<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K

                 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, 2000 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             Common Stock, par value $3.00 per
  12(g) of the Act:                           ---------------------------------
                                              share
                                              -----
                                              (Title of Class)

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

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

     The number of shares outstanding of the Registrant's Common Stock, as of
March 28, 2001 was 2,074,381. The aggregate market value of the voting stock
held by non-affiliates of the Registrant at March 28, 2001, based on the last
sale price of $31.75 per share on such date was approximately $32,141,192.

     Incorporated Documents                  Where Incorporated in Form 10-K
     ----------------------                  -------------------------------
1.  Certain portions of the Company's        Part III, Items 10, 11, 12 and 13
    Proxy Statement for Annual Meeting
    of Shareholders to be held on
    April 25, 2001.
<PAGE>

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 $405.8 million, total deposits of $310.9 million and
total stockholders' equity of $34.4 million at December 31, 2000. Through its
wholly-owned subsidiary, Georgia Bank & Trust Company of Augusta (the "Bank"),
the Company operates a total of six banking offices in the greater Augusta area
in 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 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 Special Projects, Patricia E. Leopard, have worked together for over
eleven 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, Georgia, and had prior experience with First Union
National Bank and its predecessors. The

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Bank's senior loan officer and Group Vice President, Tom C. McLaughlin, has been
associated with the Bank for nine years, and worked together previously with Mr.
Blanton 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 1998 population of 457,939
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
489,100 by 2002. 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 5.5% in 1998, but dropped to 5.2% in 1999, and declined to 4.6%
for the first nine months of 2000. Between June 1989 and June 1999 (the latest
date for which FDIC information is available), total commercial bank and thrift
deposits in Richmond County increased 16.7% from $1.8 billion to $2.1 billion,
and total commercial bank and thrift deposits in Columbia County increased
141.0% from $229 million to $552 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, 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, 2000, were $283.6 million, or 75.2% 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 $188.1 million, or 66.33% of the Bank's total
loans, at December 31, 2000. These loans

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consist of commercial real estate loans, construction and development loans,
residential real estate loans, and home equity loans. See "-Consumer Loans."

          Commercial Real Estate Loans. At December 31, 2000, the Bank held
$84.6 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 29.8% of the Bank's total loans at December 31,
2000. 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 payment at maturity. 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 2000
and 1999.

          Construction and Development Loans. Construction and development real
estate loans comprise $39.1 million, or 13.8% of the Bank's total loans at
December 31, 2000. Of this segment, only $12.9 million, or 4.5% of total loans,
are development loans. These are generally used to finance the development of
residential subdivision infrastructures. The remaining $26.2 million, or 9.23%
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, the Bank generally relies upon the long-standing relationships between
its loan officers and the developer and contractor borrowers. In most cases
these relationships exceed ten or more years. The Bank targets seasoned
developers and contractors who have experience in the local market. Various
members of the Bank's Board of Directors have close contacts with the
construction industry: Robert W. Pollard, Jr. owns and operates a lumber
manufacturing company; E. G. Meybohm owns the largest local real estate
brokerage firm; Larry S. Prather owns a utility and grading company and William
J. Badger owns and operates a lumber company. Through these connections to the
industry, the Bank attempts to monitor current economic conditions in the market
place for residential real estate, and the financial standing and on-going
reputation of its construction and development borrowers.

                                       3
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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 2000 and 1999.

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

          Residential Loans.  The Bank originates, on a selective basis,
residential loans for its portfolio on single-and multi-family properties, both
owner-occupied and non-owner-occupied.  At December 31, 2000, the Bank held
$62.4 million of such loans, including home equity loans, representing 22.0% of
the Bank's loan portfolio, as compared to $49.8 million, or 20.8% of the Bank's
loan portfolio at December 31, 1999.  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. In the case of home equity loans and
lines of credit, the underwriting criteria are the same as applied by the Bank
when making a first mortgage loan, as described above.  Home equity lines of
credit typically expire ten years after their origination.

          The Bank also originates residential loans for sale into the secondary
market, an activity that began with the acquisition of First Columbia.
Residential real estate lending for the purpose of sale of such loans was
further expanded with the acquisition of Georgia Union Mortgage Company in May
of 1997.  The Bank further expanded its secondary market mortgage operations in
June 2000 with the addition of experienced mortgage staff.  The Bank moved its
mortgage department from the Martinez Branch to its facilities located in the
Operations Complex at 3515 Wheeler Road to accommodate this expansion. 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

                                       4
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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.

Commercial Loans

          The Bank makes loans for commercial purposes in various lines of
businesses.  At December 31, 2000, the Bank held $49.3 million of these loans,
representing 17.4% of the total loan portfolio, excluding for these purposes
commercial loans secured by real estate.  See "-Real Estate Loans."  Equipment
loans are made for a term of up to five years (more typically three years) at
fixed or variable rates, with the loan being fully amortized over the term and
secured by the financed equipment with a loan-to-value ratio of 80% or less.
Working capital loans are made for a term typically not exceeding one year.
These loans are usually secured by accounts receivable or inventory, and
principal is either repaid as the assets securing the loan are converted into
cash, or principal is due at maturity.  The Bank experienced net loan charge-
offs on commercial loans of $64,000 during 2000 and $89,000 during 1999.

Consumer Loans

          The Bank makes a variety of loans to individuals for personal and
household purposes, including secured and unsecured installment and term loans,
and revolving lines of credit such as overdraft protection. During 1999, the
Bank sold its credit card portfolio of $2.4 million. At December 31, 2000, the
Bank held $45.8 million of consumer loans, representing 16.2% 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). 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, 2000, indirect loans
outstanding totaled $27.1 million an increase of $2.1 million over the $25.0
million outstanding at December 31, 1999. The Bank experienced net loan charge-
offs on consumer loans of $386,000 during 2000 and $309,000 during 1999.

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 the type of loan. The
Officers' Loan Committee has a lending limit of $100,000 for unsecured and
$500,000 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

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$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 Directors Loan Committee approval.

Deposits

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


                                  Deposit Mix

                                                  At December 31,
                                          2000        1999         1998
                                         ------       ------       -----

     Non-interest bearing demand          16.13%       15.26%      17.41%
     Interest checking                    12.97        12.26       14.28
     Money management                      4.90         5.19        6.18
     Savings                              31.16        33.20       32.02
     Time Deposits
           Under $100,000                 17.37        18.09       17.72
           $100,000 and over              17.47        16.07       13.61
                                         ------       ------      ------
                                         100.00%      100.00%     100.00%
                                         ------       ------      ------


          The Bank accepts deposits at its main office and five 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.

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

Employees

          The Company had approximately 187 full-time equivalent employees at
December 31, 2000.  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

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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 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 (which it does not),
each bank may be required to indemnify, or cross-guarantee, the FDIC against
losses it incurs were another of the bank subsidiaries to fail.  Such
arrangement would in effect make a bank holding company's equity investments in
healthy bank subsidiaries available to the FDIC to assist any failing or failed
bank subsidiary of each holding company.

                                       8
<PAGE>

     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 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

                                       9
<PAGE>

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 third parties
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features.

     Branching. In addition to the main office, the Bank currently has three
branches in Richmond County and two branches in Columbia County. Under current
Georgia law, banks may establish branches throughout the state. Due to the
unprofitability and lack of growth in the Banks' WalMart branch, the Bank
decided to close this branch December 29, 2000. The Bank has announced its plans
to open its Fury's Ferry branch located in Columbia County in June 2001. The
Company, with prior regulatory approval, may also 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

                                       10
<PAGE>

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
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 companies. See
"Gramm-Leach-Bliley" above.

  The Federal Deposit Insurance Corporation 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 the 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 regulation, or engages in unsafe or unsound
practices, the regulators are authorized to impose fines or penalties, require
that the institution cease and desist from certain activities or use other
enforcement powers.  Under certain circumstances, the agencies may enforce these
remedies directly against officers, directors, employees or others participating
in the affairs of a bank or bank holding company.

Deposit Insurance
-----------------

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

                                       11
<PAGE>

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 [pays only a nominal][was not
required to pay an] assessment for deposit insurance in 2000 and currently is
not required to do so in 2001. The Bank does, however, pay an assessment for the
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
$.0490 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 2000 or 1999.  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

                                       12
<PAGE>

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 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, 2000, the
Company and the Bank were qualified as "well-capitalized." See "Item 7.
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

                                       13
<PAGE>

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 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, 2000.  See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Capital."

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, five branches and an operations
center housed in a series of buildings adjacent to the main office.  The
principal administrative offices of the Company are located at 3530 Wheeler
Road, Augusta, Georgia. The main office and three branch offices are located in
Augusta, Georgia, one branch is located in Martinez, Georgia and one branch is
located in Evans, Georgia.  With the exception of the Washington Road branch,
each banking office is a brick building of Georgian architecture with a teller
line, customer service area, offices for the Bank's lenders, drive-in teller
lanes, a vault with safe deposit boxes, and a walk-up or drive-up automated
teller machine.  The banking offices are generally 3,000 to 5,000 square foot
buildings except for the main office, and the Washington Road branch.  The main
office contains approximately 14,000 square feet of space.  The Washington Road
branch contains 1,800 square feet

                                       14
<PAGE>

with all the facilities of the other branches except safe deposit boxes. In
November of 2000, the Company began construction of a new 3,500 square feet
full-service banking office on Furys Ferry Road in Columbia County. Expected
completion of this office is June 2001. 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. In June 2000,
the mortgage operations were moved to this Operations Complex. The objective of
the Company in acquiring this property and planning the renovation was to
provide adequate space for existing operations and to meet future requirements
necessitated by growth of the Company. Renovations were completed in June 1998
and operational functions were relocated. In June 2000, the mortgage operations
were moved to this Operations Complex, and occupy 4,500 square feet. The
remaining 4,500 square feet continue to be leased as commercial office space to
the existing tenants. The previous operations location, consisting of 5,000
square feet was sold in May 2000. All properties owned by the Company are
adequately covered by the appropriate insurance for replacement value.

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

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


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, 2000.

                                       15
<PAGE>

                                    PART II

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

  As of March 28, 2001, there were approximately 730 holders of record of the
Company's common stock.  As of March 28, 2001, there were 2,074,381 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
             -------------                    --------     --------
             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                24           28


             March 31, 2000                   23           25 1/2
             June 30, 2000                    19           27 1/2
             September 30, 2000               24 1/2       27
             December 31, 2000                24           34 1/2

_________________________
             (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, regulations and policies.

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

                                       16
<PAGE>

Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
                                                       2000               1999              1998           1997             1996
                                                  --------------------------------------------------------------------------------
<S>                                               <C>                   <C>             <C>              <C>             <C>
Earnings                                                  (Dollars in thousand, except per share data)
   Total interest income                                  29,863          24,167          21,500           18,813          15,677
   Total interest expense                                 14,670          10,981           9,819            8,632           7,373
   Net interest income                                    15,193          13,186          11,681           10,181           8,304
   Provision for loan losses                               1,063           1,314             875              774             470
   Non-interest income                                     4,198           5,148           3,614            2,711           2,151
   Non-interest expense                                   12,422          11,226           9,935            8,805           7,234
   Net income                                              4,002           3,970           2,915            2,355           1,952
---------------------------------------------------------------------------------------------------------------------------------
Per Share Data
   Net income                                               1.92            1.90            1.39             1.13            1.27
   Book value                                              16.49        $  14.24        $  13.68         $  11.40        $  10.60
   Weighted average shares outstanding                     2,085           2,093           2,093            2,093           1,542
      (in thousands)
---------------------------------------------------------------------------------------------------------------------------------
Selected Average Balances
   Assets                                                371,732         299,543         275,670          238,838         201,961
   Loans (net of unearned income)                        261,869         225,244         189,369          153,501         128,592
   Deposits                                              298,511         269,411         232,487          210,885         181,416
   Stockholders' equity                                   31,804          29,458          25,864           18,041          15,426
---------------------------------------------------------------------------------------------------------------------------------
Selected Year-End Balances
   Assets                                                405,791         342,101         295,432          252,231         216,008
   Loans (net of unearned income)                        283,573         239,032         208,967          172,431         135,212
   Allowance for loan losses                               4,143           3,592           2,715            2,097           1,488
   Deposits                                              310,928         283,121         251,505          210,192         195,668
   Other borrowings                                       57,046          27,331          12,614           15,938           1,187
   Stockholders' equity                                   34,384          29,817          28,627           23,859          16,347
---------------------------------------------------------------------------------------------------------------------------------
Selected Ratios
   Return on average total assets                           1.08%           1.21%           1.06%            0.99%           0.97%
   Return on average equity                                12.58%          13.48%          11.27%           13.05%          12.65%
   Average earning assets to average total assets          93.60%          92.27%          91.47%           90.37%          88.98%
   Average loans to average deposits                       87.72           83.61%          81.45%           72.79%          70.88%
   Average equity to average  total assets                  8.56%           9.83%           9.38%            7.55%           7.64%
   Net interest margin                                      4.36%           4.40%           4.64%            4.72%           4.62%
   Operating efficiency                                    63.92%          63.90%          65.20%           68.29%          69.18%
   Net charge-offs to average loans                         0.20%           0.19%           0.14%            0.09%           0.26%
   Allowance for loan losses to net                         1.46%           1.50%           1.30%            1.22%           1.09%
    loans(year-end)
   Risk-based capital
      Tier 1 capital                                       11.12%          11.42%          11.43%           12.24%          10.83%
      Total capital                                        12.34%          12.69%          13.16%           13.35%          11.84%
   Tier 1 leverage ratio                                    8.67%           8.91%           8.93%            9.11%           7.39%
</TABLE>

                                       17
<PAGE>

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

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

Overview

  The Company expanded its mortgage operations in June 2000 and began offering
trust services in March 2000.  As a result of the mortgage operations expansion,
the Company experienced an increase in the gain on sale of mortgage loans in the
secondary market of $374,000 over 1999.  The Company continued to place special
emphasis on quality asset growth and expense control to drive the improved
earnings performance.  Asset growth was achieved as total assets increased $63.7
million (or 18.6%) in 2000 compared to 1999. The growth in assets was
accomplished by continuing to grow the business at existing branch facilities.
Geographically, the Company's branch facilities are strategically located
throughout the Metro Augusta market.  Despite the mortgage operations expansion
and commencement of the trust operations, the Company continues to make
improvements in expense controls which were reflected in the consistent
operating efficiency ratio of 63.9% in 2000 and 1999 (exclusive of a $480,000
charitable donation in 1999).  Non-interest expense as a percentage of total
average assets decreased to 3.34% in 2000 from 3.45% in 1999.

Results of Operations

  The Company had record net income of $4,002,000 in 2000, compared to
$3,970,000 in 1999, an increase of $33,000 or .08%.  Net income for 1999
included gains from the sale of investment securities of $1.5 million.  The 1999
earnings of $3,970,000 was an increase of $1,055,000 or 36.2% over 1998 earnings
of $2,915,000, primarily due to the sale of the investment securities mentioned
previously.

  The increase in net income during 2000 compared to 1999 resulted from an
increased level of net interest income offset by a decrease in non-interest
income.  The increase in net interest income was the result of higher levels of
earning assets and increases in the prime rate.  Net interest income increased
$2.0 million (12.9%) in 2000 on a net interest margin of 4.37%, a decrease from
4.40% in 1999.  Non-interest income decreased $949,000 (18.4%) in 2000 to
$4,199,000 compared to $5,148,000 in 1999.  The decrease for 2000 resulted from
a decrease of $1,555,000 in investment securities gains which was partially
offset by increases in service charges and fees on deposits of $200,000 and gain
on sales of loans of $374,000.

  The earnings performance of the Company is reflected in a return on average
assets and average equity of 1.08% and 12.58%, respectively, during 2000
compared to 1.21% and 13.48%, respectively, during 1999.  The return on average
assets and average equity was 1.06% and 11.27%, respectively, in 1998.  Basic
and diluted net income per share on weighted average shares improved to $1.92 in
2000 compared to $1.90 in 1999 and $1.39 in 1998.  The Company's average equity
to average asset ratio decreased to 8.56% in 2000 compared to 9.08% in 1999.
The average equity to

                                       18
<PAGE>

average asset ratio was 9.38% in 1998. A 15% stock dividend was paid by the
Company on August 28, 1999, celebrating the Bank's tenth anniversary and the
Company's financial performance.

  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:

<TABLE>
<CAPTION>
                              Average Balances, Income and Expenses, Yields and Rates

                                Year Ended December 31, 2000        Year Ended December 31, 1999    Year Ended December 31, 1998
                             ------------------------------------- ------------------------------ ---------------------------------
                                                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..........................     $261,869     9.34%     $24,449   $225,244   8.88%     $20,006   $189,369    9.38%      $17,762
Investments
    Taxable....................       70,828     6.39%       4,523     61,963   5.75%       3,564     54,030    6.01%        3,247
    Tax-free...................        7,674     4.42%         339      4,476   4.60%         206      2,319    4.74%          110
 Federal funds sold............        7,947     6.54%         520      7,770   5.03%         391      6,429    5.93%          381
 Interest-bearing deposits in
 other banks ..................          500     6.40%          32          0   0.00%           0          0    0.00%            0
                                ------------             ---------   --------             -------   --------             ---------
       Total interest earning
        assets.................      348,318     8.57%     $29,863    299,453   8.07%     $24,167    252,147    8.53%     $ 21,500
                                ------------             ---------   --------             -------   --------              --------
Cash and due from banks........       14,104                           11,647                         11,270
Premises and equipment.........       10,384                           10,717                         10,618
Other..........................        2,837                            5,812                          4,015
Allowance for loan losses......       (3,910)                          (3,096)                        (2,380)
                                ------------                         --------                       --------
     Total assets..............     $371,733                         $324,533                       $275,670
                                ============                         ========                       ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing  Liabilities:
NOW accounts...................     $ 36,675     1.70%     $   625   $ 33,661   1.52%     $   513   $ 29,664    2.17%     $    645
Savings and money management
 accounts......................      116,684     5.29%       6,168    109,751   4.55%       4,998     86,438    4.65%        4,017
Time deposits..................       98,037     6.00%       5,885     83,573   5.35%       4,469     78,652    5.59%        4,400
Federal funds purchased/
 securities sold under
 repurchase agreements.........       19,054     4.56%         868     11,628   3.11%         362      5,798    3.50%          203
Other borrowings...............       18,598     6.04%       1,124     10,898   5.86%         639      8,780    6.31%          554
        Total interest-bearing.  -----------             ---------   --------             -------   --------              --------
liabilities....................      289,048     5.08%      14,670    249,511   4.40%      10,981    209,332    4.69%        9,819
                                 -----------             ---------   --------             -------   --------              --------
Noninterest-bearing demand
 deposits......................       48,152                           42,426                         37,733
Other liabilities..............        2,728                            3,138                          2,741
Stockholders' equity...........       31,805                           29,458                         25,864
                                ------------                         --------                       --------
     Total liabilities and
      stockholders' equity.....     $371,733                         $324,533                       $275,670
                                ============                         ========                       ========

Net interest spread............                  3.49%                          3.67%                           3.84%
Benefit of non-interest
 sources.......................                   .87%                          0.73%                           0.80%
Net interest margin/income.....                  4.36%     $15,193              4.40%     $13,186               4.64%     $ 11,681
                                                         ---------                        =======                         ========
</TABLE>

                                       19
<PAGE>

     Average total assets for 2000 were $371.7 million, a 14.54% increase over
1999. Average earning assets for 2000 were $348.3 million which is 93.7% of
average total assets. The increase in average loans of $36.6 million and the
increase in average investments of $12.1 million were funded by increases in
average deposits of $29.8 million, securities sold under repurchase agreements
of $7.4 million, and Federal Home Loan Bank borrowings of $9.0 million. For
1999, average total assets were $324.5 million, a 17.72% increase over 1998.
Average earning assets for 1999 were $299.5 million, or 92.3% of average total
assets.

     Net income was a record high of $4.0 million in 2000.  Interest income is
the largest contributor to income and increased $5.7 million over 1999 to $29.9
million.  Interest expense increased $3.7 million to $14.7 million.  The
increase in net interest income of $2.0 million or 15.2% in 2000 over 1999 is a
result of an increase in loans and investments coupled with an increase in
interest rates.  Average yields on earning assets increased to 8.57% in 2000,
compared to 8.07% in 1999.

     Net income was $13.2 million for 1999, a 12.9% increase over 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 averaged 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 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 4.36% in 2000 from 4.40% in 1999.  In
1998, the net interest margin was 4.64%.  The net interest margin deteriorated
in 2000 compared to 1999 as the average rate paid on interest bearing deposits
and borrowings increased at a faster rate than the average rate earned on
assets. The high level of competition in the local market for both loans and
deposits continues to influence the net interest margin.  The net interest
margin continues to be supported by an increasing amount of demand deposits
which provide a 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 2000, coupled with competitive deposit and loan
pricing in the local market, the net interest spread decreased 18 basis points
to 3.49% in 2000 from 3.67% in 1999.  The 1999 net interest spread of 3.67%
represented a decrease from 1998 of 3.84%.

     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 1999 to 2000, and 1998 to 1999. The analysis of
changes in net interest income included in the following table indicates that on
an overall

                                       20
<PAGE>

basis in 2000, the increase in the balances or volumes and the increases in
interest rates of interest-earning assets created a positive impact in net
interest income. The increases in the balances or volume of the interest-bearing
liabilities and the increase in interest rates had a great impact on the
increase in interest expense. Prime savings and money market accounts are tied
to the prime rate. In 1999 and 1998, 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.

                  Analysis of Changes in Net Interest Income

<TABLE>
<CAPTION>
                                                  Year Ended December 31, 2000                Year Ended December 31, 1999

                                                       Compared with 1999                          Compared with 1998
                                                        Variances Due to                            Variances Due to
                                                 ------------------------------------------------------------------------------
                                                 Volume    Rate     Rate/       Total    Volume      Rate     Rate/       Total
                                                                   Volume                                     Volume
                                                 ------------------------------------------------------------------------------
     <S>                                         <C>      <C>      <C>          <C>      <C>         <C>      <C>         <C>
                                                                                         (Amounts in thousands)
     Interest income from interest-earning assets:
     Loans...................................   $3,239    $1,037      $168     $4,444     $3,368      ($945)    ($179)   $2,244
     Investments, taxable....................      505       397        57        959        478       (140)      (21)      317
     Investments, tax-exempt.................      147        (8)       (6)       133         98         (1)       (1)       96
     Federal funds sold......................        9       117         3        129         80        (58)      (12)       10
     Interest bearing deposits in
     other banks.............................       32         0         0         32          0          0         0         0
                                              ---------------------------------------------------------------------------------
         Total...............................   $3,932    $1,543      $222      5,697     $4,024    ($1,144)    ($213)    2,667
                                              ---------------------------------------------------------------------------------

     Interest expense on interest- bearing liabilities:

     NOW  accounts...........................   $   46    $   61      $  5     $  112     $   87      ($193)     ($26)    ($132)
     Savings and money management accounts...      315       804        51      1,170      1,089        (85)      (23)      981


     Time deposits...........................      779       543        94      1,416        272       (191)      (12)       69
     Federal funds purchased / securities
      sold under repurchase agreements.......      229       169       108        506        205        (23)      (23)      159

     Other borrowings........................      451        20        14        485        135        (40)      (10)       85
                                                -------------------------------------------------------------------------------
         Total...............................   $1,820    $1,597      $272     $3,689     $1,788      ($532)     ($94)   $1,162
                                                -------------------------------------------------------------------------------
     Change in net interest income...........                                  $2,008                                    $1,505
                                                                            =========                                  ========
</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.

                                       21
<PAGE>

     Non-interest income for 2000 was $4.2 million, a decrease of $949,000 or
18.4% from 1999.  The decrease is attributable to a $1,513,000 gain on sale and
donation of equity securities in 1999.  The gain on sale of investments
decreased $1,554,000 or 102.7%.  This decrease was partially offset by increases
in service charges on deposit accounts over 1999 levels resulting from a higher
volume of deposits and increases in the overall pricing of accounts.  The gain
on the sale of loans increased $374,000 or 54.3% to $1,064,000 in 2000.  This
increase was the result of the expansion of the mortgage operations in June
2000.

     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 deposits accounts over 1998 levels resulting from
a higher volume of deposits and increases in the 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 following table presents the principal components of non-interest
income for the last three years:

                              Non-Interest Income

                                                        Year Ended
                                                        December 31,
                                         -------------------------------------
                                             2000         1999          1998
                                         ----------     ---------     --------
                                                 (Amounts in thousands)

Service charges on deposit accounts          $2,883        $2,683        $2,508
Gain on sale of loans                         1,064           689           928
Investment securities (losses) gains            (42)        1,513            33
Other                                           294           263           169
                                         ----------     ---------     ---------
     Total non-interest income               $4,199        $5,148        $3,638
                                         ==========     =========     =========

Non-interest income as a percentage of
 total average assets                          1.13%         1.59%         1.32%


Non-interest income as a percentage of        12.33%         17.56%       14.47%
 total income


Non-Interest Expense

  Non-interest expense totaled $12.4 million in 2000, an increase of 10.7% from
1999 non-interest expense of $11.2 million.  The increase was primarily the
result of the Company's continued growth and expansion. The increases in the
salary and benefit expense reflects the increases in commissions paid in
response to the growth in the mortgage operations and the trust operations, as

                                       22
<PAGE>

well as normal increases in salaries and benefits. The moderate increase in
occupancy expense reflects the Company's use of previously owned facilities for
the mortgage and trust operations.

     Non-interest expense totaled $11.2 million in 1999, an increase of 12.7%
from 1998 non-interest expense of $10.0 million.  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. In addition
to normal increases in salaries and benefits, 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.

     The Company has improved its ability to monitor expenditures in all
organizational units by implementing more specific cost accounting and
reporting.  In March 2000, the Company 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.  This system 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 this system 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, 2000, 1999 and 1998.

                              Non-Interest Expense

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                   ---------------------------------------------------
                                                       2000                1999               1998
                                                   ------------       -------------     --------------
                                                           (Amounts in thousands)
<S>                                                <C>                <C>               <C>
Salaries and employee benefits.................         $ 7,311             $ 6,049             $5,427
Occupancy expense..............................           1,710               1,647              1,655
Amortization of intangible assets..............             123                 123                123
Business development expense...................             544                 528                587
Communication expense..........................             378                 335                371
Data processing expense........................             684                 684                550
Legal and professional fees....................             320                 183                217
Office supplies expense........................             305                 299                274
Charitable contribution  expense                              0                 480                  0
Other..........................................           1,047                 898                731
                                                   ------------       -------------     --------------
     Total non-interest expense................         $12,422             $11,226             $9,959
                                                   ============       =============     ==============

Non-interest expense as a percentage
   of total average assets.....................            3.34%               3.46%              3.61%

Operating efficiency ratio.....................           63.92%              66.74%             65.15%
</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) improved to 63.92% in 2000 compared to 66.74% in 1999. Excluding
the charitable contribution expense of $480,000 in

                                       23
<PAGE>

1999, the efficiency ratio would have been 63.90%. In 1998, the efficiency ratio
was 65.15%. The consistent efficiency ratio in 2000 as compared to 1999 and the
improvement over 1998 has occurred even though the Company has incurred
significant expense to expand its retail banking, mortgage and trust operations,
and to add additional products and services.

Income Taxes

  Income tax expense increased $80,000 or 4.4% in 2000 from 1999, and increased
$255,000 or 16.3% in 1999 from 1998.  The effective tax rate as a percentage of
pre-tax income was 32.2% in 2000, 31.5% in 1999, and 35.0% in 1998. Although
there were larger deductions for municipal  investment income, tax exempt loan
income, loan loss reserve, and smaller additions to income for deferred
compensation in 2000, the effective rate was higher than 1999 due to the
deduction for the 1999 gain on stock donation.  The higher effective tax rate
for 1998 resulted from increased state tax expense as the Company utilized all
existing carryforwards of state tax credits in previous years.

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

                                       24
<PAGE>

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.

                  Allocation of the Allowance for Loan Losses

<TABLE>
<CAPTION>
                             December 31,          December 31,           December 31,          December 31,        December 31,
                                2000                  1999                   1998                  1997                1996
                        ------------------------------------------------------------------------------------------------------------
                           Amount   Percent(1)   Amount   Percent(1)   Amount   Percent(1)   Amount  Percent(1)   Amount  Percent(1)
                                                                   (Amounts in thousands)
<S>                     <C>          <C>         <C>      <C>          <C>      <C>          <C>     <C>          <C>     <C>
Balance at End of Year
 Applicable to:
 Commercial, financial,
  agricultural.............. $  779   17.39%     $  766    18.39%      $  235    17.25%      $   78    17.48%      $  189    23.77%
 Real estate-construction...    339   13.80%        278    11.85%         144    11.66%           0    13.67%          30     8.01%
 Real estate-mortgage.......  1,704   47.54%      1,202    46.74%       1,458    50.01%         931    52.54%         189    54.03%
 Consumer loans to
  individuals...............    692   21.13%        688    22.71%         365    20.56%         138    16.03%          37    14.19%
 Lease financing............      5    0.14%         10     0.31%           5     0.52%           0     0.29%           0       --
Unallocated.................    624      --         648       --          508       --          950       --        1,023       --
                             ------------------------------------------------------------------------------------------------------
Balance at Year End......... $4,143  100.00%     $3,592   100.00%      $2,715   100.00%      $2,097   100.01%      $1,468   100.00%
</TABLE>

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

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

     The Company's provision for loan losses in 2000 was $1,063,000, a decrease
of $251,000 (19.1%) over the 1999 provision of $1,314,000. The provision for
loan losses charged to earnings in 1998 was $875,000. In 1999, the Company made
the decision to increase the provision for loan losses to provide a higher level
of allowance for loan losses commensurate with the increasing risk in the
Company's loan portfolio. This higher level reflected management's overall
evaluation of the loan portfolio and the significant growth of the loan
portfolio.

     The following table provides details regarding charge-offs and recoveries
by loan category during the most recent five year period, as well as
supplemental information relating to both net loan losses, the provision and the
allowance for loan losses during each of the past five years. As the table
indicates, net charge-offs for 2000 represented 0.20% of average loans
outstanding, compared to 0.19% for 1999 and 0.14% for 1998. The Company's
charge-off ratios continue to be below the average for the industry.

                                       25
<PAGE>

<TABLE>
<CAPTION>
                                                                Allowances for Loan Losses
                                                                        December 31,
                                            --------------------------------------------------------------------------
                                                     2000          1999            1998           1997            1996
                                                                  (Amounts in thousands)
<S>                                         <C>                <C>             <C>            <C>             <C>
 Total loans outstanding at end of
 period, net of unearned income...........       $283,573      $239,032        $208,967       $172,431        $135,212
                                            ==========================================================================
Daily average amount of loans
 outstanding, net of unearned income......       $261,869      $225,244        $189,369       $153,501        $128,592
                                            ==========================================================================

Balance of allowance for loan losses
 at beginning of year.....................       $  3,592      $  2,715        $  2,097       $  1,468        $  1,335

Charge-offs:
  Commercial, financial and
   agricultural...........................             73           112             119            112              77
  Real estate - construction..............              0             0               0              0
  Real estate - mortgage..................             64            41               0             37             171
  Consumer................................            485           396             259            205             121
                                            --------------------------------------------------------------------------
     Total charge-offs....................            622           549             378            354             369
                                            --------------------------------------------------------------------------

Recoveries of previous loan losses:
  Commercial, financial and
   agricultural...........................              9            23              21             95               7
  Real estate - construction..............              0             0               0              0               0
  Real estate - mortgage..................              2             2               0             18               0
  Consumer................................             99            87             100             96              25
                                            --------------------------------------------------------------------------
     Total recoveries.....................            110           112             121            209              32
                                            --------------------------------------------------------------------------

Net charge-offs...........................            512           437             257            145             337
                                            --------------------------------------------------------------------------
Provision for loan losses.................          1,063         1,314             875            774             470
Balance of allowance for loan losses
 at end of period.........................       $  4,143        $3,592        $  2,715       $  2,097        $  1,468
                                            ==========================================================================

Allowance for loan losses to period
 end loans................................           1.46%         1.50%           1.30%          1.22%           1.09%
Net charge-offs to average loans..........           0.20%         0.19%           0.14%          0.09%           0.26%
</TABLE>


     At December 31, 2000, the allowance for loan losses was 1.46% of
outstanding loans, a decrease from the 1.50% level at December 31, 1999.
Management considers the allowance appropriate based upon its analysis of the
potential risk in the portfolio using the methods previously discussed.
Management's judgment is based upon a number of assumptions about future events
which are believed to be reasonable, but which may or may not prove correct.
While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to a particular loan
or class of loans. Because these risks include present and forecasted economic
conditions, management's judgment as to the adequacy of the allowance is
necessarily approximate and imprecise. Thus, 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.

                                       26
<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 outstanding averaged $261.9 million in 2000 compared to $225.2
million in 1999 and $189.4 million in 1998. At December 31, 2000, loans totaled
$283.6 million compared to $239.0 million in 1999, an increase of $44.5 million
(18.6%). This compares to growth in 1999 of $30.0 million (14.4%), compared to
$209.0 million at December 31, 1998.

     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 70.4%, respectively, in 2000. This compares to
average loans as a percentage of average earning assets and average total assets
of 75.2% and 69.4%, respectively, in 1999.

     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,
2000.

                                       27
<PAGE>

                           Loan Portfolio Composition
                                At December 31,
<TABLE>

                              2000                 1999                    1998                   1997                   1996
                        Amount       %       Amount       %         Amount       %         Amount       %         Amount       %
                      ------------------------------------------  ----------  ---------  ----------  ---------  ----------  -------
                                                (Amount in thousands, except percentages)
<S>                   <C>         <C>       <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Commercial,
 financial and
  agriculture........  $ 49,303     17.39%  $ 43,959     18.39%    $ 36,055     17.25%    $ 30,135     17.48%    $ 32,141     23.77%
                      ---------   -------  ---------   -------   ----------   -------    ---------   -------    ---------   -------
Real Estate
  Commercial.........  $ 84,561     29.82%  $ 73,420     30.72%    $ 67,168     32.14%    $ 58,518     33.94%    $ 48,422     35.81%
  Residential........    62,431     22.02%    49,755     20.82%      45,084     21.57%      40,070     23.24%      29,736     21.99%
  Residential held
   for sale..........     1,961      0.69%       668      0.28%       2,380      1.14%       1,548      0.90%         477      0.35%
  Construction and
  development........    39,136     13.80%    28,324     11.85%      24,373     11.66%      23,567     13.67%      10,829      8.01%
                      ---------   -------  ---------   -------   ----------   -------    ---------   -------    ---------   -------
  Total real
  estate.............   188,089     66.33%   152,167    636.66%     128,860     61.67%     114,146     66.20%      83,884     62.04%
                      ---------   -------  ---------   -------   ----------   -------    ---------   -------    ---------   -------
Lease financing......       398      0.14%       735      0.31%       1,084      0.52%         502      0.29%           0      0.00%
Consumer
  Direct.............    18,144      6.40%    16,714      6.99%      14,082      6.74%      12,819      7.43%      11,998      8.87%
  Indirect...........    27,054      9.54%    24,976     10.45%      15,555      7.44%       2,300      1.33%           0      0.00%
  Revolving (1)......       585      0.21%       481      0.20%       3,186      1.52%       2,972      1.72%       1,609      1.19%
                      ---------   -------  ---------   -------   ----------   -------    ---------   -------    ---------   -------
  Total consumer.....    45,783     16.15%    42,171     17.64%      42,968     20.56%      27,648     16.03%      19,187     14.19%
                      ---------   -------  ---------   -------   ----------   -------    ---------   -------    ---------   -------
  Total..............  $283,573    100.00%  $239,032    100.00%    $208,967    100.00%    $172,431    100.00%    $135,212    100.00%
                      =========   =======  =========   =======   ==========   =======    =========   =======    =========   =======
</TABLE>


(1)  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, 2000 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, 2000

<TABLE>
<CAPTION>
                                                                                           One to      After
                                                                              Within        Five        Five
           ($ in thousands)                                                   One Year     Years       Years      Total
           --------------------------------------------------------------------------------------------------------------
           <S>                                                                <C>           <C>         <C>      <C>
           Commercial, financial and agricultural                             $ 31,363      $12,807     $ 5,133  $ 49,303
           Real Estate
              Construction and development                                      35,099        2,606       1,431    39,136
              Mortgage                                                          73,784       44,526      30,643   148,953
           Consumer                                                             17,604       28,237         340    46,181
           --------------------------------------------------------------------------------------------------------------
           Total loans                                                        $157,850      $88,176     $37,547  $283,573
           ==============================================================================================================
</TABLE>

                                       28
<PAGE>

     The following table presents an interest rate sensitivity analysis of the
Company's loan portfolio at December 31, 2000. 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, 2000

<TABLE>
<CAPTION>
                                                         Within   One to Five  After Five
($ in thousands)                                        One year     Years       Years      Total
---------------------------------------------------------------------------------------------------
Loans maturing with:
<S>                                                     <C>       <C>          <C>         <C>
   Predetermined interest rates                         $ 78,696      $65,083     $14,147  $157,926
   Floating or adjustable interest rates                 125,647            0           0   125.647
---------------------------------------------------------------------------------------------------
Total loans                                             $204,343      $65,083     $14,147  $283,573
===================================================================================================
</TABLE>

Non-Performing Assets.

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

          If nonaccruing loans had been accruing interest under their original
terms, approximately $38,000 in 2000, $27,000 in 1999 and $43,000 in 1998 would
have been recognized as earnings.

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

                                       29
<PAGE>

          Non-performing loans are defined as nonaccrual and renegotiated loans.
When other real estate owned is included with non-performing loans, the result
is non-performing assets. The following table, "Non-Performing Assets", presents
information on these assets and loans past due 90 days or more and still
accruing interest as of December 31, for the past five years. Non-performing
assets were $2.0 million at December 31, 2000 or 0.71% of total loans and other
real estate owned. This compares to $1.2 million or 0.50% of total loans and
real estate acquired by foreclosure at December 31, 1999.

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

          At December 31, 2000, there were no loans past due 90 days or more and
still accruing, a decrease from $27,000 in 1999 and $44,000 at the end of 1998.
All loans past due  90 days or more are now classified as nonaccrual loans.
Management believes the Company will receive full payment of principal and
accrued interest on these loans because of the Company's collateral position and
other factors, despite their past due status.

<TABLE>
<CAPTION>
                                                                          Non-Performing Assets
                                                                              At December 31,
                                      --------------------------------------------------------------------------------------------
                                            2000                1999                1998                1997              1996
                                      --------------      ----------------       -----------        ------------      ------------
                                                              (Amounts in thousands, except percentages)
<S>                                   <C>                 <C>                    <C>                <C>               <C>
Nonaccrual loans....................         $ 1,950               $ 1,190            $2,925              $2,092            $1,747
Restructured loans..................               0                     0                 0                   0                 0
Other real estate owned.............              80                    17                 0                 275               150
                                      --------------      ----------------       -----------        ------------      ------------
     Total nonperforming assets.....         $ 2,030               $ 1,207            $2,925              $2,367            $1,897
                                      ==============      ================       ===========        ============      ============

Loans past due 90 days or more and
still accruing interest.............         $     0               $    27            $   44              $   15            $  131
                                      ==============      ================       ===========        ============      ============

Allowance for loan losses to period
end total loans.....................            1.46%                 1.50%             1.30%               1.22%             1.09%

Allowance for loan losses to period
end nonperforming assets............          212.46%               297.60%            92.82%              88.59%            77.38%

Net charge-offs to average loans....            0.20%                 0.19%             0.14%               0.09%             0.26%
Nonperforming assets to period end
loans...............................            0.69%                 0.50%             1.40%               1.37%             1.40%

Nonperforming assets to period end
loans and other real estate owned...            0.69%                 0.50%             1.40%               1.37%             1.40%

</TABLE>


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

                                       30
<PAGE>

Investment Securities

          The Company's investment securities portfolio increased 19.4% or $13.3
million to $82.0 million at year-end 2000 from 1999. 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, 2000, except for the U.S.
Government agencies, there was no issuer who represented 10% or more of
stockholders' equity within the investment portfolio. As of December 31, 2000
and 1999, the estimated fair value of investment securities as a percentage of
their amortized cost was 100.4 % and 97.7%, respectively. As of December 31,
2000, the investment securities portfolio had gross unrealized gains of $650,000
and gross unrealized losses of $347,000, for a net unrealized gain of $303,000.
As of December 31, 1999, the investment securities portfolio had a net
unrealized loss of $1,549,000. As of December 31, 1998, the investment
securities portfolio had a net unrealized gain of $2,912,000. The following
table presents the amortized cost of investment securities held by the Company
at December 31, 2000 and 1999.


                             Investment Securities

<TABLE>
<CAPTION>
                                                                                          December 31,
(Amounts in thousands)                                               2000                     1999                   1998
                                                               ---------------         ----------------        ---------------
<S>                                                            <C>                     <C>                     <C>
Available for sale:
U.S. Treasuries                                                        $     0                  $ 2,493                $ 2,985
U.S. Government Agencies                                                32,929                   31,412                 23,533
Obligations of states and political subdivisions                         2,072                        0                      0
Mortgage-backed securities                                              30,301                   25,336                 28,003
Corporate Bonds                                                          6,140                      540                      0
Equity securities                                                        1,964                    1,643                  1,487
                                                               ---------------         ----------------        ---------------
Total                                                                  $73,406                  $61,424                $56,008
                                                               ---------------         ----------------        ---------------

<CAPTION>
                                                                                          December 31,
                                                                     2000                     1999                   1998
                                                               ---------------         ----------------        ---------------
<S>                                                            <C>                     <C>                     <C>
Held to maturity:
Obligations of states and political subdivisions                        $8,424                   $6,691                 $3,386
Mortgage-backed securities                                                 190                      591                    789
                                                               ---------------         ----------------        ---------------
Total                                                                   $8,614                   $7,282                 $4,175
                                                               ---------------         ----------------        ---------------
</TABLE>

                                       31
<PAGE>

          The following table represents maturities and weighted average yields
of debt securities at December 31, 2000 and 1999. Yields are based on the
amortized cost of securities. Maturities are based on the contractual
maturities. Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.

                                  Maturity Distribution and Yields of
                                   Investment Securities

<TABLE>
<CAPTION>
                                                                          December 31, 2000
                                                                   Amortized Cost          Yield
                                                                 ---------------------------------
          <S>                                                      <C>                   <C>
          Available for Sale
          U.S. Treasury
             One year or less...............................          $         0             0.00%
             Over one through five years....................                    0             0.00%
                                                                 ---------------------------------
                Total U. S. Treasury........................          $         0             0.00%
                                                                 ---------------------------------

          U.S. Government Agencies
             One year or less...............................          $   549,493             6.61%
             Over one through five years....................           23,002,470             6.12%
             Over five through ten years....................            8,455,750             6.99%
             Over ten years.................................              921,666             7.22%
                                                                 ---------------------------------
                Total U. S. Government Agencies.............          $32,929,379             6.38%
                                                                 ---------------------------------

          Municipal Securities(1)
             Over five through ten years....................          $ 1,141,991             7.06%
             Over ten years.................................              929,634             6.64%
                                                                 ---------------------------------
                Total Municipal Securities..................          $ 2,071,625             6.87%
                                                                 ---------------------------------

          Corporate Bonds
             One year or less...............................          $   499,866             6.69%
             Over one through five years....................            5,639,793             7.49%
                                                                 ---------------------------------
                Total Corporate Bonds.......................          $ 6,139,659             7.37%
                                                                 ---------------------------------

          Mortgage Backed Securities
             Over one through five years....................          $ 5,463,922             6.33%
             Over five through ten years....................            6,655,526             6.09%
             Over ten years.................................           18,181,247             6.52%
                                                                 ---------------------------------
                Total Mortgage Backed Securities............          $30,300,695             6.39%
                                                                 ---------------------------------
                                                                 ---------------------------------
          Total Available for Sale..........................          $71,441,358             6.48%
                                                                 ---------------------------------

          Held to Maturity
          Municipal Securities(1)
             One year or less...............................          $   958,598             9.76%
             Over one through five years....................            2,883,601             7.13%
             Over five through ten years....................            2,046,873             7.19%
             Over ten years.................................            2,534,599             8.58%
                                                                 ---------------------------------
                Total Municipal Securities..................          $ 8,423,671             7.88%
                                                                 ---------------------------------

          Mortgage Backed Securities
             Over five through ten years....................          $   190,070             7.47%
                                                                 ---------------------------------
                Total Mortgage Backed Securities............          $   190,070             7.47%
                                                                 ---------------------------------
                                                                 ---------------------------------
          Total Held to Maturity............................          $ 8,613,741             7.87%
                                                                 ---------------------------------
                                                                 ---------------------------------
          Total Investment Securities.......................          $80,055,099             6.63%
                                                                 =================================

          (1) Tax-equivalent yield
</TABLE>

                                       32
<PAGE>

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.

          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, 2000, 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, 2000.  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

                                       33
<PAGE>

repricing, whether as a result of floating or adjustable rate contracts. Time
deposits do not reprice and are presented according to their contractual
maturity. Prime savings accounts reprice with the prime rate and are shown as
repricing within three months. Regular savings, money management and NOW
accounts do not have a contractual maturity date, therefore, cash flows are
based on management's judgement regarding their decay rates. All other
borrowings are shown in the first period in which they could reprice. In the
one-year time period, the pricing mismatch on a cumulative basis was liability
sensitive $39.0 million or 17.30% 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. 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, 2000

<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)
<S>                           <C>             <C>              <C>             <C>           <C>              <C>           <C>
Interest-Earning Assets:
Loans......................      $ 149,990      $  19,575        $  34,778        $ 204,343       $ 65,083     $ 14,147     $283,573
Investment securities......          1,732            662            7,356            9,750         37,266       35,258       82,274
Federal Funds sold.........         10,820             --               --           10,820             --           --       10,820
Interest bearing deposits
 in other banks............            500             --               --              500             --           --          500
                              ------------  -------------    -------------    -------------  -------------  -----------    ---------
   Total interest-earning
      assets...............      $ 163,042      $  20,237        $  42,134        $ 225,413       $102,349     $ 49,405     $377,167
                              ============  =============    =============    =============  =============  ===========    =========

Interest-Bearing
 Liabilities:
Money management accounts..      $   2,363      $   1,997        $   3,113            7,474       $  7,246     $    526     $ 15,246
Savings accounts...........         92,741            403              685           93,829          2,409          643       96,881
NOW accounts...............          5,056          4,419            7,250           16,725         20,829        2,766       40,320
Time deposits..............         22,577         17,690           49,008           89,275         18,809          260      108,344
Federal funds
 purchased/securities sold
 under repurchase
 agreements................         32,096              0                0           32,096              0            0       32,096
Federal Home Loan Bank
 advances..................         19,000              0            5,000           24,000              0            0       24,000
Other borrowings...........            950              0                0              950              0            0          950
                              ------------  -------------    -------------    -------------  -------------  -----------    ---------
  Total interest-bearing
    Liabilities............      $ 174,783      $  24,509        $  65,056        $ 264,348       $ 49,294     $  4,195     $317,837
                              ============  =============    =============    =============  =============  ===========    =========


Period gap.................       ($11,741)       ($4,272)        ($22,922)        ($38,935)      $ 53,055      $45,210            -
Cumulative gap.............       ($11,741)      ($16,014)        ($38,935)        ($38,935)      $ 14,120       59,330            -
Ratio of cumulative gap to
 total interest-earning
   assets..................          -3.11%         -4.25%          -10.32%          -17.27%          3.74%       15.73%           -
</TABLE>

                                       34
<PAGE>

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.

     Average liquid assets (cash and amounts due from banks, federal funds sold,
investment securities and other short term investments) were maintained at 29.8%
of average deposits in 2000 compared to 29.4% in 1999 and 31.8% in 1998.

Deposits

     The Company's average deposits and other borrowings increased $45.3 million
or 15.5% from December 31, 1999 to December 31, 2000. Average interest-bearing
liabilities increased $39.6 million or 15.8% while average non-interest bearing
deposits increased $5.7 million or 13.5%. Average deposits and borrowings
increased $44.8 million or 18.1% from December 31, 1998 to December 31, 1999.
Average interest-bearing liabilities increased $40.2 million or 19.2% from
December 31, 1998 to December 31, 1999, while average non-interest bearing
deposits increased $4.6 million or 12.5% during the same period. The majority of
the growth in deposits since 1997 reflects the Company's strategy of
consistently emphasizing deposit growth, as deposits are the primary source of
funding for balance sheet growth. Borrowed funds consist of short-term
borrowings, securities sold under agreements to repurchase with the Bank's
commercial customers, and 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 2000, 1999 and
1998:

                                       35
<PAGE>

            Average Deposit and Other Borrowing Balances and Rates

<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                                                 2000                           1999                             1998
                                   ----------------------------     ---------------------------     ----------------------------
                                       Average         Average         Average         Average         Average          Average
                                       Amount           Rate            Amount          Rate            Amount           Rate
---------------------------------------------------------------     ---------------------------     ----------------------------
                                                             (Amounts in thousands, except percentages)
<S>                                  <C>              <C>             <C>             <C>             <C>              <C>
Non-interest bearing demand
    deposits                            $ 48,152           0.00%        $ 42,426           0.00%        $ 37,733            0.00%
Interest-bearing liabilities:
   NOW accounts                           36,675           1.70%          33,661           1.52%          29,664            2.17%
   Savings and money management
   accounts                              116,684           5.29%         109,751           4.55%          86,438            4.65%
   Time deposits                          98,037           6.00%          83,573           5.35%          78,652            5.59%
   Federal funds purchased/
   Securities sold under repurchase
   agreements                             19,054           4.56%          11,628           3.11%           5,798            3.50%
  Other borrowings                        18,598           6.04%          10,898           5.86%           8,780            6.31%
--------------------------------------------------------------------------------------------------------------------------------
       Total interest-bearing
        liabilities                     $289,048           5.08%        $249,511           4.40%        $209,332            4.69%
================================================================================================================================
Total non-interest & interest
 bearing liabilities                    $337,200                        $291,937                        $247,065

</TABLE>

     The following table presents the maturities of the Company's time deposits
over $100,000 and other time deposits at December 31, 2000:

                                     Maturities of Time Deposits

                                     Time Deposits     Other Time
                                     over $100,000      Deposits        Total
-------------------------------------------------------------------------------
Months to Maturity
   Within 3 months                       $13,254        $ 9,323       $ 22,577
   After 3 through 6 months               11,792          5,898         17,690
   After 6 through 12 months              25,479         23,529         49,008
                                   -------------------------------------------
    Within one year                       50,525         38,750         89,275
   After 12 months                         3,800         15,267         19,067
                                   -------------------------------------------

        Total                            $54,325        $54,017       $108,342
                                   ===========================================


     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 $34.4 million at December 31, 2000,
increasing $4.6 million or 15.3% from the previous year. The increase was the
combination of earnings in the amount of

                                       36
<PAGE>

$4.0 million and an increase in accumulated other comprehensive income of $1.1
million. The increase in accumulated other comprehensive income represents
unrealized gains in the available for sale investment portfolio. The Company
also purchased 18,771 shares of treasury stock at a cost of $507,000, which is
shown as a reduction of stockholders' equity.

     The Company's average equity to average total assets was 8.56% in 2000
compared to 9.08% in 1999 and 9.38% in 1998. The decreases in 2000 and 1999
reflect the overall growth of the Company whereas the percentage in 1998
reflects 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
considered to be adequate to meet present operating needs and anticipated future
operating requirements. Management is not aware of any trends, events or
uncertainties that are reasonably likely to have a material effect on the
Company's capital resources or operations. The following table presents the
return on equity and assets for the years 2000, 1999 and 1998.


                          Return on Equity and Assets

                                           2000          1999           1998
                                           ----          ----           ----

Return on average total assets             1.08%         1.22%          1.06%

Return on average equity                  12.58%        13.48%         11.27%

Average equity to average                  8.56%         9.08%          9.38%
assets ratio


     At December 31, 2000, 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.

                                       37
<PAGE>

                              Analysis of Capital

<TABLE>
<CAPTION>
                                    Required                     Actual                           Excess
-------------------------------------------------------------------------------------------------------------------
                                  Amount         %            Amount          %              Amount          %
-------------------------------------------------------------------------------------------------------------------
                               (Amounts in thousands, except percentages)
<S>                               <C>            <C>          <C>              <C>           <C>               <C>
Georgia Bank Financial Corporation
     12/31/00
Risk-based capital:
   Tier 1 capital                   $12,201      4.00%          $33,831        11.12%          $21,658         7.12%
   Total capital                     24,347      8.00%           37,639        12.34%           13,292         4.37%
Tier 1 leverage ratio                15,614      4.00%           33,831         8.67%           18,217         4.67%
     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%

Georgia Bank & Trust Company
     12/31/00
Risk-based capital:
   Tier 1 capital                   $12,095      4.00%          $32,041        10.60%          $19,946         6.60%
   Total capital                     24,190      8.00%           35,825        11.85%           11,635         3.85%
Tier 1 leverage ratio                15,545      4.00%           32,041         8.24%           16,496         4.25%
     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%
</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 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.

                                       38
<PAGE>

Recent Accounting Pronouncement

          In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting (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. As the Company
does not hold derivative instruments as defined by SFAS No. 133, the provisions
of SFAS No. 133 will not have an impact on the financial statements upon
adoption.

          In September 2000, SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, was issued.
SFAS No. 140 is effective for all transfers and servicing of financial assets
and extinguishments of liabilities after March 31, 2001. SFAS No. 140 is
effective for recognition and reclassification of collateral and disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. Due to the nature of its activities, the Company does
not expect the adoption of SFAS No. 140 to have a material impact on its
consolidated financial statements.

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.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

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

          The Company's market risk arises primarily from the interest rate risk
inherent in its lending and deposit activities.  This risk is managed primarily
by careful periodic analysis and modeling of the various

                                       39
<PAGE>

components of the entire balance sheet. The investment portfolio is utilized to
assist in minimizing interest rate risk in both loans and deposits due to the
flexibility afforded in structuring the investment portfolio with regards to
various maturities, cash flows and fixed or variable rates.

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

                                       40
<PAGE>

                                  Market Risk
                            (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                                             Fair
                                             2001       2002       2003       2004      2005      Thereafter      Total     Value
                                           --------   --------   --------   --------   -------   ------------   ---------  --------
<S>                                        <C>        <C>        <C>        <C>        <C>       <C>            <C>        <C>
Rate Sensitive Assets:
Fixed Interest Rate Loans                    78,695     35,334     17,960      7,859     3,930         14,147     157,925   151,039
Average Interest Rate                          8.71%      9.13%      9.59%      9.60%     9.60%          7.76%       8.89%

Variable Interest Rate Loans                 79,155     10,727      5,532      4,556     2,278         23,400     125,648   126,121
Average Interest Rate                          9.63%      9.50%      9.53%      9.49%     9.49%          9.72%       9.62%

Fixed Interest Rate Securities                2,008      7,829     11,259     12,061     5,840         34,022      73,019    73,245
Average Interest Rate                          5.63%      5.73%      5.97%      6.60%     6.60%          6.07%       6.14%

Variable Interest Rate Securities                 0          0          0          0         0          9,000       9,000     9,078
Average Interest Rate                          0.00%      0.00%      0.00%      0.00%     0.00%          6.31%       6.31%

Rate Sensitive Liabilities:
Money market accounts                         7,474      2,875      2,875        747       749            526      15,246    15,246
Average Interest Rate                          5.10%      5.10%      5.10%      5.10%     5.10%          5.10%       5.10%

Savings accounts                             32,465     17,574     17,584      7,838     7,847         13,573      96,881    96,881
Average Interest Rate                          5.59%      5.59%      5.59%      5.59%     5.59%          5.59%       5.59%

NOW accounts                                 16,725      7,758      7,758      2,657     2,657          2,765      40,320    40,320
Average Interest Rate                          1.93%      1.93%      1.93%      1.93%     1.93%          1.93%       1.93%

Fixed interest rate time deposits * $100M    38,750     12,381      1,033      1,170       585             98      54,017    54,337
Average Interest Rate                          6.13%      6.53%      5.89%      5.94%     5.94%          6.96%       6.21%

Fixed interest rate time deposits  ** $100M  50,525      3,317        322          0         0            161      54,325    54,402
Average Interest Rate                          6.74%      6.73%      6.58%      0.00%     0.00%          4.64%       6.73%

Securities sold under repurchase agreements  32,096          0          0          0         0              0      32,096    32,096
Average Interest Rate                          4.67%      0.00%      0.00%      0.00%     0.00%          0.00%       4.67%

Fixed interest rate borrowings                    0          0          0          0         0         24,000      24,000    24,091
Average Interest Rate                          0.00%      0.00%      0.00%      0.00%     0.00%          5.87%       5.87%

Variable interest rate borrowings               950          0          0          0         0              0         950       950
Average Interest Rate                          5.75%      0.00%      0.00%      0.00%     0.00%          0.00%       5.75%
</TABLE>

 * less than
** greater than

                                    41
<PAGE>

Item 8:  Financial Statements

       The consolidated financial statements of the Company as of December 31,
2000 and 1999 and for each of the years in the three-year period ended December
31, 2000, 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      48

Consolidated Statements of Cash Flows                                         50

Notes to Consolidated Financial Statements                                    52

                                       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, 2000 and
1999, 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, 2000. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia Bank
Financial Corporation and subsidiary as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of Amercia.

KPMG LLP

Atlanta, Georgia
January 19, 2001

                                       43
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                          Consolidated Balance Sheets

                          December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                  Assets                            2000           1999
                                                               ------------   ------------
<S>                                                            <C>            <C>
Cash and due from banks (note 2)                               $ 14,674,253   $ 13,642,007
Federal funds sold                                               10,820,000      9,830,000
Interest bearing deposits in other banks                            500,000             --
                                                               ------------   ------------
                   Cash and cash equivalents                     25,994,253     23,472,007
                                                               ------------   ------------
Investment securities (note 3):
    Available-for-sale                                           73,660,371     60,054,449
    Held-to-maturity, at cost (fair values of $8,662,286
       and $7,102,288 at December 31, 2000 and 1999,
       respectively)                                              8,613,741      7,281,743
Loans (note 4)                                                  283,573,028    239,031,667
    Less allowance for loan losses                                4,142,841      3,591,613
                                                               ------------   ------------

                   Loans, net                                   279,430,187    235,440,054
                                                               ------------   ------------

Premises and equipment, net (note 5)                             10,710,745     10,481,160
Accrued interest receivable                                       3,537,384      2,792,978
Intangible assets, net (note 6)                                     369,721        492,806
Other assets                                                      3,474,611      2,085,912



                                                               ------------   ------------

                                                               $405,791,013    342,101,109
                                                               ============   ============
</TABLE>

See accompanying notes to consolidated financial statements

                                       44
<PAGE>

                   Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                  2000                1999
                                                                            ----------------     ---------------
<S>                                                                         <C>                  <C>
Deposits:

    Noninterest bearing                                                     $     50,138,476          43,171,186
    Interest-bearing:
       NOW accounts                                                               40,319,547          34,659,905
       Savings                                                                    96,880,744          94,010,408
       Money management accounts                                                  15,246,131          14,674,717
       Time deposits over $100,000                                                54,325,411          45,454,055
       Other time deposits                                                        54,017,455          51,150,474
                                                                            ----------------     ---------------

                                                                                 310,927,764         283,120,745
Securities sold under repurchase agreements (note 8)                              32,095,552          11,331,388
Advances from Federal Home Loan Bank (note 8)                                     24,000,000          15,000,000
Other borrowed funds (note 8)                                                        950,000           1,000,000
Accrued interest and other liabilities                                             3,434,153           1,832,245
                                                                            ----------------     ---------------

                   Total liabilities                                             371,407,469         312,284,378
                                                                            ----------------     ---------------

Stockholders" equity (notes 11, 13 and 15):
    Common stock, $3.00 par value; 10,000,000
       shares authorized; 2,093,152 shares issued and 2,074,381 and
       2,093,152 shares outstanding  in 2000 and 1999, respectively                6,279,456           6,279,456
    Additional paid-in capital                                                    21,259,955          21,259,955
    Retained earnings                                                              7,168,491           3,166,195
    Treasury stock, at cost: 18,771 shares                                          (507,360)                  -
    Accumulated other comprehensive income (loss)                                    183,002            (888,875)
                                                                            ----------------     ---------------

                   Total stockholders" equity                                     34,383,544          29,816,731


Commitments (note 7)

                                                                            $    405,791,013         342,101,109
                                                                            ================     ===============
</TABLE>

                                       45
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                       Consolidated Statements of Income
                 Years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                     2000              1999              1998
                                                               ---------------   ---------------    --------------
<S>                                                            <C>               <C>                <C>
Interest income:
    Loans, including fees                                       $ 24,449,106        20,005,516        17,762,188
    Investment securities:
       Taxable                                                     4,523,260         3,564,183         3,247,066
       Tax-exempt                                                    338,585           205,987           110,100
    Federal funds sold                                               519,522           390,982           380,851
    Interest-bearing deposits in other banks                          32,286                 -                 -
                                                                ------------      ------------       -----------

                  Total interest income                           29,862,759        24,166,668        21,500,205
                                                                ------------      ------------       -----------
Interest expense:
    Deposits (including interest on time deposits over
      $100,000 of $2,970,112,$2,077,806, and
      $2,054,299 in 2000, 1999, and 1998,
      respectively)                                               12,677,348         9,979,773         9,062,585
    Federal funds purchased and securities sold
      under repurchase agreements                                    868,367           362,671           203,280
    Other borrowings                                               1,123,923           638,705           553,505
                                                                ------------      ------------       -----------
                  Total interest expense                          14,669,638        10,981,149         9,819,370
                                                                ------------      ------------       -----------
                  Net interest income                             15,193,121        13,185,519        11,680,835

Provision for loan losses (note 4)                                 1,063,000         1,314,000           875,000
                                                                ------------      ------------       -----------
                  Net interest income after provision
                    for loan losses                               14,130,121        11,871,519        10,805,835
                                                                ------------      ------------       -----------
Noninterest income:
    Service charges and fees on deposits                           2,883,416         2,683,545         2,507,649
    Gain on sale of loans                                          1,063,505           689,081           928,383
    Investment securities (losses) gains, net (note 3)               (41,587)        1,512,759            33,001
    Miscellaneous income                                             293,193           262,589           168,889
                                                                ------------      ------------       -----------
                  Total noninterest income                         4,198,527         5,147,974         3,637,922
                                                                ------------      ------------       -----------
Noninterest expense:
    Salaries                                                       5,668,567         4,604,148         4,286,770
    Employee benefits                                              1,642,905         1,444,933         1,139,794
    Occupancy expenses                                             1,709,744         1,647,071         1,655,242
    Other operating expenses (note 14)                             3,401,136         3,529,782         2,877,567
                                                                ------------      ------------       -----------
                  Total noninterest expense                       12,422,352        11,225,934         9,959,373
                                                                ------------      ------------       -----------
                  Income before income taxes                       5,906,296         5,793,559         4,484,384

Income tax expense (note 9)                                        1,904,000         1,824,051         1,569,000
                                                                ------------      ------------       -----------

                  Net income                                    $  4,002,296         3,969,508         2,915,384
                                                                ============      ============       ===========

                                                                                          (Continued)
</TABLE>

                                       46
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                       Consolidated Statements of Income

                 Years ended December 31, 2000, 1999, and 1998




<TABLE>
<S>                                             <C>               <C>                <C>
Basic net income per share                      $      1.92               1.90              1.39
                                                ================  =================  ================

Diluted net income per share                    $      1.92               1.90              1.39
                                                ================  =================  ================

Weighted average common shares outstanding        2,084,632          2,093,152         2,093,152
                                                ================  =================  ================

Weighted average number of common and
    common equivalent shares outstanding          2,086,085          2,093,152         2,093,152
                                                ================  =================  ================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       47
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

   Consolidated Statements of Stockholders' Equity and Comprehensive Income

                 Years ended December 31, 2000, 1999, and 1998


<TABLE>
<CAPTION>
                                                                                   Common stock           Additional
                                                                            ----------------------------
                                                            Comprehensive      Number                      paid-in       Retained
                                                               income        of shares        Amount       capital       earnings
                                                         ------------------ -------------  ------------- -----------  -------------
<S>                                                      <C>                <C>            <C>           <C>            <C>
Balance, December 31, 1997                                                    1,820,368      5,461,104   14,440,355     3,919,255
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 $118,415 (see below)        1,852,238               --             --           --            --
                                                         -------------
               Total comprehensive income
                                                         $   4,767,622
                                                         =============      -----------    -----------   ----------    ----------

Balance, December 31, 1998                                                    1,820,368      5,461,104   14,440,355     6,834,639

Stock dividend declared - 15%                                                   272,784        818,352    6,819,600    (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)              --             --           --            --
                                                         -------------
               Total comprehensive income

                                                         $   1,189,659
                                                         =============      -----------    -----------   ----------    ----------

Balance, December 31, 1999                                                    2,093,152      6,279,456   21,259,955     3,166,195
Comprehensive income:
   Net income                                            $   4,002,296               --             --           --     4,002,296
   Other comprehensive income - unrealized
     gain on investment securities available for sale,
     net of income tax effect of $552,178 (see below)        1,071,877               --             --           --            --
                                                         -------------
               Total comprehensive income
                                                         $   5,074,173
                                                         =============

Purchase of treasury stock                                                           --             --           --            --
                                                                            -----------    -----------   ----------    ----------

Balance, December 31, 2000                                                    2,093,152    $ 6,279,456   21,259,955     7,168,491
                                                                            ===========    ===========   ==========    ==========

<CAPTION>
                                                                          Accumulated
                                                                             other          Total
                                                            Treasury     comprehensive   stockholders'
                                                              stock      income (loss)      equity
                                                          ------------- ---------------- -------------
<S>                                                       <C>           <C>              <C>
Balance, December 31, 1997                                          --           38,736      23,859,450
Comprehensive income:
   Net income                                                       --               --       2,915,384
   Other comprehensive income -  unrealized
     gain on investment securities available for sale,
     net of income tax effect of $118,415 (see below)               --        1,852,238       1,852,238

               Total comprehensive income


                                                          ------------    -------------  --------------

Balance, December 31, 1998                                          --        1,890,974      28,627,072
                                                                    --               --              --
Stock dividend declared - 15%
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)     (2,779,849)

               Total comprehensive income


                                                          ------------    -------------  --------------

Balance, December 31, 1999                                          --         (888,875)     29,816,731
Comprehensive income:
   Net income                                                       --               --       4,002,296
   Other comprehensive income - unrealized
     gain on investment securities available for sale,
     net of income tax effect of $552,178 (see below)               --        1,071,877       1,071,877

               Total comprehensive income



Purchase of treasury stock                                    (507,360)              --        (507,360)
                                                          ------------    -------------  --------------

Balance, December 31, 2000                                    (507,360)         183,002      34,383,544
                                                          ============    =============  ==============
</TABLE>

                                       48
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
   Consolidated Statements of Stockholders' Equity and Comprehensive Income

                 Years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                                    2000             1999            1998
                                                                              ---------------   --------------  ---------------
<S>                                                                           <C>               <C>             <C>
Disclosure of reclassification amount:
   Unrealized holding gains (losses) arising during period, net of taxes       $   1,044,430       (1,635,741)        1,874,019

   Less: Reclassification adjustment for gains (losses) included in net
     income, net of taxes                                                            (27,447)       1,144,108            21,781
                                                                              --------------   --------------   ---------------

               Net unrealized gains (losses) in securities                     $   1,071,877       (2,779,849)        1,852,238
                                                                              ==============   ==============   ===============
</TABLE>

See accompanying notes to consolidated financial statements

                                       49
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY
                     Consolidated Statements of Cash Flows
                 Years ended December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                               2000                   1999               1998
                                                                         --------------         ---------------    ----------------
<S>                                                                      <C>                    <C>                <C>
Cash flows from operating activities:
 Net income                                                              $    4,002,296               3,969,508           2,915,384
 Adjustments to reconcile net income to net
  cash provided by operating activities
    Depreciation and amortization                                             1,140,369               1,131,931           1,064,844
    Deferred income tax benefit                                                (259,366)               (336,526)           (231,635)
    Provision for loan losses                                                 1,063,000               1,314,000             875,000
    Net investment securities (gains) losses                                     41,587              (1,512,759)            (33,001)
    Charitable contribution of investment securities                                 --                 480,000                  --
    Net  (accretion) amortization of discount /
     premium on  investment securities                                          (50,661)                 62,815              60,334
    Gain on disposal of premises and equipment                                  (16,732)                 (1,020)            (25,322)
    (Gain) loss on the sale of other real estate                                (17,570)                (20,478)            (10,220)
    Gain on sale of loans                                                    (1,063,505)               (689,081)           (928,383)
    Real estate loans originated for sale                                   (51,560,617)            (31,265,283)        (47,851,350)
    Proceeds from sales of real estate loans                                 51,331,790              32,977,189          47,947,727
    Increase in accrued interest receivable                                    (744,406)               (681,045)           (468,457)
    (Increase) decrease in other assets                                        (739,751)              2,180,914          (1,476,400)
    Increase  (decrease) in accrued interest and other
     liabilities                                                              1,601,908                (852,720)            443,445
                                                                         --------------         ---------------      --------------
           Net cash provided by operating activities                          4,728,342               6,757,445           2,281,966
                                                                         --------------         ---------------      --------------

Cash flows from investing activities:
 Proceeds from sales of available for sale securities                         5,914,311              17,008,206           6,333,289
 Proceeds from maturities of available for sale securities                    5,797,962              (1,232,851)          9,569,628
 Proceeds from maturities of held to maturity securities                        523,022                 315,519           1,233,308
 Purchase of held to maturity securities                                     (1,864,517)             (3,424,943)         (1,312,526)
 Purchase of available for sale securities                                  (23,353,969)            (34,334,482)         34,609,408)
 Purchase of FHLB stock                                                        (321,600)                     --                  --
 Redemption of FHLB stock                                                            --                 211,200                  --
 Net increase in loans                                                      (43,841,211)            (32,072,964)        (35,794,908)
 Purchase of Company-owned life insurance                                      (878,292)                     --                  --
 Purchases of premises and equipment                                         (2,045,163)               (493,043)         (2,102,045)
 Proceeds from sale of other real estate                                         34,512                 552,125             118,300
 Proceeds from sale of premises and equipment                                   815,026                  29,482              55,274
                                                                         --------------         ---------------    ----------------
           Net cash used in investing activities                            (59,219,919)            (39,534,739)        (43,524,892)
                                                                        ---------------         ---------------    ----------------

Cash flows from financing activities:
 Net increase in noninterest-bearing deposits                                 6,967,290               2,452,467           4,122,584
 Net (decrease) increase in NOW accounts                                      5,659,642              (1,232,851)          9,569,628
 Net increase in savings accounts                                             2,870,336              13,468,592          18,034,833
 Net (decrease) increase in money management accounts                           571,414                (872,104)          5,133,662
 Net increase (decrease) in time deposits over $100,000                       8,871,356              11,224,523          (1,370,763)
 Net increase (decrease) in other time deposits                               2,866,981               6,574,632           5,823,764
 Net  increase (decrease) in federal funds purchased
  and securities sold under repurchase agreements                            20,764,164               8,617,131          (3,223,854)
</TABLE>

                                       50
<PAGE>

<TABLE>
<S>                                                                      <C>                    <C>                <C>
 Proceeds from other borrowed funds                                                  --                 100,000                  --
 Advances from Federal Home Loan Bank                                        29,000,000              21,000,000           4,000,000
 Payments of Federal Home Loan Bank advances                                (20,000,000)            (15,000,000)         (4,000,000)
 Principal payments on other borrowed funds                                     (50,000)                     --            (100,000)
 Purchase of treasury stock                                                    (507,360)                     --                  --
                                                                         --------------         ---------------    ----------------
           Net cash provided by financing activities                         57,013,823              46,332,390          37,989,854
                                                                         --------------         ---------------    ----------------

           Net increase (decrease) in cash and cash
            equivalents                                                       2,522,246              13,555,096          (3,253,072)

Cash and cash equivalents at beginning of year                               23,472,007               9,916,911          13,169,983
                                                                         --------------         ---------------    ----------------

Cash and cash equivalents at end of year                                 $   25,994,253              23,472,007           9,916,911
                                                                         ==============         ===============    ================

Supplemental disclosures of cash paid during
 the year for:

   Interest                                                              $   14,262,422              10,960,966           9,687,272
                                                                         ==============         ===============    ================

   Income taxes                                                          $    1,918,100               2,134,413           2,074,402
                                                                         ==============         ===============    ================
Supplemental information on noncash
 investing activities:
   Loans transferred to other real estate                                $       80,410                 548,589              55,934
                                                                         ==============         ===============    ================
   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.

                                       51
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


(1)  Summary of Significant Accounting Policies

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

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

     (a)  Basis of Presentation

          The consolidated financial statements include the accounts of Georgia
          Bank Financial Corporation and its wholly owned subsidiary, Georgia
          Bank & Trust Company of Augusta. Significant intercompany transactions
          and accounts are eliminated in consolidation.

          The consolidated financial statements have been prepared in conformity
          with accounting principles generally accepted in the United States of
          America. In preparing the consolidated financial statements,
          management is required to make estimates and assumptions that affect
          the reported amounts of assets and liabilities and the disclosure of
          contingent assets and liabilities as of the date of the balance sheet
          and revenues and expenses for the period. Actual results could differ
          significantly from those estimates.

          Material estimates that are particularly susceptible to significant
          change in the near term relate to the determination of the allowance
          for loan losses 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, federal
          funds sold, and short-term interest-bearing deposits in other banks.
          Generally, federal funds are sold for one-day periods.

                                       52
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


     (c)  Investment Securities


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

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

          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

                                      53
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


          evaluations take into consideration such factors as changes in the
          nature and volume of the loan portfolio, historical loss rate, overall
          portfolio quality, review of specific problem loans, and current
          economic conditions and trends that may affect a borrower's ability to
          pay. The allowance is evaluated on a regular basis utilizing estimated
          loss factors for specific types of loans. Such loss factors are
          periodically reviewed and adjusted as necessary based on actual
          losses.

          Management believes that the allowance for loan losses is adequate.
          While management uses available information to recognize losses on
          loans, future additions to the allowance may be necessary based on
          changes in economic conditions. In addition, various regulatory
          agencies, 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

                                      54
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


          as a loan loss and is charged against the allowance for loan losses. A
          provision for estimated losses on other real estate is charged to
          earnings upon subsequent declines in value. Costs related to the
          development and improvement of property are capitalized; holding costs
          are charged to expense.

     (g)  Intangible Assets

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

          The Bank applies Accounting Principles Board Opinion No. 25,
          Accounting for Stock Issued to Employees, and related interpretations
          in accounting for its stock option plans. Accordingly, compensation
          cost is measured as the excess, if any, of the quoted market price of
          the Bank's stock at the date of grant over the amount an employee must
          pay to acquire the stock.

     (i)  Income Taxes

          The Bank accounts for income taxes under the asset and liability
          method. Deferred tax assets and liabilities are recognized for the
          future tax consequences attributable to differences between the
          financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases. Deferred tax assets and
          liabilities are measured using enacted tax rates expected to apply to
          taxable income in the years in which those temporary differences are
          expected to be recovered or settled. The effect on deferred tax assets
          and liabilities of a change in tax rates is recognized in income in
          the period that includes the enactment date. A deferred tax valuation
          allowance is provided to the extent it is more likely than not that
          deferred tax assets will not be realized.

     (j)  Income Per Share

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

          On July 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

                                      55
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


          per share information in the accompanying financial statements has
          been restated to reflect the effect of the additional shares
          outstanding from the stock dividend.

     (k)  Other Comprehensive Income

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

     (l)  Segment Disclosures

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

     (m)  Recent Accounting 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. As the Company does not hold derivative
          instruments as defined by SFAS No. 133, the provisions of SFAS No. 133
          will not have an impact on the financial statements upon adoption.

          In September 2000, SFAS No. 140, Accounting for Transfers and
          Servicing of Financial Assets and Extinguishments of Liabilities, was
          issued. SFAS No. 140 is effective for all transfers and servicing of
          financial assets and extinguishments of liabilities after March 31,
          2001. SFAS No. 140 is effective for recognition and reclassification
          of collateral and disclosures relating to securitization transactions
          and collateral for fiscal years ending after December 15, 2000. Due to
          the nature of its activities, the Company does not expect the adoption
          of SFAS No. 140 to have a material impact on its consolidated
          financial statements.

(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 $3,197,000 and $3,401,000
     at December 31, 2000 and 1999, respectively.

                                       56
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998



(3)  Investment Securities


     A summary of investment securities as of December 31, 2000 and 1999 is as
     follows:


<TABLE>
<CAPTION>
                                                                                     2000
                                                  ----------------------------------------------------------------------------
                                                                          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                 $   8,423,671             110,822             (61,704)             8,472,789
          Mortgage-backed securities                    190,070                  --                (573)               189,497
                                                  -------------     ---------------     ---------------      -----------------

                                                  $   8,613,741             110,822             (62,277)             8,662,286
                                                  =============     ===============     ===============      =================
        Available for sale:
          Obligations of U.S.
           Government agencies                    $  32,929,379             182,608            (133,042)            32,978,945
          U.S. Treasury notes                         2,071,625              31,020                 (23)             2,102,622
          Mortgage-backed securities                 30,300,695             236,784            (145,552)            30,391,927
          Corporate bonds                             6,139,659              89,218                (228)             6,228,649
          Equity securities                           1,964,235                  --              (6,007)             1,958,228
                                                  -------------     ---------------     ---------------      -----------------
                                                  $  73,405,593             539,630            (284,852)            73,660,371
                                                  =============     ===============     ===============      =================

<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                           1,642,635             125,086                  --              1,767,721
                                                  -------------     ---------------     ---------------      -----------------
                                                  $  61,423,726             130,857          (1,500,134)            60,054,449
                                                  =============     ===============     ===============      =================
</TABLE>

                                       57
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


     The amortized cost and estimated fair value of securities held to maturity
     and available for sale, other than equity securities, as of December 31,
     2000, 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                         $         958,598             961,728           1,049,359             1,049,315
     After one year through five years                2,883,601           2,897,127          28,642,263            28,714,487
     After five years through ten years               2,046,873           2,055,677           9,597,741             9,670,052
     After ten years                                  2,534,599           2,558,257           1,851,300             1,876,362
                                              -----------------     ---------------     ---------------     -----------------
                                                      8,423,671           8,472,789          41,140,663            41,310,216
     Mortgage-backed securities                         190,070             189,497          30,300,695            30,391,927
                                              -----------------     ---------------     ---------------     -----------------

                                              $       8,613,741           8,662,286          71,441,358            71,702,143
                                              =================     ===============     ===============     =================
</TABLE>

     Proceeds from sales of investment securities during 2000, 1999, and 1998
     were $5,914,311, $17,008,206 and $6,333,289, respectively. Gross realized
     gains of $1,385,200, and $38,330 were realized on those sales in 1999 and
     1998, respectively, and gross realized losses of $41,587, $300,931, and
     $5,329 were realized on those sales in 2000, 1999, and 1998, 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 $78,409,000
     and $44,997,000 at December 31, 2000 and 1999, respectively, were pledged
     to secure public and trust deposits, and for other purposes required by
     law.

                                       58
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998



(4)  Loans

     Loans at December 31, 2000 and 1999 are summarized as follows:

<TABLE>
<CAPTION>
                                                                      2000                 1999
                                                              -----------------    -----------------
          <S>                                                 <C>                  <C>
          Commercial, financial, and agricultural             $      49,700,665           44,694,490
          Real estate - construction/development                     39,136,368           28,323,884
          Other loans secured by real estate:
             Single-family                                           62,431,899           49,754,707
             Commercial                                              84,560,503           73,419,627
          Real estate loans originated for sale                       1,960,582              668,250
          Consumer installment                                       45,783,011           42,170,709
                                                              -----------------    -----------------
                                                                    283,573,028          239,031,667
          Less allowance for loan losses                              4,142,841            3,591,613
                                                              -----------------    -----------------

                                                              $     279,430,187          235,440,054
                                                              =================    =================
</TABLE>

     As of December 31, 2000 and 1999, the Bank had nonaccrual loans aggregating
     $1,950,390 and $1,190,000, respectively. Interest that would have been
     recorded on nonaccrual loans had they been in accruing status was
     approximately $38,000 in 2000, $27,000 in 1999, and $43,000 in 1998.

     At December 31, 2000 and 1999, the Bank had impaired loans with an
     outstanding balance of $1,084,000 and $958,000, respectively, with a
     related valuation allowance of $209,000 and $170,000 at December 31, 2000
     and 1999, respectively. The average balance of impaired loans was
     approximately $903,000, $1,836,000, and $1,891,000 for the years ended
     December 31, 2000, 1999, and 1998, respectively. The interest recognized on
     such loans in 2000, 1999, and 1998 was immaterial.

     The following is a summary of the activity in the allowance for loan losses
     for the years ended December 31, 2000, 1999, and 1998:

<TABLE>
<CAPTION>
                                                              2000                 1999                  1998
                                                       ----------------     ----------------     -----------------
          <S>                                          <C>                  <C>                  <C>
          Balance, beginning of year                   $      3,591,613            2,714,638             2,097,036
          Provision for loan losses                           1,063,000            1,314,000               875,000
          Charge-offs                                          (622,328)            (548,729)             (378,783)
          Recoveries                                            110,556              111,704               121,385
                                                       ----------------     ----------------     -----------------

          Balance, end of year                         $      4,142,841            3,591,613             2,714,638
                                                       ================     ================     =================
</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.

                                       59
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


     The following is a summary of the activity in loans outstanding to
     officers, directors, and their associates for the year ended December 31,
     2000:

          Balance at beginning of year                  $       4,299,604
          New loans                                            11,080,524
          Principal repayments                                 (8,924,199)
                                                        -----------------

          Balance at end of year                        $       6,455,929
                                                        =================

     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, 2000, available balances on these
     commitments to these persons aggregated approximately $5,669,000.



(5)  Premises and Equipment

     Premises and equipment at December 31, 2000 and 1999 are summarized as
     follows:

                                                    2000             1999
                                               --------------    ------------

          Land                                 $    2,236,522       1,959,585
          Buildings                                 8,455,646       8,065,892
          Furniture and equipment                   5,413,729       5,146,625
                                               --------------    ------------
                                                   16,095,897      15,172,102
          Less accumulated depreciation             5,385,152       4,690,942
                                               --------------    ------------

                                               $   10,710,745      10,481,160
                                               ==============    ============

     Depreciation expense amounted to $1,017,284, $1,008,846, and $941,758 in
     2000, 1999, and 1998 respectively.


(6)  Intangible Assets


     Intangible assets, net of accumulated amortization, at December 31, 2000
     and 1999 are summarized as follows:

                                                  2000           1999
                                               ----------     ----------

          Core deposit premium                 $  213,504        320,256
          Goodwill                                156,217        172,550
                                               ----------     ----------

                                               $  369,721        492,806
                                               ==========     ==========

     Amortization expense amounted to $123,085 in 2000 and 1999 and $123,086 in
     1998.

                                       60
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


(7)  Commitments

     The Bank is committed under various operating leases for office space and
     equipment. At December 31, 2000, minimum future lease payments under
     noncancelable real property and equipment operating leases are as follows:

          2001                              $    67,945
          2002                                   25,081
                                            -----------

                                            $    93,026
                                            ===========

     Rent expense for all building, equipment and furniture rentals totaled
     $196,940, $182,329, and $260,108 for the years ended December 31, 2000,
     1999, and 1998, 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 $55,292,000 and $46,797,000 at December 31,
     2000 and 1999, 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, 2000 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,
     2000, 1999, and 1998.

                                       61
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998

<TABLE>
<CAPTION>
                                                                2000                 1999                1998
                                                         -----------------     ----------------    ----------------
  <S>                                                    <C>                   <C>                 <C>
  Weighted-average borrowing rate                                     4.42%                3.08                3.50
                                                         =================     ================    ================

  Average daily balance during the year                  $      18,967,000           11,504,000           5,798,000
                                                         =================     ================    ================

  Maximum month-end balance during the year
                                                         $      32,096,000           18,362,000           7,121,000
                                                         =================     ================    ================
</TABLE>

At December 31, 2000, the Bank had securities sold under agreements to
repurchase with one counterparty aggregating approximately $24,402,000.

The Bank has an available line of credit in an amount not to exceed 10% of total
assets from the Federal Home Loan Bank of Atlanta (FHLB). The line of credit is
reviewed annually by the FHLB. The following fixed-rate advances were
outstanding under this line at December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                   2000                 1999
                                                            -----------------     ----------------
          <S>                                               <C>                   <C>
          Due April 2, 2003, 5.52%                          $              --            4,000,000
          Due May 1, 2000, 4.45%                                           --            6,000,000
          Due September 29, 2004, 5.36%                                    --            5,000,000
          Due March 22, 2010, 6.18%                                 7,000,000                   --
          Due March 30, 2010, 6.02%                                 5,000,000                   --
          Due September 29, 2010, 5.82%                             5,000,000                   --
          Due October 18, 2010, 5.46%                               7,000,000                   --
                                                            -----------------     ----------------

                                                            $      24,000,000           15,000,000
                                                            =================     ================

          Weighted-average rate                                          5.86%                5.14%
                                                            =================     ================
</TABLE>

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

     At December 31, 2000 and 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, 2000 and 1999 consist of a treasury,
     tax, and loan account with the Federal Reserve Bank of $950,000 and
     $1,000,000, respectively.

                                       62
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


(9)  Income Taxes

     Income tax expense (benefit) for the years ended December 31, 2000, 1999,
     and 1998 consists of the following:

<TABLE>
<CAPTION>
                                                  2000                 1999                  1998
                                             ----------------     ----------------     -----------------
<S>                                          <C>                  <C>                  <C>
     Current tax expense:
        Federal                              $      2,019,704            1,991,039             1,675,110
        State                                         143,662              169,538               125,525
                                             ----------------     ----------------     -----------------
            Total current                           2,163,366            2,160,577             1,800,635
                                             ----------------     ----------------     -----------------

     Deferred tax benefit:
        Federal                                      (220,584)            (282,996)             (208,791)
        State                                         (38,782)             (53,530)              (22,844)
                                             ----------------
            Total deferred                           (259,366)            (336,526)             (231,635)
                                             ----------------     ----------------     -----------------

            Total income tax expense         $      1,904,000            1,824,051             1,569,000
                                             ================     ================     =================
</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,
                                                  ---------------------------------------------------------
                                                        2000                 1999                1998
                                                  ----------------     ----------------     ---------------
     <S>                                          <C>                  <C>                  <C>
     Computed "expected" tax expense              $      2,008,141            1,969,810           1,524,691
     Increase (decrease) resulting from:
        Tax-exempt interest income                        (224,127)            (136,773)            (89,610)
        Nondeductible interest expense                      17,431               20,292              12,942
        State income tax, net of Federal
            tax effect                                      69,221               76,565              67,769
        Charitable contribution of
        appreciated investment                                  --             (145,687)                 --
        Meals, entertainment, and club dues                 21,589               16,760              16,295
        Other, net                                          11,745               23,084              36,913
                                                  ----------------     ----------------     ---------------

                                                  $      1,904,000            1,824,051           1,569,000
                                                  ================     ================     ===============
</TABLE>

                                       63
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at
     December 31, 2000 and 1999 are presented below:

<TABLE>
<CAPTION>
                                                                         2000                  1999
                                                                  ----------------     -----------------
          <S>                                                     <C>                  <C>
          Deferred tax assets:
           Allowance for loan losses                              $      1,485,337             1,216,831
           Deferred compensation                                           114,258               128,824
           Other                                                            23,864                 1,029
           Unrealized loss on investment securities available
             for sale                                                           --               480,402
                                                                  ----------------     -----------------
                Total deferred tax assets                                1,623,459             1,827,086
                                                                  ----------------     -----------------

          Deferred tax liabilities:
           Depreciation                                                    (76,593)              (59,184)
           Unrealized gain on investment securities
             available for sale                                            (71,776)                   --
                                                                  ----------------     -----------------
                Total deferred tax liabilities                            (148,369)              (59,184)
                                                                  ----------------     -----------------

                Net deferred tax asset                            $      1,475,090             1,767,902
                                                                  ================     =================
</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, 2000, these deposits totaled approximately $5,153,000.

     During the years ended December 31, 2000, 1999, and 1998, the Bank paid
     approximately $15,000, $13,000, and $17,000, respectively, in legal fees in
     the normal course of business to a law firm in which a director is a
     member.

                                       64
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


(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 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, 2000,
     that the Bank meets all capital adequacy requirements to which it is
     subject.

     As of December 31, 2000, 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, 2000 which would
     affect the bank subsidiary's well capitalized classification.

     Actual capital amounts and ratios for the Bank are presented in the table
     below as of December 31, 2000 and 1999, 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, 2000:
             Total Capital (to risk-weighted
               assets)                                  $  37,639    12.37%   $  24,347      8.00%      N/A       N/A
             Tier I Capital - risk-based (to risk-
               weighted assets)                            33,831    11.12       12,173      4.00       N/A       N/A
             Tier I Capital - leverage (to
               average assets)                             33,831     8.67       15,614      4.00       N/A       N/A

            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
</TABLE>

                                       65
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


<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, 2000:
            Total Capital (to risk-weighted
             assets)                                    $  35,825    11.85%  $   24,190      8.00%  $   30,237     10.00%
            Tier I Capital - risk-based (to risk-
             weighted assets)                              32,041    10.60       12,095      4.00       18,142      6.00
            Tier I Capital - leverage (to
             average assets)                               32,041     8.24       15,530      4.00       19,431      5.00

           As of December 31, 1999:
            Total Capital (to risk-weighted
             assets)                                    $  31,176    11.89%  $   20,983      8.00%  $   26,463     10.00%
            Tier I Capital - risk-based (to risk-
             weighted assets)                              27,894    10.63       10,491      4.00       15,877      6.00
            Tier I Capital - leverage (to
             average assets)                               27,894     8.27       13,488      4.00       16,956      5.00
</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, 2000, 1999, and 1998, the Bank
     contributed $174,373, $166,229, and $143,641, respectively, to the Plan,
     which is 4% of the annual salary of all eligible employees for 2000, 1999,
     and 1998.

     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 $60,000, $79,063, and $98,221 during
     2000, 1999, and 1998, respectively, related to this plan.


(13) Stock Option Plan

     During 2000, the Bank adopted the 2000 Long-Term Incentive Plan (the "2000
     Plan") which allows for stock option awards for up to 100,000 shares of the
     Bank's common stock to key employees of the Bank. Under the provisions of
     the 2000 Plan, the option price is determined by a committee of the Board
     of Directors at the time of grant and may not be less than 100% of the fair
     market value of the common stock on the date of grant of such option. When
     granted, these options vest over a five-year period. All options must be
     exercised within a ten-year period. During 2000, options for 12,500 shares
     were granted at an exercise price of $24.375 per share. No options were
     exercisable at December 31, 2000. The weighted average remaining
     contractual life of the options is 9.4 years.

                                       66
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


   SFAS No. 123, Accounting for Stock-Based Compensation, encourages but does
   not require entities to compute the fair value of options at the date of
   grant and to recognize such costs as compensation expense immediately if
   there is no vesting period or ratably over the vesting period of the options.
   The Bank has chosen not to adopt the cost recognition principles of this
   statement.  Had compensation cost been determined based upon the fair value
   of the options at the grant dates consistent with the method recommended by
   SFAS No. 123, on a pro forma basis, the Bank's net income and income per
   share for 2000 is indicated below:

               Net income:
                As reported                                   $    4,002,296
                Pro forma                                          3,993,942

               Basic net income per share:
                As reported                                             1.92
                Pro forma                                               1.92

               Diluted net income per share:
                As reported                                             1.92
                Pro forma                                               1.91

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

                                                                       2000
                                                                 ---------------

               Risk-free interest rate                                6.50%
               Dividend yield                                         0.00%
               Expected life at date of grant                      10 years
               Weighted average grant-date fair value           $    12.15
               Volatility                                            18.00%


(14) Other Operating Expenses

     Components of other operating expenses exceeding 1% of total revenues
     include the following for the years ended December 31, 2000, 1999, and
     1998:

                                            2000          1999          1998
                                         ------------  -----------   ----------

          Business development expense   $  543,825      527,702       587,353
          Communication expense             378,392      334,698       371,578
          Data processing expense           683,771      683,822       550,142
          Legal and professional fees       319,674      182,849       216,531
          Office supplies expense           304,973      299,429       273,784
          Charitable contribution of
           investment securities                 --      480,000            --

                                       67
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


(15) 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                                                             2000                  1999
                                                                     ----------------     -----------------
        <S>                                                          <C>                  <C>
        Cash and due from banks                                       $        90,728               498,154
        Investment securities available for sale                              508,507               639,600
        Investment in subsidiary                                           32,599,099            27,416,523
        Premises and equipment, net                                         1,213,869             1,258,669
        Other assets                                                              792                50,000
                                                                      ---------------     -----------------

                                                                      $    34,412,995            29,862,946
                                                                      ===============     =================

                Liabilities and Stockholders' Equity

        Liabilities - accrued interest and other                      $        29,451                46,215

        Stockholders' equity:
           Common stock, $3.00 par value, 10,000,000 shares
             authorized; 2,093,152 shares issued and 2,074,381
             and 2,093,152 shares outstanding in 2000 and
             1999, respectively                                             6,279,456             6,279,456
           Additional paid-in capital                                      21,259,955            21,259,955
           Retained earnings                                                7,168,491             3,166,195
           Treasury stock, at cost; 18,771 shares                            (507,360)                   --
           Accumulated other comprehensive income (loss)                      183,002              (888,875)
                                                                      ---------------     -----------------
               Total stockholders' equity                                  34,383,544            29,816,731
                                                                      ---------------     -----------------

                                                                      $    34,412,995            29,862,946
                                                                      ===============     =================
</TABLE>

                                       68
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


                         Condensed Statements of Income

<TABLE>
<CAPTION>
                                                                    Years ended December 31,
                                                   -------------------------------------------------------
                                                           2000                1999               1998
                                                   ----------------     ---------------    ---------------
<S>                                                <C>                  <C>                <C>
Income:
 Dividends from bank subsidiary                    $             --             500,000                 --
 Interest income on investment securities                       463               1,186                 --
 Miscellaneous income                                        91,200              91,200             91,200
 Investment securities gains                                     --             883,308                 --
                                                   ----------------     ---------------    ---------------
                                                             91,663           1,475,694             91,200
                                                   ----------------     ---------------    ---------------
Expense:
 Employee benefit expense                                        --              73,044                 --
 Occupancy expense                                           44,800              44,800             44,800
 Other operating expense                                     68,745             560,882             53,255
                                                   ----------------     ---------------    ---------------
                                                            113,545             678,726             98,055
                                                   ----------------     ---------------    ---------------
     (Loss) income before equity in
      undistributed earnings of
      subsidiary                                            (21,882)            796,968             (6,855)

Equity in undistributed earnings of
 Subsidiary                                               4,024,178           3,172,540          2,922,239
                                                   ----------------     ---------------    ---------------

     Net income                                    $      4,002,296           3,969,508          2,915,384
                                                   ================     ===============    ===============
</TABLE>

                                       69
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


                       Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                           -----------------------------------------------------------
                                                                  2000                1999                  1998
                                                           ---------------     ----------------      -----------------
   <S>                                                     <C>                 <C>                   <C>
   Cash flows from operating activities:
    Net income                                             $     4,002,296            3,969,508              2,915,384
    Adjustments to reconcile net income to
      net cash provided by (used in) operating
      activities:
       Depreciation and amortization                                44,800               44,800                 44,800
       Equity in undistributed earnings of
        subsidiary                                              (4,024,178)          (3,172,540)            (2,922,239)
       Net investment securities gains                                  --             (883,308)                    --
       Charitable contribution of investment
        securities                                                      --              480,000                     --
       Increase in other liabilities                                27,016                   --                     --
       Decrease (increase) in other assets                          50,000              (12,000)               (38,000)
                                                           ---------------     ----------------      -----------------
         Net cash provided by (used in)
          operating activities                                      99,934              426,460                    (55)
                                                           ---------------     ----------------      -----------------

   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)                    --
         Net cash provided by
          investing activities                                          --                2,494                 36,300
                                                           ---------------     ----------------      -----------------

   Cash flows from financing activities -
    purchase of treasury stock                                    (507,360)                  --                     --
                                                           ---------------     ----------------      -----------------


         Net (decrease) increase in cash and
          cash equivalents                                        (407,426)             428,954                 36,245

   Cash and cash equivalents at beginning of
    year                                                           498,154               69,200                 32,955
                                                           ---------------     ----------------      -----------------

   Cash and cash equivalents at end of year                $        90,728              498,154                 69,200
                                                           ===============     ================      =================

   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.

                                       70
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


     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
     2001 is approximately $2,012,000, subject to maintenance of the minimum
     capital requirements. As a result of this restriction, at December 31,
     2000, approximately $30,587,000 of the Parent Company's investment in its
     subsidiary was restricted from transfer in the form of dividends.

(16) Fair Value of Financial Instruments

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

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

     (a)  Cash and Cash Equivalents

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

                                       71
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998

     (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.

                                       72
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998


       The carrying amounts and estimated fair values of the Bank's financial
       instruments at December 31, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                 December 31, 2000                             December 31, 1999
                                     ----------------------------------------     -----------------------------------------
                                          Carrying               Estimated             Carrying               Estimated
                                           amount               fair value              amount               fair value
                                     ------------------     -----------------     -----------------     -------------------
<S>                                  <C>                    <C>                   <C>                   <C>
Financial assets:
   Cash and cash equivalents        $    25,994,253            25,994,253            23,472,007              23,472,007
 Investment securities                   82,274,112            82,322,657            67,336,192              67,156,737
   Loans, net                           279,430,187           273,017,287           235,440,054             227,097,171
Financial liabilities:
   Deposits                             310,927,764           311,324,325           283,120,745             283,037,336
 Securities sold under
  repurchase agreements                  32,095,552            32,095,552            11,331,388              11,331,388
 Other borrowed funds                       950,000               950,000             1,000,000               1,000,000
 Advances from FHLB                      24,000,000            24,091,409            15,000,000              14,628,226
</TABLE>

(17) Quarterly Financial Data (Unaudited)

   The supplemental quarterly financial data for the years ended December
   31,2000 and 1999 is summarized as follows:

<TABLE>
<CAPTION>
                                                                      Quarters ended
                                     -------------------------------------------------------------------------------
                                         March 31,          June 30,           September 30,          December 31,
                                           2000               2000                   2000                  2000
                                     ---------------    ---------------    -------------------    ------------------
<S>                                  <C>                <C>                <C>                    <C>
Interest income                      $     6,833,878          7,348,409              7,625,285             8,055,187
Interest expense                           3,258,777          3,571,425              3,770,580             4,068,856
Net interest income                        3,575,101          3,776,984              3,854,705             3,986,331
Provision for loan losses                    258,000            240,000                250,000               315,000
Noninterest income                           806,701            906,789              1,186,762             1,298,275
Noninterest expense                        2,734,867          2,933,073              3,243,995             3,510,417
Net income                                   909,735            975,200              1,020,172             1,097,189
Net income per share -
 basic                                          0.43               0.47                   0.49                  0.53
Net income per share -
 diluted                                        0.43               0.47                   0.49                  0.53

<CAPTION>
                                                                      Quarters ended
                                     -------------------------------------------------------------------------------
                                         March 31,          June 30,           September 30,          December 31,
                                           1999               1999                 1999                   1999
                                     ---------------    ---------------    -------------------    ------------------
<S>                                  <C>                <C>                <C>                    <C>
Interest income                      $     5,599,992          5,945,605              6,212,906             6,408,165
Interest expense                           2,487,306          2,641,948              2,835,100             3,016,795
Net interest income                        3,112,686          3,303,657              3,377,806             3,391,370
Provision for loan losses                    227,000            197,000                591,000               299,000
Noninterest income                           926,563            938,504              2,421,560               861,347
Noninterest expense                        2,573,663          2,649,230              3,280,108             2,722,933
Net income                                   790,535            877,931              1,334,758               966,284
Net income per share -
</TABLE>

                                       73
<PAGE>

               GEORGIA BANK FINANCIAL CORPORATION AND SUBSIDIARY

                  Notes to Consolidated Financial Statements

                       December 31, 2000, 1999, and 1998



 basic                            0.38          0.42          0.64        0.46
Net income per share -
 diluted                          0.38          0.42          0.64        0.46

                                       74
<PAGE>

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

 None


                                    PART III

Item 10:  Directors and Executive Officers of the Registrant

          Information in response to this item is incorporated by reference to
the Company's definitive Proxy Statement for use in connection with the 2001
annual meeting of shareholders (which definitive Proxy Statement shall be filed
with the commission not later than April 30, 2001).

Item 11:  Executive Compensation

          Information in response to this item is incorporated by reference to
the Company's definitive Proxy Statement for use in connection with the 2001
annual meeting of shareholders (which definitive Proxy Statement shall be filed
with the commission not later than April 30, 2001).

Item 12:  Security Ownership of Certain Beneficial Owners and Management

          Information in response to this item is incorporated by reference to
the Company's definitive Proxy Statement for use in connection with the 2001
annual meeting of shareholders (which definitive Proxy Statement shall be filed
with the commission not later than April 30, 2001).

Item 13:  Certain Relationships and Related Transactions

          Information in response to this item is incorporated by reference to
the Company's definitive Proxy Statement for use in connection with the 2001
annual meeting of shareholders (which definitive Proxy Statement shall be filed
with the commission not later than April 30, 2001).

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a)(1)  List of All Financial Statements

          1)  See Item 8 for a list of the financial statements as filed as a
              part of this report.
          2)  No financial statement schedules are applicable as the required
              information is included in the financial statements in Item 8.

                                       75
<PAGE>

     (a)(2)  Exhibit No. and Document

               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)

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

              10.1  Blanton Employment Contract

              10.2  Thigpen Employment Contract

              11.1  Statement Re:  Computation of Net Income Per Share

              21.1  Subsidiaries of the Company


     (b)      Reports on Form 8-K

                    None

                                      76
<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, 2001

          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 Officer
-------------------------------------
Daniel Blanton                             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

                                       77
<PAGE>

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


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


   /s/ Warren A. Daniel                     Director
-----------------------------------
Warren A. Daniel


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


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

                                       78
<PAGE>

                                 EXHIBIT INDEX


                                                                 Page
(a)    Exhibits

       10.1    Blanton Employment Contract                         78

       10.2    Thigpen Employment Contract                         85

       11.1    Statement Re:  Computation of Net Income Per Share  92

       21.1    Subsidiaries of the Company                         93

       27.1    Financial Data Schedule                             94

(b)    Reports on Form 8-K

               None