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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 000-24203

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

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

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

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

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

        As of March 1, 2004, the Company had issued and outstanding 6,813,354 shares of the 20,000,000 authorized shares of its no par value common stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant's 2003 fiscal year end are incorporated by reference into Part III of this report.

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

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

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

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PART I

ITEM 1.    BUSINESS

The Company

        GB&T Bancshares, Inc. (the "Company") was formed in 1998 as a bank holding company existing under the laws of the State of Georgia. On April 24, 1998, we acquired all of the outstanding common stock of Gainesville Bank & Trust ("GB&T") in exchange for 1,676,160 shares of $5 par value common stock. The acquisition was accounted for as a pooling of interests. At December 31, 2003, we had five wholly-owned bank subsidiaries, Gainesville Bank & Trust, United Bank & Trust, Community Trust Bank, HomeTown Bank of Villa Rica and First National Bank of the South, (collectively the "Banks") and a consumer finance company, Community Loan Company.

        We operate as a multi-bank holding company. At December 31, 2003, we also held common stock in one de novo bank in Georgia, representing a less than 5% ownership. Our plans include aggressively exploring opportunities through mergers and acquisitions. As of March 1, 2004, there are 39 employees of the holding company. The increase since year-end represents the move of operations staff from GB&T to the holding company.

Gainesville Bank & Trust

        GB&T, located in Gainesville, Hall County, Georgia, was incorporated under the laws of the State of Georgia on July 20, 1987 and commenced operations as a Georgia state-chartered bank on February 1, 1988.

        GB&T conducts business from its main office facility at 500 Jesse Jewell Parkway, Gainesville, Georgia, which is owned jointly by GB&T and a related party. GB&T occupies over 90% of this facility. The remainder of this facility is currently under lease to one tenant unrelated to GB&T. GB&T has four full-service and one limited service branch in Gainesville, Georgia, one branch in Oakwood, Georgia and one branch in Buford, Georgia.

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

United Bank & Trust

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

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

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

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Community Trust Bank

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

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

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

HomeTown Bank of Villa Rica

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

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

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

First National Bank of the South

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

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

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

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Community Loan Company

        Community Loan Company ("CLC") was formed in 1995 as a consumer finance company. CLC was acquired by the Company in 2001 as part of the acquisition of Community Trust Financial Services, Inc. and its subsidiary, CTB. CLC operates eight offices located in the North Georgia cities of Woodstock, Rockmart, Rossville, Gainesville, Dalton, Rome, Dahlonega and Cartersville.

GB&T Bancshares, Inc. Statutory Trust I

        In 2002, the Company formed a wholly-owned grantor trust to issue cumulative trust preferred securities in a private placement offering. The grantor trust has invested the proceeds of the trust preferred securities in subordinated debentures of the Company. The trust preferred securities can be redeemed, in whole or in part, from time to time, prior to maturity at the option of the Company on or after October 30, 2007. The sole assets of the grantor trust are the subordinated debentures of the Company (the "Debentures"). The Debentures have the same variable interest rate as the trust preferred securities. The Company has the right to defer interest payments on the Debentures for up to 20 consecutive quarterly periods (five years), so long as the Company is not in default under the Debentures. See the notes to the consolidated financial statements for further information on the trust.

Market Area and Competition

        Our Banks compete with local as well as with regional financial institutions in all of our markets. In addition, the banks compete with credit unions and various other finance companies. The banking business continues to be competitive in the Hall, Gwinnett, Cobb, Polk, Paulding, Bartow Carroll, Baldwin and Putnam County markets. The banking industry continues to experience increased competition for deposits from brokerage firms and money market funds.

        As a whole, the banking industry in Georgia is highly competitive. We compete with institutions, some of which have much greater financial resources than our Banks do, and which may be able to offer more services to their customers. In recent years, intense market demands, economic pressures, and increased customer awareness of products, services, and the availability of electronic services have forced banks to diversify their services and become more cost-effective. Our Banks face strong competition in attracting and retaining deposits and loans.

        Direct competition for deposits comes from other commercial banks, savings banks, credit unions and issuers of securities, such as shares in money market funds. Interest rates, convenience, products and services, and marketing are all significant factors in the competition for deposits.

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

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

Lending Activities

        We originate loans primarily secured by single family real estate, residential construction, owner-occupied commercial buildings, and other loans to small businesses and individuals. In addition, loans are made to small and medium-sized commercial businesses, as well as to consumers for a variety of purposes. We also lend to residential contractors and developers in the Hall, Gwinnett, Cobb, Polk, Paulding, Bartow, Carroll, Baldwin and Putnam County areas.

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        In addition, GB&T originates loans to small businesses secured by real estate and other collateral, which loans are in part (up to 75% of each loan) guaranteed by the U.S. Small Business Administration.

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

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

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

        Our Boards of Directors establish and periodically review the Banks' lending policies and procedures. State banking regulations provide that no secured loan relationship may exceed 25% of the Banks' statutory capital or net assets, as defined, and no unsecured loan relationship may exceed 15% of statutory capital, except in limited circumstances. National banking regulations provide that no loan relationship may exceed 15% of the Banks' Tier 1 capital. Our Banks occasionally sell participation interests in loans to other lenders, primarily when a loan exceeds the Banks' legal lending limits.

Deposits

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

Securities

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

Asset/Liability Management

        It is our objective to manage our assets and liabilities to provide a satisfactory and consistent level of profitability within the framework of established cash, loan, securities, borrowing and capital policies. Certain officers are charged with the responsibility for developing and monitoring policies and procedures that are designed to insure acceptable composition of the asset/liability mix. It is the overall philosophy of management to support asset growth primarily through the growth of core deposits,

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which include deposits of all categories from individuals and businesses. Management seeks to invest the largest portion of our assets in loans.

        Our asset-liability mix is monitored on a periodic basis with a report reflecting interest-sensitive assets and interest-sensitive liabilities being prepared and presented to each Bank Board of Directors on a monthly basis. The objective of this policy is to manage interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on our earnings.

        We have grown from our initial capital base of $7 million to a total asset base of approximately $944 million as of December 31, 2003. The continued growth in total assets and loans was generated almost exclusively from deposits obtained from our market areas and through acquisitions. The loan portfolio of $710 million as of December 31, 2003 is comprised of commercial loans ($51 million), loans secured by real estate ($626 million), and consumer and other loans ($33 million).

Employees

        As of December 31, 2003, we had 380 full-time equivalent employees, of which 132 were employed by GB&T, 38 were employed by UB&T, 69 were employed by CTB, 23 were employed by CLC, 49 were employed by HTB, 53 were employed by FNB and 16 were employed by the Company. We are not a party to any collective bargaining agreement and, in the opinion of management, we enjoy satisfactory relations with our employees.

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SUPERVISION AND REGULATION

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

        General.    The Company is a bank holding company registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the Georgia Department of Banking and Finance (the "Georgia Department") under the Bank Holding Company Act of 1956, as amended (the "BHC Act") and the Financial Institutions Code of Georgia (the "FICG"), respectively.

        GBT, UBT, CTB, and HTB are state banks incorporated under the laws of Georgia and are subject to examination by the Georgia Department and the Federal Deposit Insurance Corporation ("FDIC"). FNB is a nationally chartered bank incorporated under the laws of the United States and is subject to examination by the FDIC and the Office of the Comptroller of the Currency ("OCC"). The Banks' deposits are insured by the FDIC to the maximum extent provided by law. The FDIC, OCC and the Georgia Department regularly examine our operations and are given authority to approve or disapprove mergers, consolidations, the establishment of branches, and similar corporate actions. The agencies also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.

        Acquisitions.    The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or (iii) it may merge or consolidate with any other bank holding company.

        The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the communities to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, and consideration of convenience and needs issues generally focuses on the parties' performance under the Community Reinvestment Act of 1977.

        Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, the restrictions on interstate acquisitions of banks by bank holding companies were repealed. As a result, the Company, and any other bank holding company located in Georgia, is able to acquire a bank located in any other state, and a bank holding company located outside of Georgia can acquire any Georgia-based bank, in either case subject to certain deposit percentage and other restrictions. The legislation provides that unless an individual state has elected to prohibit out-of-state banks from operating interstate branches

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

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

        Activities.    The BHC Act has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act (the "GLB Act"), discussed below, have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity can be reasonably expected to produce benefits to the public, such as a greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices.

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

        To become eligible for these expanded activities, a bank holding company must qualify as a financial holding company. To qualify as a financial holding company, each insured depository institution controlled by the bank holding company must be well-capitalized, well-managed, and have at least a satisfactory rating under the Community Reinvestment Act. In addition, the bank holding company must file declaration with the Federal Reserve of its intention to become a financial holding company. The Company has not filed an application to become a financial holding company.

        The GLB Act designates the Federal Reserve as the overall umbrella supervisor of the new financial services holding companies. The GLB Act adopts a system of functional regulation where the primary regulator is determined by the nature of activity rather than the type of institution. Under this principle, securities activities are regulated by the Securities and Exchange Commission (the "SEC")

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and other securities regulators, insurance activities by the state insurance authorities, and banking activities by the appropriate banking regulator. As a result, to the extent that we engage in non-banking activities permitted under the GLB Act, we will be subject to the regulatory authority of the SEC or state insurance authority, as applicable.

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

        If, in the opinion of the federal banking agencies, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require, after notice and hearing, that such institution cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally pay dividends only out of current operating earnings.

        Capital Adequacy.    We are required to comply with the capital adequacy standards established by the federal banking agencies. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk-based measure and a leverage measure. All applicable capital standards must be satisfied for a bank holding company to be considered in compliance.

        The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

        The minimum guideline for the ratio of Total Capital to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8.0%. Total Capital consists of Tier 1 Capital, which is comprised of common stock, undivided profits, minority interests in the equity accounts of consolidated subsidiaries and noncumulative perpetual preferred stock, less goodwill and certain other intangible assets, and Tier 2 Capital, which consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves.

        In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3.0% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3.0%, plus an additional cushion of 1.0% to 2.0%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activities.

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

        Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on the taking of brokered deposits, and certain other restrictions on its business. As described below, substantial additional restrictions can be imposed upon FDIC-insured depository institutions that fail to meet applicable capital requirements.

        The federal bank agencies continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. In this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA, adopted final regulations requiring regulators to consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in the evaluation of a bank's capital adequacy. The bank regulatory agencies have concurrently proposed a methodology for evaluating interest rate risk that would require banks with excessive interest rate risk exposure to hold additional amounts of capital against such exposures.

        Support of Subsidiary Institutions.    Under Federal Reserve policy, we are expected to act as a source of financial strength for, and to commit resources to support, the Banks. This support may be required at times when, absent such Federal Reserve policy, we may not be inclined to provide such support. In addition, any capital loans by a bank holding company to any of its banking subsidiaries are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company's bankruptcy, any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of a banking subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment.

        Prompt Corrective Action.    FDICIA established a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized), and are required to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories. The severity of the action will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.

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

        FDIC Insurance Assessments.    The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital

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categories: (i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation that the institution's primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. The FDIC then determines an institution's insurance assessment rate based on the institution's capital category and supervisory category. Under the risk-based assessment system, there are nine combinations of capital groups and supervisory subgroups to which different assessment rates are applied. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution's capital group and supervisory subgroup. The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

        Safety and Soundness Standards.    The FDIA, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation and fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. The federal regulatory agencies also proposed guidelines for asset quality and earnings standards.

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

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

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

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

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

Available Information

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

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

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ITEM 2.    PROPERTIES

        GB&T's main office is owned jointly by GB&T and a related party. The three-story building, consisting of 28,496 square feet, is located in downtown Gainesville at the intersection of Jesse Jewell Parkway and Race Street. GB&T occupies over 90% of the building, with remaining space presently leased to one unrelated tenant. GB&T's main office also has a drive-in automated teller machine.

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

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

        GB&T operates an automated teller machine in a local business in Gainesville, Georgia.

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

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

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

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

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

        CTB leases space in shopping center facilities in Marietta and Kennesaw. CTB also leases space in Acworth for a loan production office.

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

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

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

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

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

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

ITEM 3.    LEGAL PROCEEDINGS

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

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

        There were no matters submitted to a vote of security holders during the fourth quarter of 2003.

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PART II

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

(a)

Effective January 5, 1999, we listed our stock on The NASDAQ Stock Market under the symbol "GBTB." The following table sets forth the high and low closing sales prices for our capital stock for the periods set forth below as reported on The NASDAQ Stock Market. The sales prices indicated reflect inter-dealer prices, without mark-up, mark-down or commission, and may not represent actual transactions.

(b)

As of March 1, 2004, there were approximately 2,343 holders of record of our capital stock.



(c)

We paid a cash dividend of $.36 and $.34 per share on our capital stock for the years ended December 31, 2003 and 2002, respectively. We anticipate continuing to pay a quarterly dividend in the future. Any declaration and payment of dividends will be based on our earnings, economic conditions, and the Board of Directors' evaluation of other relevant factors. Our ability to pay dividends will also be dependent on cash dividends paid to us by our Banks. The ability of our Banks to pay dividends to us is restricted by applicable regulatory requirements. See "Supervision and Regulation."

Equity Compensation Plan Information

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

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ITEM 6.    SELECTED FINANCIAL DATA

        The following table presents selected historical consolidated financial information for us and our subsidiaries and is derived from the consolidated financial statements and related notes included in this annual report. This information is only a summary and should be read in conjunction with our historical financial statements and related notes. The year ended December 31, 2003 includes the acquisition of FNB which was accounted for as a purchase. See Management's Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2003, 2002 and 2001 for further discussion on the acquisition of FNB.

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

Executive Summary

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

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

Key Financial Performance Indicators:

Net income
Earnings per share
Loan and deposit growth
Credit quality

2003 Financial Performance vs. 2002

Net income $7.7 million, up 18.7%.
Diluted EPS $1.29 compared to $1.33.

Net interest margin of 4.23% compared to 4.39%
Loan growth of $167.1 or 30.8%. (14.1% excluding acquisitions)
Deposit growth of $148.4 or 25.6%. (7.6% excluding acquisitions)


Credit quality:

Nonperfoming assets ratio of .60% down from 1.11% in 2002.
Past dues over 90 days as a percentage of total loans of .07% down from .33% at year end 2002.
Net chargeoff ratio of .18% compared to .15% for 2002.

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

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

General

        The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements included in this Annual Report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. Historical results of operations and any trends which may appear, are not necessarily indicative of the results to be expected in future years.

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Business Acquisitions

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

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

Summary

        During 2003 and 2002, we continued to experience moderate internal growth in interest-earning and total assets which was funded by increases in deposits, borrowings, and the retention of net profits. During 2003, we experienced additional growth through the acquisition of FNB as explained below. We recorded net income of $7,725,000 and $6,509,000 for the years ended December 31, 2003 and 2002, respectively. Total equity at December 31, 2003 increased to $96,843,000 from $60,353,000, or $36,490,000 from December 31, 2002. The aforementioned acquisition of FNB accounted for $31,869,000 of this increase.

Balance Sheets

        Our total assets increased $202.0 million or 27.2% for the year ended December 31, 2003 compared to $194.4 million or 35.5% for the same period in 2002. The acquisition of FNB accounted for approximately $150.7 million of this increase. The increase in total assets for the year ended December 31, 2003, exclusive of FNB, consists primarily of an increase in interest-earning assets of $58.4 million or 8.5% compared to an increase of $61.9 million or 12.2% during the same period in 2002, exclusive of HTB. The overall growth in 2003 and 2002 is consistent with management's plans. The competition for deposits plays an important role in the overall growth of the Company.

        Our primary focus is to maximize earnings through lending activities. Any excess funds are invested according to our investment policy. Total loans increased 30.8% or $167.1 million for the year ended December 31, 2003. Exclusive of FNB, which represented $89.3 million of this increase, total loans increased 14.1%. This increase is compared to an increase of 29.7% or $124.2 million during 2002. Exclusive of HTB, which represented $91.2 million of this increase, total loans increased 7.9%. As of December 31, 2003, our loan-to-deposit ratio was 97.4% compared to 93.6% in 2002. At December 31, 2003 and 2002, we had total outstanding borrowings of $108.8 million and $91.0 million, respectively. These funds have been used to fund loan growth. The utilization of borrowings to fund loan growth enables us to maintain a higher loan to deposit ratio and maintain an adequate liquidity ratio. Our loan-to-funds ratio was 84.8% and 80.9% at December 31, 2003 and 2002, respectively.

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

        The specific economic and credit risks associated with our loan portfolio, especially the real estate portfolio, include, but are not limited to, a general downturn in the economy which could affect unemployment rates in our market areas, general real estate market deterioration, interest rate

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fluctuations, deteriorated collateral, title defects, inaccurate appraisals, and financial deterioration of borrowers. Construction and development lending can also present other specific risks to the lender such as whether developers can find builders to buy lots for home construction, whether the builders can obtain financing for the construction, whether the builders can sell the home to a buyer, and whether the buyer can obtain permanent financing. Currently, real estate values and employment trends in our market areas have remained stable. The general economy and loan demand declined slightly during 2001 and continued to decline throughout 2002. In 2003, the economy began to show signs of improvement. Our growth has not been significantly impacted by the previously mentioned economic conditions.

        We attempt to reduce these economic and credit risks not only by adherence to our lending policy, which includes loan to value guidelines, but also by investigating the creditworthiness of the borrower and monitoring the borrower's financial position. Also, we periodically review our lending policies and procedures.

Liquidity and Capital Resources

        Liquidity management involves the matching of the cash flow requirements of customers who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and our ability to meet those needs. We seek to meet liquidity requirements primarily through management of short-term investments, monthly amortizing loans, maturing single payment loans, and maturities of securities and prepayments. Also, we maintain relationships with correspondent banks which could provide funds on short notice. As of December 31, 2003, we had borrowed under federal funds purchase lines and securities sold under repurchase agreements $17.3 million compared to $11.5 million as of December 31, 2002. These borrowings typically mature within one to four business days.

        The following table sets forth certain information about contractual cash obligations as of December 31, 2003.

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

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

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

        Management is not aware of any known trends, events or uncertainties, other than those discussed above, that will have or are reasonably likely to have a material effect on the Company's liquidity, capital resources, or operations. Management is also not aware of any current recommendations by the regulatory authorities which, if they were implemented, would have such an effect.

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

Off-Balance Sheet Financing

        The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and credit card commitments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. At December 31, 2003, we had outstanding commitments to extend credit through open lines of credit of approximately $143.6 million and outstanding standby letters of credit of approximately $5.1 million.

Effects of Inflation

        The impact of inflation on banks differs from its impact on non-financial institutions. Banks, as financial intermediaries, have assets which are primarily monetary in nature and which tend to fluctuate in concert with inflation. A bank can reduce the impact of inflation if it can manage its rate sensitivity gap. This gap represents the difference between rate sensitive assets and rate sensitive liabilities. Through our asset-liability committees, we attempt to structure the assets and liabilities and manage the rate sensitivity gap, thereby seeking to minimize the potential effects of inflation. For information on the management of our interest rate sensitive assets and liabilities, see the "Asset/Liability Management" section in Item 1 of this report.

Results of Operations—For the Years Ended December 31, 2003, 2002 and 2001

        Our profitability is determined by our ability to effectively manage interest income and expense, to minimize loan and security losses, to generate noninterest income, and to control operating expenses. Because interest rates are determined by market forces and economic conditions beyond our control, our ability to generate net interest income depends upon our ability to obtain an adequate net interest spread between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities. The net yield on average interest-earning assets decreased to 4.23% in 2003 from 4.39% in 2002. This decrease is attributable primarily to decreases in rates. In 2003, the average yield on interest-earning assets decreased to 6.28% from 7.11% in 2002 and the average yield on interest-bearing liabilities decreased to 2.33% in 2003 from 3.13% in 2002. The overall change in the interest rate spread from 2002 to 2003 was a decrease of 3 basis points. The decrease in the net interest spread is a result of increases in loan volume, which are not being offset by decreases in rates. Total average interest-earning assets increased by $197.6 million, to $745,238,000 at December 31, 2003 from the

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

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

        Net Interest Income.    Net interest income increased by $7,445,000 to $31.5 million in 2003, compared to an increase of $2,603,000 in 2002. The increase for both years continues to reflect the continued increase in interest-earning assets during 2003 and 2002. As shown in Table 1 and Table 2 included in this annual report, the change in net interest income is the result of the increases in net volume versus changes in net interest rates.

        Provision for Loan Loss.    Provisions for loan losses increased by $561,000 during 2003 compared to a decrease of $461,000 during 2002. The provision for loan losses is the charge to operations which management believes is necessary to fund the allowance for loan losses. This provision is based on management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. Our evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations. See also allowance discussion in the Critical Accounting Policies section of this 10K.

        The following table presents details of the provision for loan loss, nonaccrual loans and related categories for each subsidiary as well as on a consolidated basis. The increase in the provision for loan losses in 2003 was primarily due to a provision taken at HTB for $679,000 that directly relates to one loan relationship commented on by its regulators. The loan is currently performing and is secured by real estate. The Company believes that there is sufficient collateral to cover this loan. The consumer related charge-offs consist of many smaller balance loans while the real estate charge-offs consist of only a few larger balance loans. Real estate loans are normally secured by one to four family residences or other real estate with values exceeding the original loan balance, therefore minimizing the risk of loss. Consumer loans, however, may be secured by consumer goods and automobiles, or may be unsecured, and therefore subject to greater loss in the event of charge-off. During a recession, losses are more likely and the risk of loss is greater in the consumer portfolio. The allowance for loan losses as a percentage of nonaccrual loans at December 31, 2003 was 261.8%, which was up from 136.9% in 2002. This increase is due to nonaccrual loans decreasing to $3,333,000 at December 31, 2003 from $5,506,000 at December 31, 2002. This decrease in nonaccrual loans was primarily attributable to HTB whose nonaccrual loan balance at December 31, 2002 was $3,846,000 and at December 31, 2003 was $497,000. Offsetting this decrease, was an increase at one subsidiary in nonaccrual loans of $1,363,000 representing one loan relationship. During the same period, other problem loans, including past due loans greater than 90 days past due, decreased by $1,305,000 compared to a increase of $1,618,000 in 2002. The decrease in past due loans is attributable to the loan mentioned above of $1,363,000 moving

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

        Other Income.    Other income increased during 2003 by $1,866,000 compared to an increase of $1,733,000 in 2002. For the year ended December 31, 2003, the most significant portion of the net increase consisted of an increase of $1,293,000 in service charges on deposit accounts and an increase of $933,000 in mortgage origination fees. This increase was partially offset by a decrease in security transactions, net of $424,000. For the same period in 2002, service charges increased by $189,000 and mortgage origination fees increased by $445,000. The increase in service charges was related to growth in transaction accounts and new service charge income related to a new product. The increase in mortgage origination fees is directly related to the decrease in the prime rate which also impacts the mortgage rates. In a decreasing rate environment, refinancing of mortgage loans has provided an excellent opportunity for us to generate other fee income.

        Other Expense.    Other expense increased $7,945,000 and $590,000 for the years ended December 31, 2003 and 2002, respectively. Increases in salaries and employee benefits represent the most significant portions of these increases, which increased by $4,551,000 and $592,000 for the years ended 2003 and 2002, respectively. The number of full-time equivalent employees increased by 68 from December of 2002 to December of 2003, 53 of which related to the acquisition of FNB. In addition to the additional salary expense related to new employees, we incurred increases due to increases in profit sharing contributions, health insurance costs, incentive compensation and normal salary increases for the years ended December 31, 2003 and 2002. Other operating expenses increased by $2,332,000 and $62,000, respectively, for the years ended December 31, 2003 and 2002. The increase in other operating expenses in 2003 included increases in marketing and public relations of $369,000, ATM and data processing expenses of $314,000, supplies, postage and telephone expenses of $390,000 and a loss recorded on the sale of a building of $315,000.

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

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        Net Income.    Net income increased by $1,216,000 for the year ended December 31, 2003, or by 18.68%. The increase in net income for the same period in 2002 was $2,933,000, or 82.02%. The increase in net income in 2003 was due primarily to significant growth in interest-earning assets and increased non-interest income. The increase in net income in 2002 was the net of a combination of significant growth in interest-earning assets, moderate increases in other expenses, a decrease in provision for loan losses and increased non-interest income.

SELECTED FINANCIAL INFORMATION AND STATISTICAL DATA

        The tables and schedules on the following pages set forth certain financial information and statistical data with respect to: the distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials; interest rate sensitivity gap ratios; the securities portfolio; the loan portfolio, including types of loans, maturities and sensitivities to changes in interest rates and information on nonperforming loans; summary of the loan loss experience and allowance for loan losses; types of deposits; and the return on equity and assets.

        The following table sets forth the amount of our interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest yield/rate for total interest-earning assets and total interest-bearing liabilities, net interest spread and net yield on average interest-earning assets.

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

(1)

Average balances were determined using the daily average balances.

(2)

Average balances of loans include nonaccrual loans and are net of deferred interest and fees.

(3)

Average unrealized gains (losses) on securities available for sale, net of tax, have been included in stockholders' equity at $1,260,000, $1,365,000, and $844,000 for 2003, 2002, and 2001, respectively.

(4)

Interest and fees on loans include $3,412,000, $3,038,000 and $2,916,000 of loan fee income for the years ended December 31, 2003, 2002 and 2001, respectively.

(5)

Yields on nontaxable securities are not presented on a tax-equivalent basis.

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Table 2—Rate and Volume Analysis

        The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected our interest income and expense during the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) change in volume (change in volume multiplied by old rate); (2) change in rate (change in rate multiplied by old volume); and (3) a combination of change in rate and change in volume. The changes in interest income and interest expense attributable to both volume and rate have been allocated proportionately to the change due to volume and the change due to rate.

Asset/Liability Management

        Our asset/liability mix is monitored on a regular basis and a report evaluating the interest rate sensitive assets and interest rate sensitive liabilities is prepared and presented to the Board of Directors on a monthly basis. The objective of this policy is to monitor interest rate sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on earnings. An asset or liability is considered to be interest rate-sensitive if it will reprice or mature within the time period analyzed, usually one year or less. The interest rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing liabilities scheduled to mature or reprice within such time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend

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

        A simple interest rate "gap" analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Accordingly, we also evaluate how the repayment of particular assets and liabilities is impacted by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as "interest rate caps and floors") which limit the amount of changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the interest rate gap. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates.

        Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates and it is management's intention to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect our liquidity position.

        At December 31, 2003 our cumulative one year interest rate sensitivity gap ratio was .95%. Our targeted ratio is 80% to 120% in this time horizon. This indicates that our interest-bearing liabilities will reprice during this period at a rate faster than our interest-earning assets.

        The following table sets forth the distribution of the repricing of our interest-earning assets and interest-bearing liabilities as of December 31, 2003, the interest rate sensitivity gap (i.e., interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative interest rate sensitivity gap ratio.

        The table also sets forth the time periods in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, the table does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and

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the needs of our customers. In addition, various assets and liabilities indicated as repricing within the same period may in fact reprice at different times within such period and at different rates.

*

Does not include restricted equity securities

        We actively manage the mix of asset and liability maturities to control the effects of changes in the general level of interest rates on net interest income. Except for its effect on the general level of interest rates, inflation does not have a material impact on us due to the rate variability and short-term maturities of our earning assets. In particular, approximately 65.4% of the loan portfolio is comprised of loans which have variable rate terms or mature within one year. Most mortgage loans are made on a variable rate basis with rates being adjusted every one to five years.

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SECURITIES PORTFOLIO

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

(1)

Equity securities consist of Federal Home Loan Bank of Atlanta stock, The Bankers Bank stock, common stock of one de novo bank and corporate notes. For presentation purposes, the equity securities are not included in the maturity table below because they have no contractual maturity date.

Maturities

        The amounts of debt securities as of December 31, 2003 are shown in the following table according to contractual maturities classified as: (1) one year or less; (2) after one year through five years; (3) after five years through ten years; and (4) after ten years.

(1)

Yields were computed using coupon interest rates, including discount accretion and premium amortization. The weighted average yield for each maturity range was computed using the carrying value of each security in that range.

(2)

Yields on municipal securities are not stated on a tax-equivalent basis.

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LOAN PORTFOLIO

Types of Loans

        Loans by type of collateral are presented below:

Loans are net of deferred loan fees.

Maturities and Sensitivities to Changes in Interest Rates

        Total loans as of December 31, 2003 are shown in the following table according to contractual maturity classifications (1) one year or less, (2) after one year through five years, and (3) after five years.

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

Risk Elements

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

        The reduction in interest income associated with nonaccrual loans as of December 31, 2003 is as follows:

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

        Our policy is to discontinue the accrual of interest income when, in the opinion of management, collection of such interest becomes doubtful. This status is determined when; (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected; and (2) the principal or interest is more than 90 days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed when, in management's judgment, the collection of interest and principal becomes probable. Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent material credits about which management is aware and which causes management to have serious doubts as to the ability of such borrowers to comply with the loan

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

Commitments and Lines of Credit

        We will, in the normal course of business, commit to extend credit in the form of letters of credit, lines of credit, and credit cards. The amount of outstanding loan commitments at December 31, 2003 and 2002 was $148.7 million and $108.7 million, respectively. These commitments are recorded in the financial statements when funds are disbursed or the financial instruments become payable. We use the same credit and collateral policies for these off balance sheet commitments as we do for financial instruments that are recorded in the financial statements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitment amounts expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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SUMMARY OF LOAN LOSS EXPERIENCE

        The following table summarizes average loan balances for each year determined using the daily average balances during the year; changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off; additions to the allowance which have been charged to expense; and the ratio of net charge-offs during the year to average loans.