in 1999 resulted from increased levels of both net
interest income and non-interest income.  The increase in net interest income
was the result of higher levels of earning assets.  Net interest income
increased $1.5 million (12.9%) in 1999 on a net interest margin of 4.40%, a
decrease from 4.64% in 1998 and 4.72% in 1997.  Non-interest income increased
$1,510,000 (41.5%) in 1999 to a total amount of $5,148,000 compared to an
increase of $923,000 (34.0%) and total amount of $3,638,000 in 1998 and an
increase of $560,000 (26.03%) and total amount of $2,715,000 in 1997.  This
increase for 1999 reflected increases in service charges and fees on deposits, a
decrease in the gain on the sale of loans and an increase in investment
securities gains.

  The earnings performance of the Company is reflected in a return on average
assets and average equity of 1.21% and 13.48%, respectively, during 1999
compared to 1.06% and 11.27%, respectively during 1998.  The return on average
assets and average equity was 0.99% and 13.05% in 1997.  Basic earnings per
share on weighted average shares improved to $1.90 in 1999 compared to $1.39 in
1998 and $1.13 in 1997.  The Company's average equity to average asset ratio
decreased to 9.08%  in 1999 compared to an increase in 1998 to 9.38% which
resulted from additional capital raised in a secondary offering that was
completed during the fourth quarter of 1997.  The average equity to average
asset ratio was 7.55% in 1997.  The Company has never paid any cash dividend.  A
15% stock dividend was paid by the Company on August 28, 1999, celebrating the
Bank's tenth

                                       18
<PAGE>

anniversary and the Company's financial performance. A 15% stock dividend had
been previously paid on September 25, 1996.

     The improvement in the earnings of the Company represent the continued
leveraging of its investment in additional branch offices in prior years.  The
offices are continuing to generate higher levels of earning assets and deposits.

Net Interest Income/Margins

     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:

                                       19
<PAGE>

            Average Balances, Income and Expenses, Yields and Rates

<TABLE>
<CAPTION>
                           Year Ended December 31, 1999       Year Ended December 31, 1998           Year Ended December 31, 1997
                        -----------------------------------   ------------------------------   ------------------------------------
                                         Average     Amount                Average    Amount                 Average      Amount
                           Average        Yield      Paid or   Average      Yield     Paid or    Average      Yield       Paid or
                           Amount        or Rate     Earned    Amount      or Rate    Earned     Amount      or Rate      Earned

                          ----------------------------------------------------------------------------------------------------------
ASSETS                                                     (Amount in thousands, except yields and rates)
<S>                       <C>           <C>          <C>       <C>         <C>        <C>        <C>         <C>           <C>
Interest-Earning Assets:
Loans...................     $225,244    8.88%        $20,006    $189,369    9.38%     $17,762    $153,501     9.70%        $14,896
Investments
    Taxable.  .   .  .  .      61,963    5.75%          3,564      54,030    6.01%       3,247      55,649     6.39%          3,555
    Tax-free.  .  .  .  .       4,476    4.60%            206       2,319    4.74%         110       2,643     4.01%            106
Funds sold.  .  .  .  .         7,770    5.03%            391       6,429    5.93%         381       4,032     6.35%            256
                             --------                 -------     -------              -------     --------                --------
     Total interest
       earning assets..       299,453    8.07%        $24,167     252,147    8.53%     $21,500     215,825     8.72%        $18,813
                             --------                 -------     -------              -------     -------                 --------
Cash and due from banks.       11,647                              11,270                           11,467
Premises and equipment..       10,717                              10,618                            9,568
Other .  .  .  .  .  .  .       5,812                               4,015                            3,820
Allowance for loan losses.     (3,096)                             (2,380)                          (1,844)
                             --------                            --------                         --------
     Total assets.  .  .     $324,533                            $275,670                         $238,836
                             ========                            ========                         ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Interest-bearing
 transaction accounts        $ 33,661    1.52%        $   513    $ 29,664    2.17%        $645     $26,324     2.38%          $ 626
 Savings, MMA .  .  .  .      109,751    4.55%          4,998      86,438    4.65%       4,017      74,835     4.67%          3,495
Time deposits .  .  .  .       83,573    5.35%          4,469      78,652    5.59%       4,400      74,810     5.50%          4,112
Federal Funds purchased/
 securities sold under
 repurchase agreements .       11,628    3.11%            362       5,798    3.50%         203       4,222     3.20%            135
Other borrowings.  .  .  .     10,898    5.86%            639        8,780   6.31%         554       4,389     6.02%            264
                             --------                --------     --------            --------    --------                 --------
Total interest-bearing
         liabilities.         249,511    4.40%         10,981      209,332   4.69%       9,819     184,580     4.68%          8,632
                             --------                --------     --------            --------    --------                 --------
Noninterest-bearing demand
 deposits.  .  .  .  .  .      42,426                               37,733                          34,916
Other liabilities.  .  .        3,138                                2,741                           1,299
Stockholders' equity.  .       29,458                               25,864                          18,041
                             --------                               ------                        --------
     Total Liabilities and
      equity.  .  .  .       $324,533                             $275,670                        $238,836
                             ========                             ========                        ========

Net interest spread.  .  . .             3.67%                               3.84%                             4.04%
Benefit of non-interest                  0.73%                               0.80%                             0.68%
 sources.  .  .  .  .
Net interest  margin/incom.  .  .        4.40%        $13,186                4.64%     $11,681                 4.72%        $10,181
                                                      =======                          =======                              =======
</TABLE>

     Net interest income was $13.2 million for 1999, a 12.9% increase from 1998.
Net interest income increased as a result of the growth in the volume of average
earning assets.  Earning assets averaged $299.5 million in 1999, an increase of
18.8% from the $252.1 million average in 1998.  Average yields on earning assets
declined to 8.07% in 1999, compared to 8.53% in 1998.  The impact of competitive
pressures in the pricing of loans and deposits along with a declining interest
rate environment during the first half of 1999 contributed to the decrease.

     A key performance measure for net interest income is the "net interest
margin", or net interest income divided by the 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 earning assets.  The
Company's net interest margin decreased to 4.40% in 1999 from 4.64% in 1998.  In
1997, the net interest margin was 4.72%.  The net interest margin deteriorated
as the average rate earned on assets decreased at a faster rate than the average
rate paid on interest-bearing liabilities.  The average rate on interest-earning
assets decreased to 8.07% from 8.53% in 1998 while the average rate paid on
interest-bearing liabilities decreased to 4.40% in 1999 from 4.69% in 1998.  The
high level of competition in the local market for both loans and deposits
continues to influence

                                       20
<PAGE>

the net interest margin. The net interest margin continues to be supported by an
increasing amount of demand deposits which provide a non-interest source of
funds and help 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 non-interest bearing funds and
gives a direct perspective on the effect of market interest rate movements. As a
result of changes in interest rates in 1999, the net interest spread decreased
17 basis points to 3.67% in 1999 from 3.84% in 1998. The 1998 net interest
spread of 3.84% represented a decrease from the 1997 level of 4.04%.

     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 non-interest 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 1998 to 1999, 1997 to 1998, and 1996 to 1997.
The analysis of changes in net interest income included in the following table
indicates that on an overall basis in 1999, the increase in the balances or
volumes of interest-earning assets created a positive impact in net interest
income that was partially offset by the decreases in interest rates. The
increases in the balances or volume of the interest-bearing liability categories
had a greater impact on the increase in interest expense than did the decrease
in rates which would have reduced interest expense. The same was true of 1998
when the volumes of both interest-earning assets and interest-bearing
liabilities had a greater impact on the net interest income than did any changes
in the rates associated with both interest-earning assets and interest-bearing
liabilities.

                                       21
<PAGE>

                  Analysis of Changes in Net Interest Income

<TABLE>
<CAPTION>
                        Year Ended December 31, 1999     Year Ended December 31, 1998       Year Ended December 31, 1997

                             Compared with 1998                 Compared with 1997               Compared with 1996
                              Variances Due to                   Variances Due to                 Variances Due to
                    ----------------------------------  ----------------------------------  --------------------------------------
                    Volume     Rate     Rate/    Total    Volume   Rate     Rate/    Total   Volume   Rate       Rate/    Total
                                       Volume                              Volume                               Volume
                    ----------------------------------  ----------------------------------  --------------------------------------
<S>                 <C>     <C>        <C>      <C>      <C>      <C>     <C>       <C>      <C>      <C>       <C>      <C>
                                                             (Amounts in thousands)
Interest income from interest-earning assets:

Loans.  .  .  .  .  $3,368    ($945)   ($179)    $2,244   $3,474   ($492)  ($116)    $2,866   $2,426   $   0     $  0     $2,426
Investments,
 taxable.  .........   478     (140)     (21)       317     (103)   (210)      5       (308)     750      13        4        767
Investments,
 tax-free.  .  .  .     98       (1)      (1)        96      (13)     17       0          4       47     (11)      (7)        29
Funds sold.  .  .       80      (58)     (12)        10      152     (17)    (10)       125      (96)     14       (4)       (86)
                    -----------------------------------  ----------------------------------  -------------------------------------
    Total            4,024  ($1,144)    (213)     2,667   $3,510   ($702)  ($121)     2,687   $3,127   $  16      ($7)    $3,136
                    -----------------------------------  ----------------------------------  -------------------------------------

Interest expense on interest- bearing liabilities:
Interest-bearing transaction
   accounts.....     $  87    ($193)    ($26)     ($132)  $   80    ($54)    ($7)    $   19   $  148    ($33)     ($9)    $  106
Savings and MMA.     1,089      (85)     (23)       981      541     (16)     (3)       522      841     162       56      1,059
Certificates and
 other time
 deposits.  .          272     (191)     (12)        69      215      69       4        288       43    (126)      (1)       (84)
Funds purchased /
 securities sold
 under repurchase
 agreements .  .  .    205      (23)     (23)       159       50      13       5         68      130     (10)     (29)        91
Other borrowings.      135      (40)     (10)        85      264      13      13        290      109     (14)      (8)        87
                    ------------------------------------  ---------------------------------  -------------------------------------
    Total           $1,788    ($532)    ($94)    $1,162   $1,150     $25     $12     $1,187   $1,271    ($21)    $  9     $1,259
                    ------------------------------------  ---------------------------------  -------------------------------------
Change in net interest income.  .  .  .          $1,505                              $1,500                               $1,877
                                              =========                            ========                          ===========
</TABLE>

     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).

Non-Interest Income

     Non-interest 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 and
other activities.  In addition, gains or losses realized from the sale of
investment portfolio securities are included in non-interest income.  Non-
interest income for 1999 was $5.1 million, an increase of $1.5 million or 41.5%
from 1998.  The increase is attributable to a $278,000 or 10.6% increase in
service charges on deposit accounts over 1998 levels resulting from a higher
volume of deposits and increases in the overall pricing of accounts.  The gain
on the sale of loans decreased $239,000 or 25.6% to $689,000 in 1999 from
$928,000 in 1998.  This decrease was the result of overall higher rates for
residential mortgage loans and the significant reduction in refinance volumes
once the rates reached historic lows and moved upward.  The gains on the
investment securities of $1,513,000 resulted from the sale and donation of
investment equity securities.  The Company sold 223,500 shares of common stock
of Towne Services, Inc. and donated 125,000 shares of Towne Services, Inc.
common stock to a qualified charitable foundation.  The total gain on the sale
and donation was $1,811,000.  In the course of business over 1999, the Company
also liquidated

                                       22
<PAGE>

investment securities to fund loan growth and to reinvest in higher yielding
investment securities. The Company incurred losses in the amount of $298,000 in
the sale of investment securities for these purposes. In 1998, gains on the sale
of investment securities totaled $33,000. The following table presents the
principal components of non-interest income for the last three years:

                              Non-Interest Income
<TABLE>
<CAPTION>
                                                             Year Ended
                                                            December 31,
                                          ----------------------------------------------
                                               1999             1998             1997
                                          ------------     ------------     ------------
<S>                                      <C>              <C>              <C>
                                                      (Amounts in thousands)

Service charges on deposit accounts.  .         $2,683           $2,508           $2,276
Gain on sale of loans...................           689              928              408
Investment securities gains (losses) .  .        1,513               33              (21)
Other.  .  .  .  .  .  .  .  .  .  .  .            263              169               51
                                          ------------     ------------     ------------
     Total non-interest income.  .  .  .        $5,148           $3,638           $2,714
                                          ============     ============     ============

Non-interest income as a percentage of
 total average assets                             1.59%            1.32%            1.14%

Non-interest income as a percentage of           17.56%           14.47%           12.61%
 total income
</TABLE>


Non-Interest Expense

     Non-interest expense totaled $11.2 million in 1999, an increase of 12.7%
from 1998 non-interest expense of $10.0 million. The increase was primarily the
result of the Company's continued growth and expansion. However, included in the
$11.2 million of non-interest expense is a $480,000 expense for the donation of
125,000 shares of common stock of Towne Services, Inc. to a charitable
foundation. The increases in the salary and benefit expense reflect the
increases in commissions paid in response to the growth in volumes of retail
investment sales, as well as normal increases in salaries and benefits.

     The Company has improved its ability to monitor expenditures in all
organizational units by implementing more specific cost accounting and
reporting.  The Company has completed implementation of a system to define the
profitability of branch/departmental operations within its core banking business
and is committed to developing these measurement processes at the product and
account relationship levels.  These systems will both monitor existing
expenditures and control future expenditures as well as provide management data
with which to make informed decisions in the overall operation of the Company.
The implementation of these systems emphasizes that management is committed to a
continuing emphasis on expense control.  The following table presents the
principal components of non-interest expense for the years ended December 31,
1999, 1998 and 1997.

                                       23
<PAGE>

                             Non-Interest Expense

<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                           ---------------------------------------
                                                               1999         1998          1997
                                                           ----------    ----------    -----------
                                                                   (Amounts in thousands)
<S>                                                        <C>           <C>           <C>
Salaries and employee benefits.............................  $ 6,049        $5,427       $4,596
Occupancy expense..........................................    1,647         1,655        1,480
Amortization of intangible assets..........................      123           123          284
Business development expense...............................      528           587          418
Communication expense......................................      335           371          304
Data processing expense....................................      684           550          457
Insurance expense..........................................       83            65           58
Legal and professional fees................................      183           217          255
Office supplies expense....................................      299           274          295
Charitable contribution  expense                                 480             0            0
Other......................................................      787           666          658
                                                           ---------  ------------
     Total non-interest expense............................  $11,226        $9,959       $8,808
                                                           =========  ============    =========

Non-interest expense as a percentage
   of total average assets.................................     3.46%         3.61%        3.69%

Operating efficiency ratio.................................    66.74%        65.15%       68.20%
</TABLE>

     The Company's efficiency ratio (non-interest expense as a percentage of net
interest income and non-interest income, excluding gains and losses on the sale
of investments) deteriorated slightly to 66.7% in 1999.  Excluding the
charitable contribution expense of $480,000, the efficiency ratio would have
improved to 63.9% and the Company would have continued its trend of improving
the efficiency ratio over the last three years.  In 1998, the efficiency ratio
was 65.2% compared to 68.2% in 1997.  This improvement has occurred even though
the Company has incurred significant expense to expand its retail banking
operations and add additional products and services.

Income Taxes

     Income tax expense increased $255,000 or 16.3% in 1999 from 1998, and
increased $611,000 or 63.8% in 1998 from 1997..  The effective tax rate as a
percentage of pre-tax income was 31.5% in 1999, 35.0% in 1998, and 28.9% in
1997.  The decrease in the effective rate for 1999 resulted from the positive
impact of the donation of Towne Services, Inc. common stock and the higher
levels of state tax-exempt investment securities.  The increase in effective tax
rate for 1998 was due to increased state tax expense as the Company utilized all
existing carryforwards of state tax credits.  The tax rate for 1997 was lower
than the statutory federal tax rate of 34% due to interest on tax-exempt
securities, the utilization of state tax credit carryforwards and the decrease
in the valuation allowance for deferred tax assets.  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.
Based upon the level of historical taxable income and projection of 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 Company will realize

                                       24
<PAGE>

the benefits of these deductible differences. In 1997, the Company reduced its
valuation allowance for the deferred tax assets based on its assessment of the
potential realization of the benefits of temporary differences.

Provision for Loan Losses, Net Charge-offs and Allowances for 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,
independent auditors 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 alowance 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.

                                       25
<PAGE>

                  Allocation of the Allowance for Loan Losses

<TABLE>
<CAPTION>
                             December 31,         December 31,         December 31,            December 31,          December 31,
                                1999                 1998                 1997                    1996                  1995
                        ---------------------  -------------------  -------------------  ---------------------  --------------------
                          Amount   Percent(1)   Amount  Percent(1)   Amount  Percent(1)     Amount  Percent(1)   Amount   Percent(1)
<S>                       <C>      <C>         <C>      <C>          <C>     <C>            <C>      <C>         <C>      <C>
                                                                  (Amounts in thousands)
Balance at End of Period Applicable to:
   Commercial, financial,
     agricultural.......   $  766   18.39%      $  235   17.25%       $   78    17.48%        $  189    23.77%    $  257    17.31%
   Real
    estate-construction.      278   11.85%         144   11.66%            0    13.67%            30     8.01%       111    11.02%
   Real estate-mortgage.    1,202   46.74%       1,458   50.01%          931    52.54%           189    54.03%        85    57.56%
   Consumer loans to
     Individuals........      688   22.71%         365   20.56%          138    16.03%            37    14.19%        21    12.64%
   Lease financing......       10    0.31%           5    0.52%            0     0.29%             0       --          0       --
Unallocated.............      648     - -          508      --           950       --          1,023       --        861       --

                        ---------------------  -------------------  --------------------  --------------------  ------------------
Balance at Period End...   $3,592  100.00%      $2,715  100.00%       $2,097   100.01%        $1,468   100.00%    $1,335   100.00%


(1)  Percent of loans in each category to total loans
</TABLE>


     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 1999 was $1,314,000, an increase
of $439,000 (50.2%) over the 1998 provision of $875,000. The increase in the
provision in 1999 was necessary to support the significant growth of the loan
portfolio and the slightly upward trend in loan losses. The provision for loan
losses charged to earnings in 1997 was $774,000.

     The following table provides details regarding loan losses 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 1999 represented 0.19% of average loans
outstanding, compared to 0.14% for 1998 and 0.09% for 1997. The Company's
charge-off ratios continue to be below the average for the industry.

                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                                      Allowances for Loan Losses
                                                                              December 31,
                                           --------------------------------------------------------------------------------
                                               1999               1998            1997            1996           1995
                                                                         (Amounts in thousands)
<S>                                        <C>                   <C>             <C>            <C>             <C>
Total loans outstanding at end of
 period, net of unearned income.  .              $239,032        $208,967        $172,431       $135,212        $120,427
                                           =================================================================================

Daily average amount of loans
 outstanding, net of unearned income.            $225,244        $189,369        $153,501       $128,592        $113,977
                                          ==================================================================================

Balance of allowance for loan losses
 at beginning of year.  .  .  .  .  .            $  2,715        $  2,097        $  1,468       $  1,335        $  1,275

Loan losses:
  Commercial, financial and
   agricultural.                                      112             119             112             77              93
  Real estate - construction.  .  .  .                  0               0               0              0               0
  Real estate - mortgage.  .  .  .  .                  41               0              37            171              54
  Consumer.  .  .  .  .  .  .  .  .  .                396             259             205            121              43
                                          -----------------------------------------------------------------------------------
     Total loan losses.  .  .  .  .  .                549             378             354            369             190
                                          -----------------------------------------------------------------------------------

Recoveries of previous loan losses:
  Commercial, financial and
   agricultural.                                       23              21              95              7              21
  Real estate - construction.  .  .  .                  0               0               0              0               0
  Real estate - mortgage.  .  .  .  .                   2               0              18              0               5
  Consumer.  .  .  .  .  .  .  .  .  .                 87             100              96             25              24
                                          -----------------------------------------------------------------------------------
     Total recoveries.  .  .  .  .  .                 112             121             209             32              50
                                          -----------------------------------------------------------------------------------

Net loan losses.  .  .  .  .  .  .  .                 437             257             145            337             140
                                          -----------------------------------------------------------------------------------
Provision for loan losses.  .  .  .  .              1,314             875             774            470             200
Balance of allowance for loan losses
 at end of period.  .  .  .  .  .  .             $  3,592        $  2,715        $  2,097       $  1,468        $  1,335
                                          ===================================================================================

Allowance for loan losses to period
 end loans.  .  .  .  .  .  .  .  .  .               1.50%           1.30%           1.22%          1.09%           1.11%
Net charge-offs to average loans.  .                 0.19%           0.14%           0.09%          0.26%           0.12%
</TABLE>


     At December 31, 1999, the allowance for loan losses was 1.50% of
outstanding loans, an increase from the 1.30% level at December 31, 1998.
Management considers the increase 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, 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.

                                       27
<PAGE>

Financial Condition

Composition of the Loan Portfolio

     Loans are the primary component of the Company's 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 averaged $225.2 million in 1999 compared to $189.4 million in 1998
and $153.5 million in 1997. At December 31, 1999, loans totaled $239.0 million
compared to $209.0 million in 1998, an increase of $30.0 million (14.4%). This
compares to growth in 1998 of $36.6 million (21.2%), up from $172.4 million at
December 31, 1997.

     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. Average loans as a percentage of average earning assets and average
total assets was 75.2% and 69.4% respectively, in 1999. This compares to 75.1%
of average earning assets and 68.7% of average total assets in 1998 and 71.1%
and 64.7%, respectively, in 1997.

     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,
1999.

                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                         Loan Portfolio Composition
                                                               At December 31,
                         1999                   1998                   1997                   1996                   1995
                 Amount          %       Amount        %        Amount        %        Amount        %        Amount        %
              --------------------------------------------------------------------------------------------------------------------
<S>             <C>             <C>      <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
                                                 (Amount in thousands, except percentages)
Commercial
 Financial and
 agricultural.      $ 43,959     18.39%  $ 36,055     17.25%    $ 30,135     17.48%    $ 32,141     23.77%    $ 22,614     18.78%
              --------------  ---------  --------  ---------  ----------  ---------  ----------  ---------  -----------  ---------
Real Estate
 Commercial.        $ 73,420     30.72%  $ 67,168     32.14%    $ 58,518     33.94%    $ 48,422     35.81%    $ 43,649     36.24%
 Residential.         37,626     15.74%    34,939     16.72%      30,513     17.70%      24,156     17.87%      25,260     20.98%
 Residential
 held for
 sale.  .  .             668      0.28%     2,380      1.14%       1,548      0.90%         477      0.35%         404      0.34%
 Construction and
 Development          28,324     11.85%    24,373     11.66%      23,567     13.67%      10,829      8.01%      13,273     11.02%
              --------------  ---------  --------  ---------  ----------  ---------  ----------  ---------  -----------  ---------
 Total real
 estate (1).         140,038     58.59%   128,860     61.67%     114,146     66.20%      83,884     62.04%      82,586     68.58%
              --------------  ---------  --------  ---------  ----------  ---------  ----------  ---------  -----------  ---------
Lease
 financing.              735      0.31%     1,084      0.52%         502      0.29%           0      0.00%           0      0.00%
Consumer
 Direct.  .           16,714      6.99%    14,082      6.74%      12,819      7.43%      11,998      8.87%      10,874      9.03%
 Indirect.  .         24,976     10.45%    15,555      7.44%       2,300      1.33%           0      0.00%           0      0.00%
 Home equity.         12,129      5.07%    10,145      4.85%       9,557      5.54%       5,580      4.13%       2,928      2.43%
 Revolving (2).          481      0.20%     3,186      1.52%       2,972      1.72%       1,609      1.19%       1,425      1.18%
              --------------  ---------  --------  ---------  ----------  ---------  ----------  ---------  -----------  ---------
 Total                54,300     22.72%    42,968     20.56%      27,648     16.03%      19,187     14.19%      15,227     12.64%
 consumer.  .
              --------------  ---------  --------  ---------  ----------  ---------  ----------  ---------  -----------  ---------
 Total.  .  .       $239,032    100.00%  $208,967    100.00%    $172,431    100.00%    $135,212    100.00%    $120,427    100.00%
              ==============  =========  ========  =========  ==========  =========  ==========  =========  ===========   ========
</TABLE>


(1) Excluding home equity lines that, while secured by real estate and reported
    elsewhere herein as real estate loans, are included under the consumer loan
    category in this table.

(2) Includes credit cards and other revolving consumer lines, excluding home
    equity lines.


Loans may be periodically renewed with principal reductions and appropriate
interest rate adjustments.  Loan maturities as of December 31, 1999 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 Schedule
                              At December 31, 1999

<TABLE>
<CAPTION>
                                                                                One to      After
                                                                    Within       Five        Five
($ in thousands)                                                   One Year     Years       Years      Total
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>         <C>       <C>
Commercial, financial and agricultural                              $19,663     $ 19,772     $ 5,259  $ 44,694
Real Estate
   Construction and development                                      26,420        1,904           0    28,324
   Mortgage                                                          23,188       62,424      26,102   111,714
Consumer                                                              3,638       37,394      13,268    54,300
--------------------------------------------------------------------------------------------------------------
Total loans                                                         $72,909     $121,494     $44,629  $239,032
==============================================================================================================
</TABLE>

                                       29
<PAGE>

     The following table presents an interest rate sensitivity analysis of the
Company's loan portfolio at December 31, 1999.  The loans outstanding are shown
in the time period where they are first subject to repricing.

               Sensitivity of Loans to Changes in Interest Rates
                              At December 31, 1999

<TABLE>
<CAPTION>
                                                                   One to Five   After Five
                                                         Within
($ in thousands)                                        One year      Years        Years      Total
----------------------------------------------------------------------------------------------------

Loans maturing with:
<S>                                                     <C>        <C>           <C>       <C>
   Predetermined interest rates                         $ 67,279      $72,242     $11,665  $151,186
   Floating or adjustable interest rates                  82,410        3,812       1,624    87,846
----------------------------------------------------------------------------------------------------
Total loans                                             $149,689      $76,054     $13,289  $239,032
====================================================================================================
</TABLE>

Non-Performing Assets.

     As a result of management's ongoing review of the loan portfolio, loans are
classified as non-accrual 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 non-accrual, 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 non-
accrual, 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 non-accruing loans had been accruing interest under their original
terms, approximately $27,000 in 1999, $43,000 in 1998 and $8,000 in 1997 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 non-
accrual. 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.

                                       30
<PAGE>

     Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure and held for sale 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 $1.2 million at December 31, 1999 or 0.50% of
total loans and real estate acquired by foreclosure. This compares to $2.9
million or 1.40% of total loans and real estate acquired by foreclosure at
December 31, 1998. At December 31, 1999, all nonaccrual loans were secured.

     Two credits totaling $958,000 are included in the non-accrual loan balance
at December 31, 1999. These loans are secured by real estate collateral and
other collateral, as well as the personal guaranties of the principals. Due to
the superior lien position of the Company, management feels there is minimum
risk of loss, although there is no assurance of this assessment until the normal
repayment and collection process is completed. Total allowance for these
impaired loans of $170,000 is included in the Table on page 29 titled
"Allocation of the Allowance for Loan Losses" under the heading Real estate-
mortgage.

     The decrease in non-performing loans during 1999 reflects the resolution of
a major credit in the amount of $1.1 million at the end of the fourth quarter.
No portion of that credit remains in the loan portfolio. The overall reduction
in the remaining non-performing loans reflects the resolution of several prior
"problem loans" through the disposition of other real estate owned and
management's continuing focused emphasis on asset quality. At December 31, 1999,
loans past due 90 days or more and still accruing interest totaled $27,000, a
decrease from $44,000 in 1998 and an increase from $15,000 at the end of 1997.
Management believes the Company will receive full payment of principal and
accrued interest on these loans because of the Company's collateral position and
other factors, despite their past due status.

<TABLE>
<CAPTION>
                                                                         Non-Performing Assets
                                                                       At Year Ended December 31,
                                      --------------------------------------------------------------------------------------------
                                            1999                 1998                1997               1996               1995
                                      --------------      ---------------       -----------        ------------      -------------
<S>                                     <C>                 <C>                   <C>                <C>               <C>
                                                               (Amounts in thousands, except percentages)

Non-accrual loans.  .  .  .  .  .  .         $ 1,190               $2,925            $2,092              $1,747            $   786
Restructured loans.  .  .  .  .  .  .              0                    0                 0                   0                  0
Other real estate owned.  .  .  .  .              17                    0               275                 150                 75
                                      --------------      ---------------       -----------        ------------      -------------
     Total nonperforming assets.  .          $ 1,207               $2,925            $2,367              $1,897            $   861
                                      ==============      ===============       ===========        ============      =============

Loans past due 90 days or more and
 still accruing interest.  .  .  .  .        $    27               $   44            $   15              $  131            $   279
                                      ==============      ===============       ===========        ============      =============

Allowance for loan losses to period
 end total loans.  .  .  .  .  .  .             1.50%                1.30%             1.22%               1.09%              1.11%
Allowance for loan losses to period
 end nonperforming assets .  .  .  .          297.60%               92.82%            88.59%              77.38%            155.05%
Net charge-offs to average loans.  .            0.19%                0.14%             0.09%               0.26%              0.12%
Nonperforming assets to period end
 loans.  .  .  .  .  .  .  .  .  .  .           0.50%                1.40%             1.37%               1.40%              0.72%
Nonperforming assets to period end
 loans and foreclosed property.  .  .           0.50%                1.40%             1.37%               1.40%              0.72%

</TABLE>

                                       31
<PAGE>

     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) represents or results from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or (2) represents 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.

Investment Securities

     The Company's investment securities portfolio increased 6.7% or $4.2
million to $67.3 million at year-end 1999 from 1998. 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 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, 1999, except for the U.S.
Government and its agencies, there was no issuer who represented 10% or more of
stockholders' equity within the investment portfolio. The following table
presents the amortized cost and fair values of investment securities held by the
Company at December 31, 1999, 1998, and 1997:

                                       32
<PAGE>

                             Investment Securities


<TABLE>
<CAPTION>

                                                                        As of December 31,
             -----------------------------------------------------------------------------------------------------------------------
                               1999                                       1998                                   1997
             -----------------------------------------------------------------------------------------------------------------------

                                      Un-                                    Un-    Estimated             Un-      Un-
Available-    Amortized Unrealized realized Estimated Amortized Unrealized realized   Fair    Amortized realized realized  Estimated
for-sale        Cost      Gain      Losses  Fair Value  Cost       Gain     Losses    Value      Cost     Gain   Losses   Fair Value
------------------------------------------------------------------------------------------------------------------------------------
<S>        <C>          <C>       <C>      <C>        <C>       <C>        <C>        <C>       <C>      <C>     <C>      <C>
                                                                (Amounts in Thousands)
U.S.          $ 2,493    $  2        ($7)    $ 2,488    $ 2,985  $   69       $    0   $ 3,054   $ 4,461   $ 52    $  0    $ 4,513
Treasuries
U.S.
Government
Agencies       31,412       3       (937)     30,478     23,533     294          (17)   23,810    21,839    128     (76)    21,891

Mortgage-backed
securities     19,024       1       (341)     18,684     15,563     126          (16)   15,673    14,240    103      (4)    14,339

REMICs          6,321       0       (208)      6,104     12,440      21         (293)   12,168     8,487     12    (153)     8,346

Corporate
Bonds             540       0         (7)        533
------------------------------------------------------------------------------------------------------------------------------------
Equity
securities      1,640     127          0       1,767      1,487   2,728            0     4,215     1,339      0       0      1,339
------------------------------------------------------------------------------------------------------------------------------------

Total         $61,421    $133    ($1,500)    $60,054    $56,008  $3,238        ($326)  $58,920   $50,366   $295   ($233)   $50,428
====================================================================================================================================


                               1999                                       1998                                   1997
             -----------------------------------------------------------------------------------------------------------------------
                                      Un-                                    Un-    Estimated             Un-      Un-
Held-to       Amortized Unrealized realized Estimated Amortized Unrealized realized   Fair    Amortized realized realized  Estimated
maturity        Cost      Gain      Losses  Fair Value  Cost       Gain     Losses    Value      Cost     Gain   Losses   Fair Value
------------------------------------------------------------------------------------------------------------------------------------

Obligations of
states and
political sub-
divisions     $ 6,691    $ 15     ($185)    $ 6,521    $ 3,386   $  111       $    0   $ 3,497   $ 2,860   $ 42     ($2)    $ 2,900

REMICs            591       0       (10)        581        789       12            0       801     1,032     16       0       1,048
------------------------------------------------------------------------------------------------------------------------------------

Total         $ 7,282    $ 15     ($195)    $ 7,102    $ 4,175   $  123       $    0   $ 4,298   $ 3,892   $ 58     ($2)    $ 3,948
====================================================================================================================================
</TABLE>


     The following table represents maturities and weighted average yields of
securities at December 31, 1999 and 1998.  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.

                                       33
<PAGE>

                      Maturity Distribution and Yields of
                             Investment Securities
<TABLE>
<CAPTION>
                                          December 31, 1999             December 31, 1998
                                         Amortized Cost Yield         Amortized Cost Yield
                                       ------------------------    ---------------------------
<S>                                     <C>             <C>         <C>              <C>
Securities Available for Sale
U.S. Treasury
   One year or less...................    $ 1,494,620     6.20%      $   498,607      6.45%
   Over one through five years........        998,452     5.51%        2,486,214      5.93%
                                      -------------------------------------------------------
      Total U. S. Treasury............    $ 2,493,072     5.92%      $ 2,984,821      6.02%
                                      -------------------------------------------------------

U.S. Government Agencies
   One year or less...................    $   498,667     6.50%      $         0      0.00%
   Over one through five years........     25,354,859     5.94%       23,709,745      6.03%
   Over five through ten years(1).....     13,727,616     6.10%        8,939,904      6.07%
   Over ten years(2)..................     17,167,137     6.28%       18,886,626      5.54%
                                      -------------------------------------------------------
      Total U. S. Government Agencies.    $56,748,279     6.09%      $51,536,276      5.85%
                                      -------------------------------------------------------

Corporate Bonds
                                      ---------------    -----      ------------      -------
   Over one through five years........    $   539,739     6.90%      $         0      0.00%
                                      ---------------    -----      ------------      -------
Total Securities Available for Sale...    $59,781,091     6.09       $54,521,097      5.87%
                                      -------------------------------------------------------

Securities Held to Maturity
U.S. Government Agencies
   One year or less...................              0     0.00%                0      0.00%
   Over one through five years........        590,666     6.97%          660,748      6.97%
   Over five through ten years........              0     0.00%                0      0.00%
   Over ten years.....................              0     0.00%          128,078      7.74%
                                      ---------------               ------------      -------
      Total U. S. Government Agencies.    $   590,666     6.97%          788,826      7.10%
                                      -------------------------------------------------------

Municipal Securities(3)
   One year or less...................        120,000     9.50%          115,000      6.30%
   Over one through five years........      2,520,528     6.03%          781,045      6.85%
   Over five through ten years........      1,116,231     5.84%        1,301,501      5.84%
   Over ten years.....................      2,934,318     7.22%        1,188,397      7.14%
                                      ---------------               ------------      -------
      Total Municipal Securities......    $ 6,691,077     6.58%      $ 3,385,943      6.64%
                                      -------------------------------------------------------
Total Securities Held to Maturity.....    $ 7,281,743     6.61%      $ 4,174,769      6.73%
                                      -------------------------------------------------------
Total Investment Securities...........    $67,062,834     6.15%      $58,695,866      5.93%
                                      =======================================================
</TABLE>


(1) Includes $0 and $500,755 in adjustable-rate mortgage-backed securities for
    1999 and 1998, respectively.
(2) Includes $10,465,286 and $14,899,786 in adjustable-rate mortgage-backed
    securities for 1999 and 1998, respectively.
(3) Tax-equivalent yield

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 of the depositors and to provide an
appropriate return to stockholders on their investment.

                                       34
<PAGE>

     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, 1999, the Company's interest rate sensitivity position was
liability sensitive within the one-year horizon.

     The following table "Interest Sensitivity Analysis" details the interest
rate sensitivity of the Company at December 31, 1999. 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 or contractual maturity. In the
one-year time period, the pricing mismatch on a cumulative basis was liability
sensitive $59.0 million or 18.76% of total 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 sixty percent of
Prime Rate. Therefore, as the Prime Rate adjusts 100 basis points, the rate on
this liability only adjusts 60 basis points.

                                       35
<PAGE>

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 Analysis
                             At December 31, 1999

<TABLE>
<CAPTION>
                                             After         After Six
                               Within        Three          Through                       One Year
                                Three       Through         Twelve         Within One      Through         Over Five
                               Months      Six Months       Months            Year        Five Years         Years         Total
                           ------------   -------------   -------------   -------------  -------------  ---------------  -----------
                                                             (Amounts in thousands, except ratios)
Interest-Earning Assets:
<S>                        <C>            <C>            <C>             <C>             <C>            <C>           <C>
Loans.  .  .  .  .  .  .   $  97,791        $  21,962     $  29,936        $ 149,689      $ 76,054       $  13,289        $239,032
Investment securities,         2,549            1,404         8,509           12,462        27,035          19,614          59,111
 taxable.  .
Investment securities,             0                0           120              120         2,288           4,050           6,458
 tax-free
Federal Funds sold.  .  .      9,830              - -           - -            9,830           - -             - -           9,830
                           ---------    -------------    ----------    -------------    ----------    ------------    ------------
     Total
      interest-earning
      assets. . . . . . .  $ 110,170        $  23,366     $  38,565        $ 172,101      $105,377       $  36,953        $314,431
                           =========    =============    ==========    =============    ==========    ============    ============

Interest-Bearing
 Liabilities:
Money market accounts.  .  $   8,805        $     - -     $     - -            8,805      $  2,935       $   2,935        $ 14,675
Savings deposits.  .  .  .    89,683              228           455           90,366         3,644             - -          94,010
NOW accounts.  .  .  .  .     20,796              - -           - -           20,796         6,932           6,932          34,660
Time deposits.  .  .  .  .    26,508            9,183        48,088           83,779        12,672             154          96,605
Federal funds
 purchased/securities sold
 under repurchase
 ageements .  .  .  .  .      11,331                0             0           11,331             0               0          11,331


Federal Home Loan Bank
 advances.  .  .  .  .  .          0           10,000         5,000           15,000             0               0          15,000

Notes and bonds payable.       1,000                0             0            1,000             0               0           1,000
                           ---------    -------------    ----------    -------------    ----------    ------------    ------------
    Total interest-bearing
    liabilities.           $ 158,123        $  19,411     $  53,543        $ 231,077      $ 26,183       $  10,021        $267,281
                           =========    =============    ==========    =============    ==========    ============    ============

Interest-free funds.  .  .         0                0             0                0             0          47,150          47,150
                           ---------    -------------    ----------    -------------    ----------    ------------    ------------
Funds supporting
 interest-earning assets.  $ 158,123        $  19,411     $  53,543        $ 231,077      $ 26,183       $  57,171        $314,431
                           =========    =============    ==========    =============    ==========    ============    ============

Period gap.  .  .  .  .  .  ($47,953)         ($3,955)     ($14,978)        ($58,976)     $ 79,194        ($20,218)              -
Cumulative gap.  .  .  .    ($47,953)        ($43,998)     ($58,976)        ($58,976)     $ 20,218               -               -
Ratio of cumulative gap to
 total interest-earning
 assets....................   -15.25%          -13.99%       -18.76%          -18.76%         6.43%              -               -

</TABLE>

     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. 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.

                                       36
<PAGE>

     Average liquid assets (cash and amounts due from banks, federal funds sold,
investment securities and other short term investments) were maintained at 29.4%
of average deposits in 1999 compared to 31.8% in 1998 and 35.0% in 1997.

Deposits

     The Company's average deposits, short-term borrowings and other borrowings
increased $44.8 million or 18.1% from 1998 to 1999.  Average interest-bearing
liabilities increased $40.2 million or 19.2% while average non-interest bearing
deposits increased $4.6 million or 12.5%.  Average deposits and borrowings
increased $27.6 million or 12.6% from 1997 to 1998.  Average interest-bearing
liabilities increased $24.8 million or 13.4% from 1997 to 1998, while average
non-interest bearing deposits increased $2.8 million or 8.1% 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, primarily federal funds purchased, securities sold
under agreements to repurchase with the Bank's commercial customers, and
borrowings from the Federal Home Loan Bank.  The following table presents the
average amount outstanding and the average rate paid on deposits and borrowings
by the Company for the years 1999, 1998 and 1997:

             Average Deposit and Other Borrowing Balances and Rates
<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                1999                             1998                            1997
                                   ----------------------------     ---------------------------     -----------------------------
                                       Average         Average         Average         Average         Average          Average
                                       Amount            Rate           Amount           Rate           Amount            Rate
---------------------------------------------------------------     ---------------------------     -----------------------------
<S>                                  <C>              <C>             <C>             <C>             <C>              <C>
                                                             (Amounts in thousands, except percentages)
Non-interest bearing demand
    deposits                            $ 42,426           0.00%        $ 37,733           0.00%        $ 34,916            0.00%
Interest-bearing liabilities:
   Transaction accounts                   33,661           1.52%          29,664           2.17%          26,324            2.38%
   Savings, MMA                          109,751           4.55%          86,438           4.65%          74,835            4.67%
   Time deposits                          83,573           5.35%          78,652           5.59%          74,810            5.50%
   Funds purchased/ securities            11,628           3.11%           5,798           3.50%           4,222            3.20%
    repurchase agreements
  Other borrowings                        10,898           5.86%           8,780           6.31%           4,389            6.02%
---------------------------------------------------------------------------------------------------------------------------------
       Total interest-bearing
        liabilities                     $249,511           4.40%        $209,332           4.69%        $184,580            4.68%
=================================================================================================================================
Total non-interest & interest bearing
    liabilities                         $291,937                        $247,065                        $219,496
</TABLE>

                                       37
<PAGE>

     The following table presents the maturities of the Company's time deposits
over $100,000 and other time deposits at December 31, 1999:

                          Maturities of Time Deposits
<TABLE>
<CAPTION>
                                             Time Deposits               Other Time
                                             over $100,000                Deposits                Total
---------------------------------------------------------------------------------------------------------
<S>                                      <C>                        <C>                      <C>
Months to Maturity
   Within 3 months                                  $18,539                  $ 7,969              $26,508
   After 3 through 6 months                           3,965                    5,218                9,183
   After 6 through 12 months                         20,194                   27,894               48,088
                                       ------------------------------------------------------------------
    Within one year                                  42,698                   41,081               83,779
   After 12 months                                    2,757                   10,069               12,825
                                       ------------------------------------------------------------------

        Total                                       $45,455                  $51,150              $96,605
                                       ==================================================================
</TABLE>

     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.

Capital

     Total stockholders' equity was $29.8 million at December 31, 1999,
increasing $1.2 million or 4.2% from the previous year. The increase was the
combination of earnings in the amount of $4.0 million and a decrease in
accumulated other comprehensive income of $2.8 million. The decrease in
accumulated other comprehensive income represents unrealized losses in the
investment portfolio and the recognition of the 1998 unrealized gain on the
equity investment in Towne Services, Inc. In 1996 and 1997, the Company made
equity investments totaling $150,000 in Towne Services, Inc. These investments
were for the purpose of providing capital to acquire and implement a processing
system for equipment and vehicle leasing. Towne Services, Inc. also provided
processing services for an automated asset management (accounts receivable)
system. Until the initial public offering of Towne Services, Inc. in July 1998,
no public market existed for the stock.

     During the third quarter of 1999, the Company sold 223,500 shares and
donated an additional 125,000 shares of Towne Services, Inc. common stock to a
charitable foundation. The gain recognized on the sale and donation of Towne
Services, Inc. stock was $1,811,000. At December 31, 1999, the Company owned
34,900 shares of the Towne Services, Inc. common stock with a market value of
$139,600. The sale of equity securities represents a non-recurring transaction
and the donation represents a non-recurring tax-deduction, each of which
provided a positive impact on the financial performance of the Company in 1999.

     The Company's average equity to average total assets was 9.08% in 1999
compared to 9.38% in 1998 and 7.55% in 1997.  The decrease in 1999 reflects the
overall growth of the Company whereas the increase in 1998 resulted from the
additional capital of $4.9 million raised from a stock offering of 278,000
shares of Company common stock completed October 31, 1997. Capital is

                                       38
<PAGE>

considered to be very 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 1999, 1998 and 1997.

<TABLE>
<CAPTION>

                                      Return on Equity and Assets

                                                  1999                   1998                     1997
                                                  ----                    ----                    ----
<S>                                           <C>                     <C>                     <C>
Return on average total assets                    1.22%                   1.06%                   0.99%

Return on average equity                         13.48%                  11.27%                  13.05%

Average equity to average                         9.08%                   9.38%                   7.55%
assets ratio
</TABLE>


     At December 31, 1999, 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.

                                       39
<PAGE>

                              Analysis of Capital
<TABLE>
<CAPTION>
                                   Required                     Actual                         Excess
-------------------------------------------------------------------------------------------------------------------
                                    Amount         %            Amount          %              Amount          %
-------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>            <C>          <C>               <C>          <C>
                                                (Amounts in thousands, except percentages)
Georgia Bank Financial Corporation
     12/31/99
Risk-based capital:
   Tier 1 capital                   $10,585      4.00%          $30,212        11.42%          $19,627         7.42%
   Total capital                     21,171      8.00%           33,579        12.69%           12,408         4.69%
Tier 1 leverage ratio                13,565      4.00%           30,212         8.91%           16,647         4.91%
     12/31/98
Risk-based capital
   Tier 1 capital                   $ 9,140      4.00%          $26,120        11.43%          $16,980         7.43%
   Total capital                     18,280      8.00%           30,062        13.16%           11,782         5.16%
Tier 1 leverage ratio                11,701      4.00%           26,120         8.93%           14,419         4.93%

Georgia Bank & Trust Company
     12/31/99
Risk-based capital:
   Tier 1 capital                   $10,491      4.00%          $27,894        10.63%          $17,403         6.63%
   Total capital                     20,983      8.00%           31,176        11.89%           10,193         3.89%
Tier 1 leverage ratio                13,488      4.00%           27,894         8.27%           14,406         4.27%
     12/31/98
Risk-based capital
   Tier 1 capital                   $ 9,060      4.00%          $24,598        10.86%          $15,538         6.86%
   Total capital                     18,119      8.00%           27,668        12.22%            9,549         4.22%
Tier 1 leverage ratio                11,599      4.00%           24,598         8.48%           12,999         4.48%
</TABLE>


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 in the Annual Report, 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.

                                       40
<PAGE>

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133). SFAS No. 133 is effective for financial statements for all fiscal quarters
of all fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 133, as
amended, is now effective for all fiscal quartes of all fiscal years beginning
after June 15, 2000. The Company does not believe the provisions of SFAS No. 133
will have a significant impact on the financial statements upon adoption.

Year 2000 Issue

     The Company had recognized the scope and potential problems that required a
comprehensive Year 2000 compliance program.  The Company had adopted a plan of
action and over a period of three years implemented the plan to assure minimal
disruptions to its various activities and operations that could be experienced
as a result of the century date rollover.  Due to this high level of
preparedness, the Company experienced no disruptions at December 31, 1999.

     The Company budgeted expenses of approximately $450,000 to modify its
information systems appropriately to accurately process information for the Year
2000 and beyond.  In 1999, the Company incurred costs of approximately $106,000
related to systems testing, review and testing of contingency plans and
implementation of a communications plan for customers, shareholders and the
general public.  In 1998, the Company incurred costs of $332,000 for the
replacement of non-compliant hardware and software.  Where appropriate, certain
costs for replacement systems were recorded as assets and amortized, while other
ongoing costs were expensed as incurred.

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, 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.

                                       41
<PAGE>

Item 7: Financial Statements

        The consolidated financial statements of the Company as of December 31,
1999 and 1998 and for each of the years in the three-year period ended December
31, 1999, are set forth on the following pages.

                                                                            Page

Independent Auditors' Report                                                43

Consolidated Balance Sheets                                                 44

Consolidated Statements of Income                                           46

Consolidated Statements of Stockholders' Equity and Comprehensive Income    47

Consolidated Statements of Cash Flows                                       48

Notes to Consolidated Financial Statements                                  50

                                       42
<PAGE>

                          Independent Auditors' Report


The Board of Directors
Georgia Bank Financial Corporation:


We have audited the accompanying consolidated balance sheets of Georgia Bank
Financial Corporation and subsidiary (the "Bank") as of December 31, 1999 and
1998, 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, 1999.  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 generally accepted auditing
standards.  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, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.



KPMG LLP


Atlanta, Georgia
January 7, 2000

                                       43
<PAGE>

<TABLE>
<CAPTION>
                                             GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                                                        Consolidated Balance Sheets
                                                         December 31, 1999 and 1998

                               Assets                                               1999                  1998
                                                                              -----------------    -----------------
<S>                                                                        <C>                    <C>
Cash and due from banks (note 2)                                            $        13,642,007            7,546,911
Federal funds sold                                                                    9,830,000            2,370,000
                                                                              -----------------    -----------------
            Cash and cash equivalents                                                23,472,007            9,916,911
                                                                              -----------------    -----------------
Investment securities (note 3):
    Available-for-sale                                                               60,054,449           58,919,609
    Held-to-maturity, at cost (fair values of $7,102,288
      and $4,298,350 at December 31, 1999 and 1998,
      respectively)                                                                   7,281,743            4,174,769

Loans (note 4)                                                                      239,031,667          208,967,142

    Less allowance for loan losses                                                    3,591,613            2,714,638
                                                                              -----------------    -----------------
                 Loans, net                                                         235,440,054          206,252,504
                                                                              -----------------    -----------------
Premises and equipment, net (note 5)                                                 10,481,160           11,025,425

Accrued interest receivable                                                           2,792,978            2,111,933
Intangible assets, net (note 6)                                                         492,806              615,891
Other assets                                                                          2,085,912            2,414,738





                                                                              -----------------    -----------------
                                                                            $       342,101,109          295,431,780

                                                                              =================    =================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       44
<PAGE>

<TABLE>
<CAPTION>
                             Liabilities and Stockholders' Equity                        1999                 1998
                                                                                    ----------------     ----------------
Deposits:
<S>                                                                            <C>                    <C>
   Noninterest bearing                                                          $       43,171,186           40,718,719
   Interest-bearing:
     NOW accounts                                                                       34,659,905           35,892,756
     Savings                                                                            94,010,408           80,541,816
     Money management accounts                                                          14,674,717           15,546,821
     Time deposits over $100,000                                                        45,454,055           34,229,532
     Other time deposits                                                                51,150,474           44,575,842
                                                                                   ----------------     ----------------
                                                                                       283,120,745          251,505,486
Securities sold under repurchase agreements (note 8)                                    11,331,388            2,714,257

Advances from Federal Home Loan Bank (note 8)                                           15,000,000            9,000,000
Other borrowed funds (note 8)                                                            1,000,000              900,000
Accrued interest and other liabilities                                                   1,832,245            2,684,965
                                                                                  ----------------     ----------------
                 Total liabilities                                                     312,284,378          266,804,708
                                                                                  ----------------     ----------------
Stockholders' equity (notes 11 and 14):

   Common stock, $3.00 par value; 10,000,000
     shares authorized; shares issued and outstanding
     of 2,093,152 and 1,820,368 in 1999 and 1998, respectively                           6,279,456            5,461,104
   Additional paid-in capital                                                           21,259,955           14,440,355
   Retained earnings                                                                     3,166,195            6,834,639
   Accumulated other comprehensive (loss) income                                          (888,875)           1,890,974
                                                                                  ----------------     ----------------
                 Total stockholders' equity                                             29,816,731           28,627,072
Commitments (note 7)
                                                                                  ----------------     ----------------
                                                                                $      342,101,109          295,431,780
                                                                                  ================     ================
</TABLE>

                                       45
<PAGE>

<TABLE>
<CAPTION>
                                              GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                                                      Consolidated Statements of Income
                                                Years ended December 31, 1999, 1998, and 1997
                                                                          1999               1998               1997
                                                                    ----------------   ----------------   ----------------
Interest income:
<S>                                                               <C>                 <C>                <C>
   Loans, including fees                                           $      20,005,516         17,762,188         14,896,322
   Investment securities:
      Taxable                                                              3,564,183          3,247,066          3,555,470
      Tax-exempt                                                             205,987            110,100            105,739
   Federal funds sold                                                        390,982            380,851            255,677
                                                                    ----------------   ----------------   ----------------
               Total interest income                                      24,166,668         21,500,205         18,813,208
                                                                    ----------------   ----------------   ----------------
Interest expense:
   Deposits (including interest on time deposits over
     $100,000 of $2,077,806, $2,054,299, and
     $1,901,076 in 1999, 1998, and 1997,
     respectively )                                                        9,979,773          9,062,585          8,232,985
   Federal funds purchased and securities sold
     under repurchase agreements                                             362,671            203,280            134,998
   Other borrowings                                                          638,705            553,505            263,947
                                                                    ----------------   ----------------   ----------------
               Total interest expense                                     10,981,149          9,819,370          8,631,930
                                                                    ----------------   ----------------   ----------------
               Net interest income                                        13,185,519         11,680,835         10,181,278

Provision for loan losses (note 4)                                         1,314,000            875,000            774,012
                                                                    ----------------   ----------------   ----------------
               Net interest income after provision
                  for loan losses                                         11,871,519         10,805,835          9,407,266
                                                                    ----------------   ----------------   ----------------
Noninterest income:
   Service charges and fees on deposits                                    2,683,545          2,507,649          2,276,232
   Gain on sale of loans                                                     689,081            928,383            407,579
   Investment securities gains (losses), net (note 3)                      1,512,759             33,001            (20,616)
   Miscellaneous income                                                      262,589            168,889             51,389
                                                                    ----------------   ----------------   ----------------
               Total noninterest income                                    5,147,974          3,637,922          2,714,584
                                                                    ----------------   ----------------   ----------------
Noninterest expense:
   Salaries                                                                4,604,148          4,286,770          3,719,315
   Employee benefits                                                       1,444,933          1,139,794            876,303
   Occupancy expenses                                                      1,647,071          1,655,242          1,480,404
   Other operating expenses (note 13)                                      3,529,782          2,877,567          2,732,415
                                                                    ----------------   ----------------   ----------------
               Total noninterest expense                                  11,225,934          9,959,373          8,808,437
                                                                    ----------------   ----------------   ----------------
               Income before income taxes                                  5,793,559          4,484,384          3,313,413
Income tax expense (note 9)                                                1,824,051          1,569,000            958,488
                                                                    ----------------   ----------------   ----------------
               Net income                                          $       3,969,508          2,915,384          2,354,925
                                                                    ================   ================   ================
Basic income per share                                             $            1.90               1.39               1.13
                                                                    ================   ================   ================
Weighted average common shares outstanding
   (note 1(i))                                                             2,093,152          2,093,152          2,093,152
                                                                    ================   ================   ================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       46
<PAGE>

<TABLE>
<CAPTION>
                                                        GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                                            Consolidated Statements of Stockholders' Equity and Comprehensive Income
                                                          Years ended December 31, 1999, 1998, and 1997


                                                                                  Common stock            Additional
                                                                          ---------------------------
                                                         Comprehensive        Number                       paid-in
                                                            income          of shares        Amount        capital
                                                       ---------------    ------------    -----------   ------------
<S>                                                   <C>                <C>             <C>            <C>
Balance, December 31, 1996                                                   1,542,368      4,627,104     10,337,222

Issuance of shares of common stock, net of
         expenses of $67,000                                                   278,000        834,000      4,103,133
Comprehensive income:

   Net income
   Other comprehensive
     income - unrealized gain on                     $      2,354,925              --             --             --
     investment securities available for sale,
     net of income tax effect of $118,415 (see below)         219,914              --             --             --
                                                       ---------------
              Total comprehensive income             $      2,574,839
                                                       ===============    ------------    -----------   ------------
Balance, December 31, 1997                                                   1,820,368      5,461,104     14,440,355

Comprehensive income:

   Net income                                         $      2,915,384              --             --             --
   Other comprehensive income - unrealized
     gain on investment securities available for sale,
     net of income tax effect of $997,359 (see below)        1,852,238              --             --             --
                                                       ---------------
              Total comprehensive income              $      4,767,622
                                                       ===============    ------------    -----------   ------------
Balance, December 31, 1998                                                   1,820,368   $  5,461,104     14,440,355

Stock dividend declared - 15%                                                  272,784        818,352      6,819,600

Comprehensive income:
   Net income                                                3,969,508              --             --             --
   Other comprehensive loss - unrealized
     loss on investment securities available for sale
     net of income tax effect of $1,498,620 (see below)     (2,779,849)             --             --             --
                                                       ---------------
              Total comprehensive income              $      1,189,659
                                                       ===============    ------------    -----------   ------------
Balance, December 31, 1999                                                   2,093,152      6,279,456     21,259,955
                                                                          ============    ===========   ============
                                                                                  1999           1998           1997
                                                                          ------------    -----------   ------------
Disclosure of reclassification amount:
   Unrealized holding gains (losses) arising during                      $  (1,635,741)     1,874,019        206,308
     period, net of taxes
   Less: Reclassification adjustment for gains (losse
     included in net income, net of taxes                                    1,144,108         21,781        (13,606)
              Net unrealized gains (losses) in
              securities                                                 $  (2,779,849)     1,852,238        219,914
                                                                          ============    ===========   ============
<CAPTION>
                                                                             Accumulated
                                                                              other              Total

                                                           Retained       comprehensive      stockholders'
                                                           earnings       income (loss)         equity
                                                        ------------    ---------------    ---------------
<S>                                                    <C>              <C>                <C>
Balance, December 31, 1996                                 1,564,330           (181,178)        16,347,478

Issuance of shares of common stock, net of
         expenses of $67,000                                      --                 --          4,937,133
Comprehensive income:

   Net income Other comprehensive
     income - unrealized gain on                          2,354,925                 --          2,354,925
     investment securities available for sale,
     net of income tax effect of $118,415 (see below)            --            219,914            219,914

              Total comprehensive income
                                                        ------------    -------------------
Balance, December 31, 1997                                 3,919,255             38,736         23,859,450

Comprehensive income:

   Net income                                              2,915,384                 --          2,915,384
   Other comprehensive income - unrealized
     gain on investment securities available for sale
     net of income tax effect of $997,359 (see below)             --          1,852,238          1,852,238

              Total comprehensive income
                                                        ------------    -------------------
Balance, December 31, 1998                                 6,834,639          1,890,974         28,627,072

Stock dividend declared - 15%                             (7,637,952)                --                 --

Comprehensive income:
   Net income                                              3,969,508                 --          3,969,508
   Other comprehensive loss - unrealized
     loss on investment securities available for sale
     net of income tax effect of $1,498,620 (see below)           --         (2,779,849)        (2,779,849)

              Total comprehensive income
                                                        ------------    -------------------
Balance, December 31, 1999                                 3,166,195           (888,875)        29,816,731
                                                        ============    ===============    ===============


Disclosure of reclassification amount:
   Unrealized holding gains (losses) arising during
     period, net of taxes
   Less: Reclassification adjustment for gains (losses
     included in net income, net of taxes
              Net unrealized gains (losses) in
              securities
</TABLE>

See accompanying notes to consolidated financial statements.

                                       47
<PAGE>

<TABLE>
<CAPTION>
                                         GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                                               Consolidated Statements of Cash Flows
                                           Years ended December 31, 1999, 1998, and 1997

                                                                         1999               1998               1997
                                                                    --------------     --------------     --------------
<S>                                                             <C>                    <C>                <C>
Cash flows from operating activities:
   Net income                                                   $      3,969,508          2,915,384          2,354,925
   Adjustments to reconcile net income to net
      cash provided by operating activities
        Depreciation and amortization                                  1,131,931          1,064,844          1,066,710
        Deferred income tax benefit                                     (336,526)          (231,635)          (464,426)
        Provision for loan losses                                      1,314,000            875,000            774,012
        Net investment securities (gains) losses                      (1,512,759)           (33,001)            20,616
        Charitable contribution of investment securities                 480,000                 --                 --
        Net amortization (accretion) of premium/
          discount on investment securities                               62,815             60,334            (28,363)
        Gain on disposal of premises and equipment                        (1,020)           (25,322)                --
        (Gain) loss on the sale of other real estate                     (20,478)           (10,220)            41,982
        Gain on sale of loans                                           (689,081)          (928,383)          (407,579)
        Real estate loans originated for sale                        (31,265,283)       (47,851,350)       (23,563,390)

        Proceeds from sales of real estate loans                      32,977,189         47,947,727         22,900,277

        Increase in accrued interest receivable                         (681,045)          (468,457)          (149,185)
        Decrease (increase) in other assets                            2,180,914         (1,476,400)           (26,938)
        (Decrease) increase in accrued interest and
        other liabilities                                               (852,720)           443,445            660,806
                                                                    --------------     --------------     --------------
                  Net cash provided by operating activities            6,757,445          2,281,966          3,179,447
                                                                    --------------     --------------     --------------
Cash flows from investing activities:

   Proceeds from sales of available for sale securities               17,008,206          6,333,289         29,366,026

   Proceeds from maturities of available for sale securities          12,674,161         22,553,824          7,286,156

   Proceeds from maturities of held to maturity securities               315,519          1,233,308            360,000
   Purchase of held to maturity securities                            (3,424,943)        (1,312,526)          (730,563)
   Purchase of available for sale securities                         (34,334,482)       (34,609,408)       (32,945,163)

   Redemption of FHLB stock                                              211,200                 --                 --
   Net increase in loans                                             (32,072,964)       (35,794,908)       (36,731,975)

   Purchases of premises and equipment                                  (493,043)        (2,102,045)        (2,046,466)
   Proceeds from sale of other real estate                               552,125            118,300            272,952
   Proceeds from sale of premises and equipment                           29,482             55,274            296,180
   Purchase of other investments                                              --                 --            (50,000)
   Purchase of GA Union Mortgage, net of cash
    and cash equivalents acquired                                             --                 --           (145,000)
                                                                    --------------     --------------     --------------
                  Net cash used in investing activities              (39,534,739)       (43,524,892)       (35,067,853)

                                                                    --------------     --------------     --------------
Cash flows from financing activities:

   Net increase in noninterest-bearing deposits                        2,452,467          4,122,584          3,290,032
</TABLE>

                                       48
<PAGE>

<TABLE>
<S>                                                             <C>                    <C>                <C>
   Net (decrease) increase in NOW accounts                            (1,232,851)         9,569,628          2,381,010
   Net increase in savings accounts                                   13,468,592         18,034,833         18,949,200

   Net (decrease) increase in money management accounts                 (872,104)         5,133,662        (10,827,963)

   Net increase (decrease) in time deposits over $100,000             11,224,523         (1,370,763)         4,478,274

   Net increase (decrease) in other time deposits                      6,574,632          5,823,764         (3,746,303)
   Net increase (decrease) in federal funds purchased
     and securities sold under repurchase agreements                   8,617,131         (3,223,854)         4,712,817
   Proceeds from issuance of common stock, net                                --                 --          4,937,133
   Proceeds from other borrowed funds                                    100,000                 --                 --
   Advances from Federal Home Loan Bank                               21,000,000          4,000,000          9,000,000

   Payments of Federal Home Loan Bank advances                       (15,000,000)        (4,000,000)                --

   Principal payments on other borrowed funds                                 --           (100,000)          (186,668)
               Net cash provided by financing activities              46,332,390         37,989,854         32,987,532
                                                                    --------------     --------------     --------------

               Net increase (decrease) in cash and cash
                 equivalents, carried forward                   $     13,555,096         (3,253,072)         1,099,126
                                                                    ==============     ==============     ==============

               Net increase (decrease) in cash and cash
                 equivalents, brought forward                   $     13,555,096         (3,253,072)         1,099,126

Cash and cash equivalents at beginning of year                         9,916,911         13,169,983         12,070,857
                                                                    --------------     --------------     --------------
Cash and cash equivalents at end of year                        $     23,472,007          9,916,911         13,169,983
                                                                    ==============     ==============     ==============
Supplemental disclosures of cash paid during
   the year for:
     Interest                                                   $     10,960,966          9,687,272          8,432,520
                                                                    ==============     ==============     ==============
     Income taxes                                               $      2,134,413          2,074,402          1,208,000
                                                                    ==============     ==============     ==============

Supplemental information on noncash
   investing activities:
     Loans transferred to other real estate                     $        548,589             55,934            439,765
                                                                    ==============     ==============     ==============
     Sales of other real estate financed with
       loans from the Bank                                      $             --            223,000                 --
                                                                    ==============     ==============     ==============
     Other investments converted to investment
       securities available for sale                            $             --            150,000                 --
                                                                    ==============     ==============     ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       49
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(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 generally
   accepted accounting principles 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 generally accepted accounting principles.  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 and the valuation of real estate acquired in connection with
       foreclosures or in satisfaction of loans.  In connection with the
       determination of the allowances for loan losses and real estate owned,
       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 and federal
       funds sold. Generally, federal funds are sold for one-day periods.

   (c)  Investment Securities

                                       50
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



       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.

       Mortgage-backed securities held to maturity are stated at their unpaid
       principal balances, adjusted for unamortized premiums and unaccreted
       discounts.

       A decline in the market 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 on daily balances of the principal amount
       outstanding. 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, 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

                                       51
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


       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, 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
       market.

       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 at 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.

                                       52
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



   (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.  Goodwill is being
       amortized over 15 years using the straight-line method.

       The Bank assesses the recoverability of goodwill by determining whether
       the amortization of the goodwill balance over its remaining life can be
       recovered through undiscounted future operating cash flows of the
       acquired operation.  The assessment of the recoverability of goodwill
       will be impacted if estimated future operating cash flows are not
       achieved.

(h)  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 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.

   (i)  Income Per Share

       Basic income per share is computed on the weighted average number of
       shares outstanding in accordance with SFAS No. 128, Earnings Per Share.
       The Bank has no potential common shares outstanding, and thus does not
       present diluted earnings per share.

       On July 22, 1999, the Company's Board of Directors approved a 15% stock
       dividend payable on August 28, 1999 to shareholders of record on August
       6, 1999.  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.

   (j)  Other Comprehensive Income

       Effective January 1, 1998, the Bank adopted the provisions of SFAS No.
       130, Reporting Comprehensive Income.  This statement establishes
       standards for reporting and displaying comprehensive income and its
       components in a full set of general purpose financial statements.  SFAS
       No. 130 requires all items that are required to be recognized under
       accounting standards as components of comprehensive income be reported in
       a financial statement that is displayed in equal prominence with the
       other financial statements.  The term "comprehensive income" is used in
       the statement to describe the total of all components of comprehensive
       income including net income.  "Other comprehensive income" for the Bank

                                       53
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


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

   (k)  Segment Disclosures

       Effective January 1, 1998, the Bank adopted the provisions of SFAS No.
       131, Disclosures about Segments of an Enterprise and Related Information.
       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.

(l) Recent Accounting Pronouncement

       In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
       No. 133, Accounting for Derivative Instruments and Hedging Activities
       (SFAS No. 133).  SFAS No. 133 is effective for financial statements for
       all fiscal quarters of all fiscal years beginning after June 15, 1999.
       In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
       Instruments and Hedging Activities - Deferral of the Effective Date of
       FASB Statement No. 133.  SFAS No. 133, as amended, is now effective for
       all fiscal quarters of all fiscal years beginning after June 15, 2000.
       The Company does not believe the provisions of SFAS No. 133 will have a
       significant impact on the financial statements upon adoption.

(m)  Reclassifications

       Certain 1998 and 1997 amounts have been reclassified for comparative
       purposes in order to conform the prior periods to the 1999 presentation.
       Such reclassifications had no impact on net income or stockholders'
       equity.

                                       54
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997




(2)  Cash and Due From Banks

   The subsidiary bank is required by the Federal Reserve Bank to maintain
   average daily cash balances.  These balances were $3,401,000 and $2,956,000
   at December 31, 1999 and 1998, respectively.

(3)    Investment Securities

   A summary of investment securities as of December 31, 1999 and 1998 is as
   follows:

<TABLE>
<CAPTION>
                                                                                     1999
                                              --------------------------------------------------------------------------------
                                                                          Gross               Gross
                                                   Amortized           unrealized           unrealized            Estimated
                                                     cost                 gains               losses             fair value
                                              -----------------     ---------------     ---------------      -----------------
<S>                                         <C>                     <C>                 <C>                  <C>
Held to maturity:
 Obligations of states and
  political subdivisions                    $         6,691,077              15,266            (185,265)             6,521,077
Mortgage-backed securities                              590,666                  --              (9,455)               581,211
                                              -----------------     ---------------     ---------------      -----------------

                                            $         7,281,743              15,266            (194,720)             7,102,288
                                              =================     ===============     ===============      =================
Available for sale:
 Obligations of U.S.
  Government agencies                       $        31,412,258               2,724            (936,748)            30,478,234
 U.S. Treasury notes                                  2,493,072               2,106              (7,202)             2,487,976
 Mortgage-backed securities                          25,336,022                 941            (549,410)            24,787,553
 Corporate bonds                                        539,739                  --              (6,774)               532,965
 Equity securities                                    1,640,200             127,521                  --              1,767,721
                                              -----------------     ---------------     ---------------      -----------------

                                            $        61,421,291             133,292          (1,500,134)            60,054,449
                                              =================     ===============     ===============      =================
</TABLE>

                                       55
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



<TABLE>
<CAPTION>
                                                                                     1998
                                              --------------------------------------------------------------------------------
                                                                          Gross               Gross
                                                   Amortized           unrealized           unrealized            Estimated
                                                     cost                 gains               losses             fair value
                                              -----------------     ---------------     ---------------      -----------------
<S>                                        <C>                      <C>                 <C>                  <C>
Held to maturity:
 Obligations of states and
  political subdivisions                    $         3,385,944             110,595                  --              3,496,539
 Mortgage-backed securities                             788,825              12,986                  --                801,811
                                              -----------------     ---------------     ---------------      -----------------

                                            $         4,174,769             123,581                  --              4,298,350
                                              =================     ===============     ===============      =================
Available for sale:
 Obligations of U.S.
  Government agencies                       $        23,532,876             294,657             (17,405)            23,810,128
 U.S. Treasury notes                                  2,984,821              68,939                  --              3,053,760
 Mortgage-backed securities                          28,003,400             176,419            (308,919)            27,840,900
 Equity securities                                    1,486,885           2,727,936                  --              4,214,821
                                              -----------------     ---------------     ---------------      -----------------

                                            $        56,007,982           3,237,951            (326,324)            58,919,609
                                              =================     ===============     ===============      =================
</TABLE>

   The amortized cost and estimated fair value of securities held to maturity
   and available for sale other-than-equity securities as of December 31, 1999,
   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.

<TABLE>
<CAPTION>
                                                            Securities                                Securities
                                                         held to maturity                         available for sale
                                              -------------------------------------     -------------------------------------
                                                   Amortized            Estimated           Amortized            Estimated
                                                     cost              fair value             cost              fair value
                                              -----------------     ---------------     ---------------     -----------------

<S>                                         <C>                     <C>                 <C>                 <C>
One year or less                            $           120,000             120,774           1,993,287             1,995,791
After one through five years                          2,520,527           2,491,338          28,086,550            22,538,554
After five years through ten years                    1,116,231           1,070,066           7,459,369             7,140,130
After ten years                                       2,293,319           2,838,899           1,905,863             1,824,700
                                              -----------------     ---------------     ---------------     -----------------
                                                      6,691,077           6,522,077          34,445,069            33,499,175
Mortgage-backed securities                              590,666             581,211          25,336,022            24,787,553
                                              -----------------     ---------------     ---------------     -----------------

                                            $         7,281,743           7,102,288          59,781,091            58,286,728
                                              =================     ===============     ===============     =================
</TABLE>

   Proceeds from sales of investment securities during 1999, 1998, and 1997 were
   $17,008,206 $6,333,289, and $29,366,026, respectively.  Gross realized gains
   of $1,385,200, $38,330, and $13,882, and gross realized losses of $300,931,
   $5,329, and $34,498 were realized on those sales in 1999, 1998, and 1997,
   respectively.  In addition, during 1999 the Bank contributed investment
   securities with a fair value of $480,000 to a charitable organization and
   recognized a gain of $428,490 relating to such investment securities.

   Investment securities with a carrying amount of approximately $44,997,000 and
   $37,912,000 at December 31, 1999 and 1998, respectively, were pledged to
   secure public and trust deposits, and for other purposes required by law.

                                       56
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



(4)    Loans

   Loans at December 31, 1999 and 1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                     1999                 1998
                                                              -----------------    -----------------

<S>                                                           <C>                  <C>
Commercial, financial, and agricultural                       $      44,694,490           36,055,343
Real estate - construction/development                               28,323,884           24,372,901
Other loans secured by real estate:
   Single-family                                                     49,754,707           45,083,957
   Commercial                                                        73,419,627           67,168,366
Real estate loans originated for sale                                   668,250            2,380,156
Consumer installment                                                 42,170,709           33,906,419
                                                              -----------------    -----------------
                                                                    239,031,667          208,967,142
Less allowance for loan losses                                        3,591,613            2,714,638
                                                              -----------------    -----------------

                                                              $     235,440,054          206,252,504
                                                              =================    =================
</TABLE>

   As of December 31, 1999 and 1998, the Bank had nonaccrual loans aggregating
   $1,190,000 and $2,925,000, respectively.  Interest that would have been
   recorded on nonaccrual loans had they been in accruing status was
   approximately $27,000 in 1999, $43,000 in 1998, and $8,000 in 1997.

   At December 31, 1999 and 1998, the Bank had impaired loans with an
   outstanding balance of $958,000 and $1,860,000, respectively, with a related
   valuation allowance of $170,000 and $260,000 at December 31, 1999 and 1998,
   respectively.  The average balance of impaired loans was approximately
   $1,836,000, $1,891,000, and $1,264,000 for the years ended December 31, 1999,
   1998, and 1997, respectively.  The interest recognized on such loans in 1999,
   1998, and 1997 was immaterial.

   The following is a summary of the activity in the allowance for loan losses
   for the years ended December 31, 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                              1999                 1998                  1997
                                                       ----------------     ----------------     -----------------

<S>                                                  <C>                    <C>                  <C>
Balance, beginning of year                           $        2,714,638            2,097,036             1,467,702
Provision for loan losses                                     1,314,000              875,000               774,012
Charge-offs                                                    (548,729)            (378,783)             (354,294)
Recoveries                                                      111,704              121,385               209,616
                                                       ----------------     ----------------     -----------------

Balance, end of year                                 $        3,591,613            2,714,638             2,097,036
                                                       ================     ================     =================
</TABLE>

   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.

                                       57
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997




   The following is a summary of the activity in loans outstanding to officers,
   directors, and their associates for the year ended December 31, 1999:

<TABLE>
<S>                                                                 <C>
Balance at beginning of year                                        $         7,733,593
New loans                                                                     6,193,181
Principal repayments                                                         (7,662,235)
                                                                      -----------------

Balance at end of year                                              $         6,264,539
                                                                      =================
</TABLE>

   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, 1999, available balances on these
   commitments to these persons aggregated approximately $4,837,000.


(5)    Premises and Equipment

   Premises and equipment at December 31, 1999 and 1998 are summarized as
   follows:

<TABLE>
<CAPTION>
                                                                              1999               1998
                                                                       ----------------    ---------------

<S>                                                                  <C>                   <C>
Land                                                                 $        1,959,585          1,959,585
Buildings                                                                     8,065,892          7,926,413
Furniture and equipment                                                       5,146,625          4,849,985
                                                                       ----------------    ---------------
                                                                             15,172,102         14,735,983
Less accumulated depreciation                                                 4,690,942          3,710,558
                                                                       ----------------    ---------------

                                                                     $       10,481,160         11,025,425
                                                                       ================    ===============
</TABLE>

       Depreciation expense amounted to $1,008,846, $941,758, and $782,598 in
       1999, 1998, and 1997, respectively.


(6)    Intangible Assets

   Intangible assets, net of accumulated amortization, at December 31, 1999 and
   1998 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                 1999              1998
                                                                           --------------    --------------

<S>                                                                      <C>                 <C>
Core deposit premium                                                     $        320,256           427,008
Goodwill                                                                          172,550           188,883
                                                                           --------------    --------------

                                                                         $        492,806           615,891
                                                                           ==============    ==============
</TABLE>

   Amortization expense amounted to $123,085, $123,086, and $284,112 in 1999,
   1998, and 1997, respectively.

                                       58
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(7)  Commitments

   The Bank is committed under various operating leases for office space and
   equipment.  At December 31, 1999, minimum future lease payments for each of
   the next five years under noncancelable real property and equipment operating
   leases are as follows:

          2000                           $  177,170
          2001                              140,888
          2002                              115,600
          2003                               91,200
          2004                               91,200
                                          ---------

                                         $  616,058
                                          =========

   Rent expense for all building, equipment and furniture rentals totaled
   $182,329, $260,108, and $369,130 for the years ended December 31, 1999, 1998,
   and 1997, 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 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 contract amounts represent
   potential credit risk totaled $46,797,000 and $40,362,000 at December 31,
   1999 and 1998, respectively. Such commitments are at variable interest rates,
   such that the Bank has essentially no fixed rate unfunded commitments.

   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 shown 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)  Borrowings

   The securities sold under repurchase agreements at December 31, 1999 are
   collateralized by obligations of the U.S. Government or its corporations and
   agencies, state and municipal securities, or mortgage-backed securities,
   which are held by independent trustees.  Under such agreements, the Bank
   agrees to repurchase identical securities as those sold.  The following
   summarizes pertinent data related to the securities sold under the agreements
   to repurchase as of and for the years ended December 31, 1999, 1998, and
   1997.

                                       59
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


<TABLE>
<CAPTION>
                                                                   1999                1998               1997
                                                           -----------------     ---------------    ---------------

<S>                                                      <C>                     <C>                <C>
Weighted-average borrowing rate                                   3.08%               3.50               3.20
                                                           =================     ===============    ===============

Average daily balance during the year                    $        11,504,000           5,798,000          4,222,000
                                                           =================     ===============    ===============

Maximum month-end balance during the year                $        18,362,000           7,121,000          5,938,000
                                                           =================     ===============    ===============
</TABLE>

   At December 31, 1999, the Bank had securities sold under agreements to
   repurchase with one counterparty aggregating approximately $8,387,000.

   The Bank has a $22,000,000 available line of credit from the Federal Home
   Loan Bank of Atlanta (FHLB) which is reviewed annually by the FHLB.  At
   December 31, 1999, $4,000,000 of advances were outstanding with a related
   interest rate of 5.52% and a maturity date of April 2, 2003, $6,000,000 were
   outstanding with a related interest rate of 4.45% and a maturity date of May
   1, 2000, and $5,000,000 of advances were outstanding with a related interest
   rate of 5.36% and a maturity date of September 29, 2004.  The weighted-
   average interest rate during 1999 on such borrowings was 5.14%.  At December
   31, 1998, $9,000,000 of advances were outstanding under this line with a
   weighted-average interest rate of 5.65%.

   At December 31, 1999, 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, 1999 and 1998 consist of a treasury,
   tax, and loan account with the Federal Reserve Bank of $1,000,000 and
   $900,000, respectively.

                                       60
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



(9)    Income Taxes

   Income tax expense (benefit) for the years ended December 31, 1999, 1998, and
   1997 consists of the following:

<TABLE>
<CAPTION>
                                                        1999                 1998                  1997
                                                 ----------------     ----------------     -----------------

<S>                                            <C>                    <C>                  <C>
Current tax expense:
   Federal                                     $        1,991,039            1,675,110             1,383,467
   State                                                  169,538              125,525                39,447
                                                 ----------------     ----------------     -----------------
       Total current                                    2,160,577            1,800,635             1,422,914
                                                 ----------------     ----------------     -----------------

Deferred tax benefit:
   Federal                                               (282,996)            (208,791)             (394,983)
   State                                                  (53,530)             (22,844)              (69,443)
                                                 ----------------     ----------------     -----------------
       Total deferred                                    (336,526)            (231,635)             (464,426)
                                                 ----------------     ----------------     -----------------

       Total income tax expense                $        1,824,051            1,569,000               958,488
                                                 ================     ================     =================
</TABLE>

   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:

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                  ---------------------------------------------------------
                                                         1999                 1998                 1997
                                                  ----------------     ----------------     ---------------

<S>                                             <C>                    <C>                  <C>
Computed "expected" tax expense                 $        1,969,810            1,524,691           1,126,560
Increase (decrease) resulting from:
   Tax-exempt interest income                             (136,773)             (89,610)            (68,889)
   Nondeductible interest expense                           20,292               12,942              10,253
   State income tax, net of Federal
       tax effect                                           76,565               67,769             (19,797)
   Change in valuation allowance                                --                   --            (162,698)
   Charitable contribution of
   appreciated investment                                 (145,687)                  --                  --
   Meals, entertainment, and club dues                      16,760               16,295              11,628
   Other, net                                               23,084               36,913              61,431
                                                  ----------------     ----------------     ---------------

                                                $        1,824,051            1,569,000             958,488
                                                  ================     ================     ===============
</TABLE>

                                       61
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



   The tax effects of temporary differences that give rise to significant
   portions of the deferred tax assets and deferred tax liabilities at December
   31, 1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                                         1999                  1998
                                                                  ----------------     -----------------

<S>                                                             <C>                    <C>
Deferred tax assets:
 Allowance for loan losses                                      $        1,216,831               915,658
 Deferred compensation                                                     128,824                73,852
 Other                                                                       1,029                 1,245
 Unrealized loss on investment securities available
   for sale                                                                477,967                    --
                                                                  ----------------     -----------------
      Total deferred tax assets                                          1,824,651               990,755
                                                                  ----------------     -----------------

Deferred tax liabilities:
 Depreciation                                                              (59,184)              (39,781)
 Unrealized gain on investment securities
   available for sale                                                           --            (1,020,653)
                                                                  ----------------     -----------------
      Total deferred tax liabilities                                       (59,184)           (1,060,434)
                                                                  ----------------     -----------------

      Net deferred tax asset (liability)                        $        1,765,467               (69,679)
                                                                  ================     =================
</TABLE>

   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.


(10)  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,
   1999, these deposits totaled approximately $4,745,000.

   During the years ended December 31, 1999, 1998, and 1997, the Bank paid
   approximately $13,000, $17,000, and $24,000, respectively, in legal fees in
   the normal course of business to a law firm in which a director is a member.


(11) 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

                                       62
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


   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, 1999,
   that the Bank meets all capital adequacy requirements to which it is subject.

   As of December 31, 1999, 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, 1999 which would
   affect the bank subsidiary's well capitalized classification.

                                       63
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



   Actual capital amounts and ratios for the Bank are presented in the table
   below as of December 31, 1999 and 1998, on a consolidated basis and for the
   bank subsidiary individually (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                                        To be well
                                                                                                     capitalized under
                                                                                  For capital        prompt corrective
                                                               Actual          adequacy purposes     action provisions
                                                        -----------------    -----------------------------------------
                                                          Amount    Ratio      Amount      Ratio     Amount     Ratio
                                                        -----------------    -----------------------------------------
<S>                                                     <C>         <C>      <C>          <C>        <C>        <C>
Georgia Bank Financial Corporation
 and subsidiary consolidated:
  As of December 31, 1999:
   Total Capital (to risk-weighted
     assets)                                           $  33,579    12.69%  $   21,171      8.00%      N/A       N/A
   Tier I Capital - risk-based (to risk-
     weighted assets)                                     30,212    11.42       10,585      4.00       N/A       N/A
   Tier I Capital - leverage (to
     average assets)                                      30,212     8.91       13,565      4.00       N/A       N/A

  As of December 31, 1998:
   Total Capital (to risk-weighted
     assets)                                           $  30,062    13.16%  $   18,280       8.0%      N/A       N/A
   Tier I Capital - risk-based (to risk-
     weighted assets)                                     26,120    11.43       11,701       4.0       N/A       N/A
   Tier I Capital - leverage (to
     average assets)                                      26,120     8.93        9,140       4.0       N/A       N/A
</TABLE>


<TABLE>
<CAPTION>
                                                                                                          To be well
                                                                                                      capitalized under
                                                                                  For capital         prompt corrective
                                                               Actual          adequacy purposes      action provisions
                                                        -----------------    -------------------    -------------------
                                                          Amount    Ratio      Amount      Ratio      Amount      Ratio
                                                        -----------------    -------------------    -------------------
<S>                                                     <C>         <C>      <C>          <C>        <C>        <C>
Georgia Bank & Trust Company:
 As of December 31, 1999:
  Total Capital (to risk-weighted
   assets)                                             $  31,176    11.89%  $   20,983      8.00%  $   26,463      10.0%
  Tier I Capital - risk-based (to risk-
   weighted assets)                                       27,894    10.63       10,491      4.00       15,877       6.0
  Tier I Capital - leverage (to
   average assets)                                        27,894     8.27       13,488      4.00       16,956       5.0

 As of December 31, 1998:
  Total Capital (to risk-weighted
   assets)                                             $  27,668    12.22%  $   18,119       8.0%  $   22,649      10.0%
  Tier I Capital - risk-based (to risk-
   weighted assets)                                       24,598    10.86        9,060       4.0       13,589       6.0
  Tier I Capital - leverage (to
   average assets)                                        24,598     8.48       11,599       4.0       14,499       5.0
</TABLE>

(12)    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, 1999, 1998 and 1997, the Bank contributed
   $166,229, $143,641, and $83,812, respectively, to the Plan, which is 4% of
   the annual salary of all eligible employees for 1999 and 1998 and 3% of the
   annual salary of all eligible employees for 1997.

   During 1994, the Bank adopted a nonqualified deferred bonus plan for officers
   of the Bank.  This plan was discontinued during 1998 and amounts were
   disbursed to the officers.  For the year ended December 31, 1997, the Bank
   contributed $37,692 to the plan.

                                       64
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



   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 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 $79,063 and $98,221 during 1999 and 1998,
   respectively, related to this plan.


(13)  Other Operating Expenses

   Components of other operating expenses exceeding 1% of total revenues include
   the following for the years ended December 31, 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                        1999                1998                1997
                                                 ----------------    ----------------    -----------------

<S>                                            <C>                   <C>                 <C>
Amortization of intangible assets              $          123,085             123,086              284,112
Business development expense                              527,702             587,353              418,710
Communication expense                                     334,698             371,578              304,460
Data processing expense                                   683,822             550,142              457,318
Legal and professional fees                               182,849             216,531              254,697
Office supplies expense                                   299,429             273,784              294,958
Charitable contribution of investment
 securities                                               480,000                  --                   --
</TABLE>

                                       65
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



(14) 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

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                  --------------------------------------
                            Assets                                       1999                 1998
                                                                  ----------------     -----------------

<S>                                                             <C>                    <C>
Cash and due from banks                                         $          498,154                69,200
Investment securities available for sale                                   639,600             2,050,500
Investment in subsidiary                                                27,416,523            25,846,218
Premises and equipment, net                                              1,258,669             1,303,469
Other assets                                                                50,000                38,000
                                                                  ----------------     -----------------

                                                                $       29,862,946            29,307,387
                                                                  ================     =================

Liabilities and Stockholders' Equity

Accrued interest and other liabilities                          $            2,435                 2,435
Deferred taxes                                                              43,780               677,880
                                                                  ----------------     -----------------
       Total liabilities                                                    46,215               680,315
                                                                  ----------------     -----------------

Stockholders' equity:
   Common stock, $3.00 par value, 10,000,000 shares
   authorized; shares issued and outstanding of
   2,093,152 and 1,820,368 in 1999 and 1998,
   respectively                                                          6,279,456             5,461,104
   Additional paid-in capital                                           21,259,955            14,440,355
   Retained earnings                                                     3,166,195             6,834,639
   Accumulated other comprehensive (loss) income                          (888,875)            1,890,974
                                                                  ----------------     -----------------
   Total stockholders' equity                                           29,816,731            28,627,072
                                                                  ----------------     -----------------

                                                                $       29,862,946            29,307,387
                                                                  ================     =================
</TABLE>

                                       66
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                     Years ended December 31,
                                                      -----------------------------------------------------
                                                            1999               1998               1997
                                                      --------------    ---------------     ---------------

Income:
<S>                                                 <C> <C>               <C>                 <C>
 Dividends from bank subsidiary                     $        500,000                 --              75,000
 Interest income on investment securities                      1,186                 --                  --
 Miscellaneous income                                         91,200             91,200              91,200
 Investment securities gains                                 883,308                 --                  --
                                                      --------------    ---------------     ---------------
                                                           1,475,694             91,200             166,200
                                                      --------------    ---------------     ---------------
Expense:
 Interest expense                                                 --                 --              10,049
 Employee benefit expense                                     73,044                 --                  --
 Occupancy expense                                            44,800             44,800              44,800
 Other operating expense                                     560,882             53,255             109,146
                                                      --------------    ---------------     ---------------
                                                             678,726             98,055             163,995
                                                      --------------    ---------------     ---------------
     Income (loss) before equity in
      undistributed earnings of
      subsidiary                                             796,968             (6,855)              2,205

Equity in undistributed earnings of
 subsidiary                                                3,172,540          2,922,239           2,352,720
                                                      --------------    ---------------     ---------------

     Net income                                     $      3,969,508          2,915,384           2,354,925
                                                      ==============    ===============     ===============
</TABLE>

                                       67
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                           -----------------------------------------------------------
                                                                  1999                1998                   1997
                                                           ---------------     ----------------      -----------------
<S>                                                     <C>                    <C>                   <C>
Cash flows from operating activities:
 Net income                                              $       3,969,508            2,915,384              2,354,925
 Adjustments to reconcile net income to
   net cash (used in) provided by operating
   activities:
    Depreciation and amortization                                   44,800               44,800                109,052
    Equity in undistributed earnings of
     subsidiary                                                 (3,172,540)          (2,922,239)            (2,352,720)
    Net investment securities gains                               (883,308)                  --                     --
    Charitable contribution of investment
     securities                                                    480,000                   --                     --
    Increase in other liabilities                                       --                   --                  1,457
    Increase in other assets                                       (12,000)             (38,000)                    --
                                                           ---------------     ----------------      -----------------
      Net cash provided by (used in)
       operating activities                                       (426,460)                 (55)               112,714
                                                           ---------------     ----------------      -----------------

Cash flows from investing activities:
 Proceeds from sales and maturities of
   available for sale securities                                   502,494               36,300                     --
 Purchase of available for sale securities                        (500,000)                  --                     --
 Capital contributions to Bank subsidiary                               --                   --             (4,800,000)
 Purchase of other investment                                           --                   --                (50,000)
                                                           ---------------     ----------------      -----------------
      Net cash provided by (used in)
       investing activities                                          2,494               36,300             (4,850,000)
                                                           ---------------     ----------------      -----------------

Cash flows from financing activities:
 Principal payments on notes and bonds
   payable                                                              --                   --               (186,668)
 Proceeds from issuance of common stock                                 --                   --              4,937,133
                                                           ---------------     ----------------      -----------------
      Net cash provided by financing
       activities                                                       --                   --              4,750,465
                                                           ---------------     ----------------      -----------------

      Net increase in cash and cash
       equivalents                                                 428,954               36,245                 13,179

Cash and cash equivalents at beginning of
 year                                                               69,200               32,955                 19,776
                                                           ---------------     ----------------      -----------------

Cash and cash equivalents at end of year                 $         498,154               69,200                 32,955
                                                           ===============     ================      =================

Supplemental information on noncash
 investing activities:
   Other assets converted to investment
    securities available for sale                          $            --              150,000                     --
                                                           ===============     ================      =================
</TABLE>

   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.

                                       68
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



   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 2000 is
   approximately $1,836,000, subject to maintenance of the minimum capital
   requirements.  As a result of this restriction, at December 31, 1999,
   approximately $25,580,000 of the Parent Company's investment in its
   subsidiary was restricted from transfer in the form of dividends.


(15) 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.

                                       69
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997




   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.

   (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, by definition, approximate their fair
       values.  The carrying amount of related accrued interest payable
       approximates its fair value.

   (e) 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 variable rate advances from the FHLB approximates
       the carrying value.  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.

       The carrying amounts and estimated fair values of the Bank's financial
       instruments at December 31, 1999 and 1998 are as follows:

                                       70
<PAGE>

                 GEORGIA FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997



<TABLE>
<CAPTION>
                                                 December 31, 1999                             December 31, 1998
                                    -----------------------------------------     -----------------------------------------
                                          Carrying               Estimated             Carrying               Estimated
                                           amount               fair value              amount               fair value
                                    -------------------     -----------------     -----------------     -------------------

Financial assets:
<S>                                 <C>                     <C>                   <C>                   <C>
   Cash and cash equivalents             $   23,472,007            23,472,007             9,916,911               9,916,911
 Investment securities                       67,336,192            67,156,737            63,094,378              63,217,959
   Loans, net                               235,440,054           227,097,171           206,252,504             200,095,691
Financial liabilities:
   Deposits                                 283,120,745           283,037,336           251,505,486             251,757,955
 Securities sold under
  repurchase agreements                      11,331,388            11,331,388             2,714,257               2,714,257
 Other borrowed funds                         1,000,000             1,000,000               900,000                 900,000
 Advances from FHLB                          15,000,000            14,628,226             9,000,000               8,539,000
</TABLE>

                                       71
<PAGE>

Item 8:  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosures

      None


                                    PART III

Item 9:  Directors; Executive Officers; Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

      Information in response to this item is incorporated by reference to the
Company's definitive Proxy Statement for use in connection with the 2000 annual
meeting of shareholders (which definitive Proxy Statement shall be filed with
the commission not later than April 30, 2000).

Item 10:  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 2000 annual
meeting of shareholders (which definitive Proxy Statement shall be filed with
the commission not later than April 30, 2000).

Item 11:  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 2000 annual
meeting of shareholders (which definitive Proxy Statement shall be filed with
the commission not later than April 30, 2000).


Item 12:  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 2000 annual
meeting of shareholders (which definitive Proxy Statement shall be filed with
the commission not later than April 30, 2000).

Item 13.  Exhibits List and Reports on Form 8-K

      (a)  Exhibits

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

                                       72
<PAGE>

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

      11.1  Statement Re:  Computation of Earnings Per Share

      21.1  Subsidiaries of the Company

      27.1  Financial Data Schedule

(b)   Reports on Form 8-K

            None

                                       73
<PAGE>

                                   SIGNATURES

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

                                GEORGIA BANK FINANCIAL CORPORATION



                                By:    /s/ Robert W. Pollard, Jr.
                                   ---------------------------------------
                                           Robert W. Pollard, Jr.
                                           Chairman of the Board

March 28, 2000

      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.

      SIGNATURE                                         TITLE


      /s/ Robert W. Pollard, Jr.               Chairman of the Board,
------------------------------------
Robert W. Pollard, Jr.                          and Director


      /s/ Edward G. Meybohm                    Vice Chairman of the Board
------------------------------------
Edward G. Meybohm                               and Director


      /s/ R. Daniel Blanton                    President, Chief Executive
------------------------------------
R. Daniel Blanton                               Officer and Director


      /s/ Ronald L. Thigpen                    Executive Vice President, Chief
------------------------------------
Ronald L. Thigpen                               Operating Officer (Principal
                                                Financial and Accounting
                                                Officer) and Director

      /s/ Travers W. Paine III                 Corporate Secretary and Director
------------------------------------
Travers W. Paine III

                                       74
<PAGE>

      /s/ William J. Badger                    Director
------------------------------------
William J. Badger


      /s/ William P. Copenhaver                Director
------------------------------------
William P. Copenhaver


      /s/ Randolph R. Smith, M.D.              Director
------------------------------------
Randolph R. Smith, M.D.


      /s/ John W. Trulock, Jr.                 Director
------------------------------------
John W. Trulock, Jr.

                                       75
<PAGE>

                                 EXHIBIT INDEX

                                                                      Page
(a)   Exhibits

      11.1    Statement Re:  Computation of Earnings Per Share         77

      21.1    Subsidiaries of the Company                              78

      27.1    Financial Data Schedule                                  79

(b)   Reports on Form 8-K

              None

                                      76