GB&T BANCSHARES INC - 10-K Annual Report

Gramm-Leach-Bliley Act

The Company

The Banks

Prepared by Kilpatrick Stockton LLP Edgar Services

U.S. SECURITIES AND
EXCHANGE COMMISSION

WASHINGTON, D.C.
20549

FORM 10-K

(Mark One)

þ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934

For the Fiscal Year Ended December 31, 2001

¨ Transition report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from
__________ to __________

Commission file number 000-24203

GB&T
Bancshares, Inc.

(Exact name of
registrant as specified in its charter)

Georgia	58-2400756
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 Jesse Jewell Parkway, S.E.
Gainesville, Georgia	30501
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number,
including area code (770)
532-1212

Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

(Title of class)

Common Stock, par
value $5.00

Name of each exchange on which
registered: NASDAQ National Market

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 þ
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. ¨

As of March 15, 2002, the aggregate market value of our voting common stock
held by nonaffiliates was approximately $60,511,694.

As of March 15, 2002, we had issued and outstanding 4,760,314 shares of the
20,000,000 authorized shares of its $5.00 per value common stock.

DOCUMENTS INCORPORATED
BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31,
2001, are incorporated by reference into Parts I and II of this report.

Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days of the
Registrant’s 2001 fiscal year end are incorporated by reference into Part
III of this report.

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 (the “Bank”) in exchange for 1,676,160 shares
at $5 par value common stock. The acquisition was accounted for as a
pooling of interests. At December 31, 2001, we had three wholly-owned
bank subsidiaries, Gainesville Bank & Trust, United Bank & Trust and
Community Trust Bank, collectively the (“Banks”) and one non-bank
subsidiary, Community Loan Company.

We operate as a multi bank holding company. At December 31, 2001, we
also held common stock in three de novo banks in Georgia, representing a less
than 5% ownership in each bank. Our current plans include aggressively
exploring opportunities through mergers and acquisitions. Currently,
there are no paid employees in the Company.

Gainesville Bank & Trust

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 equally by GB&T and one of
the Company’s directors. GB&T currently occupies seventy-nine
percent of this facility. The remainder of this facility is available
for lease and approximately 5,900 square feet in the building is currently
under lease to two tenants unrelated to GB&T. GB&T currently
operates four branches 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. All prior year financial statements have been restated to
include UB&T.

UB&T conducts business from its main office facility at 129 East Elm
Street, Rockmart, Georgia. UB&T currently operates a branch in
Cedartown, Georgia.

UB&T
provides a full range of banking services
to customers within its primary market area of Polk County 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 machine.

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. All prior year financial statements have been
restated to include CTB.

CTB conducts business from its main office facility at 3844 Atlanta Highway,
Hiram, Georgia. CTB currently operates one branch in Dallas, Georgia,
one branch in Marietta, Georgia and one branch in Kennesaw, 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 machine.

Community Loan Company

Community Loan Company (“CLC”) was formed in 1995 as a non-bank subsidiary
for the purpose of engaging in the consumer finance business. CLC
presently operates 8 offices located in the Northwest Georgia cities of
Woodstock, Rockmart, Rossville, Gainesville, Dalton, Rome, Dahlonega and
Cartersville.

Cash Transactions, LLC

Another non-bank subsidiary was established in 1997 called CashTrans.
CashTrans is a limited liability company that is owned 49% by the Company and
51% by an individual who serves as Chairman of CashTrans. CashTrans is
engaged in the business of providing retail establishments with automated
teller machines that are owned by CashTrans and that dispense cash or cash
equivalents.

Market Area and Competition

GB&T competes primarily with seven other commercial banks, Bank America,
N.A, Regions Bank, Community Bank & Trust, Branch Banking and Trust,
SunTrust Bank, National Bank of Commerce, and Wachovia Bank, N.A. In
addition, GB&T competes with other financial institutions, including two
credit unions and various other finance companies. The banking business
continues to be very competitive in our primary market areas of Hall,
Polk and Paulding counties. The banking industry also 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, 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 continually face strong
competition in attracting and retaining deposits and loans.

The most 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, availability of 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 general availability
of lendable funds, general and local economic conditions, current interest
rates, and other factors that are not readily predictable.

Management expects that competition will continue in the future due to
statewide branching laws that became effective in 1998 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 a limited number of residential contractors
and developers in the Hall County, Polk County, and Paulding County areas.

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 (“SBA”).

Our commercial lending includes loans to smaller business ventures, credit
lines for working capital and short-term seasonal or inventory financing, as
well as occasional letters of credit. Commercial borrowers typically
secure their loans with assets of the business, personal guaranties of their
principals, and often secured by mortgages on their 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 market in Hall, Polk and Paulding Counties, fraud, deteriorating
or non-existing collateral, general economic conditions, interest rate risk,
and deteriorating borrower financial conditions.

Our Board of Directors establishes and periodically reviews the Banks’
lending policies and procedures. State banking regulations provide that
no secured loan relationship may exceed 25% of the Banks’ statutory capital
and no unsecured loan relationship may exceed 15% of statutory capital, except
in very limited circumstances. 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
area. A secondary source of funding is through advances from the Federal
Home Loan Bank and other borrowings which enable us to borrow funds at rates
and terms, which at times, are more beneficial to us.

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. GB&T solicits brokered deposits on
a limited basis.

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,
mortgage-backed securities, 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 growth of core deposits,
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 the Banks’ 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 $548 million. The continued growth in total assets
and loans was generated almost exclusively from deposits obtained from our
market areas. The loan portfolio of $419 million as of December 31,
2001 is comprised of commercial loans ($39 million), loans secured by real
estate ($347 million), and consumer and other loans ($33 million).

Employees

As of December 31, 2001, we had 233 full-time equivalent employees, of which
109 were employed by GB&T, 35 were employed by UB&T, 65 were employed
by CTB, and 24 were employed by CLC. We are not a party to any
collective bargaining agreement and, in the opinion of management, we enjoy
satisfactory relations with our employees.

REGULATION AND
SUPERVISION

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.

On November 12, 1999, the Gramm-Leach-Bliley Act, previously known as the
Financial Services Modernization Act of 1999 was signed into law by President
Clinton. Among other things, this law repealed the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The legislation also permits bank holding companies to
engage in a statutorily provided list of financial activities, including
insurance and securities underwriting and agency activities, merchant banking,
and insurance company portfolio investment activities. It also authorizes
activities that are "complementary" to financial activities.

One purpose of the legislation was to grant to community banks certain powers
as a matter of right that larger institutions have accumulated on an ad hoc
basis. Nevertheless, the legislation may have the result of increasing the
amount of competition that we face from larger institutions and other types of
companies. In fact, it is not possible for us to predict the full effect that
the Gramm-Leach-Bliley Act will have on our business and operations. From time
to time other changes may be proposed to laws affecting the banking industry,
and these changes could have a material affect on our business and prospects.
We cannot predict the nature or extent of the effect on our business and
earnings of fiscal or monetary policies, or new federal or state legislation.

Because we own all the outstanding common stock of the Banks, we are a bank
holding company under the federal Bank Holding Company Act of 1956 and the
Financial Institutions Code of Georgia.

The Bank Holding Company Act. Under
the Bank Holding Company Act, we are subject to periodic examination by the
Federal Reserve and are required to file periodic reports of our operations
and any additional information that the Federal Reserve may require. Our
activities at the bank and holding company level will be limited to:

banking and managing or controlling banks;

furnishing services to or performing services for our subsidiaries; and

engaging in other activities that the Federal Reserve determines to be so
closely related to banking and managing or controlling banks as to be a proper
incident thereto.

Investments,
Control, and Activities. With certain
limited exceptions, the Bank Holding Company Act requires every bank holding
company to obtain the prior approval of the Federal Reserve before:

acquiring substantially all the assets of any bank;

acquiring direct or indirect ownership or control of any voting shares of any
bank if after the acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares); or

merging or consolidating with another bank holding company.

In addition, and subject to certain exceptions, the Bank Holding Company Act
and the Change in Bank Control Act, together with regulations thereunder,
require Federal Reserve approval prior to any person or company acquiring
"control" of a bank holding 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. Control is rebuttably
presumed to exist if a person acquires 10% or more, but less than 25%, of any
class of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Exchange Act of 1934 or no other
person owns a greater percentage of that class of voting securities
immediately after the transaction. The regulations provide a procedure for
challenge of the rebuttable control presumption.

Under the Bank Holding Company Act, a bank holding 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 Board, 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 Board has determined by regulation to be proper incidents to
the business of a bank holding company include:

making or servicing loans and certain types of leases;

engaging in certain insurance and discount brokerage activities;

performing certain data processing services;

acting in certain circumstances as a fiduciary or investment or financial
adviser;

owning savings associations; and

making investments in certain corporations or projects designed primarily to
promote community welfare.

The Federal Reserve Board imposes certain capital requirements on bank holding
companies under the Bank Holding Company Act, including a minimum leverage
ratio and a minimum ratio of "qualifying" capital to risk-weighted
assets. These requirements are described below under "Capital
Regulations." Subject to capital requirements and certain other
restrictions, a bank holding company is able to borrow money to make a capital
contribution to a subsidiary bank, and these loans may be repaid from
dividends paid from the bank to the holding company. Our ability to pay
dividends will be subject to regulatory restrictions as described below in
"The Bank - Dividends.” We are also able to raise capital for
contribution to the bank by issuing securities without having to receive
regulatory approval, subject to compliance with federal and state securities
laws.

Source of Strength. In accordance with
Federal Reserve Board policy, bank holding companies are expected to act as a
source of financial strength to their bank subsidiaries and to commit
resources to support such subsidiaries in circumstances in which they might
not otherwise do so. Under the Bank Holding Company Act, the Federal Reserve
Board 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 Board’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.

Georgia State Regulation. As a bank
holding company registered under the Financial Institutions Code of Georgia,
we are subject to limitations on sale or merger and to regulation by the
Georgia Department of Banking and Finance. Prior to acquiring the common stock
of a bank, we must obtain the approval of the Department. We must also receive
the Department’s approval prior to engaging in the acquisition of banking or
nonbanking institutions or assets, and we must file periodic reports with
respect to our financial condition and operations, management, and
intercompany relationships between us and our subsidiaries.

December 31,

The Banks are state banks incorporated under the laws of Georgia and subject
to examination by the Georgia Department of Banking and Finance and the FDIC.
Deposits in the Banks are insured by the FDIC up to a maximum amount, which is
generally $100,000 per depositor subject to aggregation rules. The Georgia
Department of Banking and Finance and the FDIC regulate or monitor virtually
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 payable on certain 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 Georgia Department of Banking and Finance and FDIC require the Banks to
maintain specified capital ratios and impose limitations on the Banks’
aggregate investment in real estate, bank premises, and furniture and
fixtures. The Georgia Department of Banking and Finance and FDIC also require
the Banks to prepare quarterly reports on the Banks’ financial condition and
to conduct an annual audit of its financial affairs in compliance with its
minimum standards and procedures. Under the FDIC Improvement Act, all insured
institutions must undergo regular on site examinations 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 deemed necessary or appropriate. Insured
institutions are required to submit reports to the FDIC, their federal
regulatory agency, and state supervisor when applicable. The FDIC Improvement
Act directs the FDIC to develop 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 FDIC Improvement Act also requires the
federal banking regulatory agencies to prescribe, by regulation, standards for
all insured depository institutions and depository institution holding
companies relating, among other things, to the following:

internal controls;

information systems and audit systems;

loan documentation;

credit underwriting;

interest rate risk exposure; and

asset quality.

State banks and their holding companies which have been chartered or
registered or have undergone a change in control within the past two years or
which have been deemed by the Georgia Department of Banking and Finance, FDIC,
or the Federal Reserve Board to be troubled institutions must give the Georgia
Department of Banking and Finance, FDIC or the Federal Reserve Board 30 days
prior notice of the appointment of any senior executive officer or director.
Within the 30 day period, the Georgia Department of Banking and Finance, FDIC
or the Federal Reserve Board, as the case may be, may approve or disapprove
any such appointment.

Deposit Insurance. The FDIC
establishes rates for the payment of premiums by federally insured banks and
thrifts for deposit insurance. A separate Bank Insurance Fund and Savings
Association Insurance Fund are maintained for commercial banks and savings
associations, respectively, with insurance premiums from the industry used to
offset losses from insurance payouts when banks and thrifts fail. In 1993, the
FDIC adopted a rule which establishes a risk-based deposit insurance premium
system for all insured depository institutions. Under this system, until
mid-1995, depository institutions paid to Bank Insurance Fund or Savings
Association Insurance Fund from $0.23 to $0.31 per $100 of insured deposits
depending on their capital levels and risk profile, as determined by their
primary federal regulator on a semiannual basis. Once the Bank Insurance Fund
reached its legally mandated reserve ratio in mid-1995, the FDIC lowered
premiums for well-capitalized banks, eventually eliminating premiums for
well-capitalized banks, with a minimum semiannual assessment of $1,000.

However, in 1996 Congress enacted the Deposit Insurance Funds Act of 1996,
which eliminated even this minimum assessment. Increases in deposit
insurance premiums or changes in risk classification will increase the Banks’
cost of funds, and we may not be able to pass these costs on to our customers.

Transactions With Affiliates and Insiders.
The Banks are subject to the provisions of Section 23A of the Federal Reserve
Act, which places 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. The aggregate of all covered transactions is
limited in amount, as to any one affiliate, to 10% of the Banks’ capital and
surplus and, as to all affiliates combined, to 20% of the Banks’ capital and
surplus. Furthermore, within the foregoing limitations as to amount, each
covered transaction must meet specified collateral requirements. Compliance is
also required with certain provisions designed to avoid the taking of low
quality assets. The Banks are also subject to the provisions of Section 23B of
the Federal Reserve Act which, among other things, prohibits an institution
from engaging in certain transactions with certain affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
such institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies. The Banks are also
subject to certain restrictions on extensions of credit to executive officers,
directors, certain principal shareholders, and their related interests. Such
extensions of credit:

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

must not involve more than the normal risk of repayment or present other
unfavorable features.

Dividends. A Georgia state bank may
not pay dividends from its permanent capital. All dividends must be paid out
of undivided profits after deducting expenses, including reserves for losses
and bad debts. In addition, a state bank is prohibited from declaring a
dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus no less than one-tenth
of the Banks’ net profits of the preceding two consecutive half-year periods
(in the case of an annual dividend). The approval of the Georgia Department of
Banking and Finance is required if the total of all dividends declared by a
state bank in any calendar year exceeds the total of its net profits for that
year combined with its retained net profits for the preceding two years, less
any required transfers to surplus, or if classified assets exceed 80% of its
capital.

Branching. Under current Georgia law,
the Banks may open branch offices throughout Georgia with the prior approval
of the Georgia Department of Banking and Finance. In addition, with prior
regulatory approval, the Banks will be able to acquire existing banking
operations in Georgia. Thus, one or more branch offices could be the result of
merger, consolidation or purchase of assets of another bank pursuant to
Georgia law.

Community Reinvestment Act. The
Community Reinvestment Act requires that, in connection with examinations of
financial institutions, the FDIC shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income neighborhoods. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or
facility. Failure to adequately meet these criteria could impose additional
requirements and limitations on a bank.

Other Regulations. Interest and other
charges collected or contracted for by the Banks are subject to state usury
laws. The Banks’ loan operations are also subject to federal laws applicable
to credit transactions, including, but not limited to:

the federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;

the Real Estate Settlement Procedures Act of 1974, requiring lending
institutions to provide consumers with thorough and timely information on the
nature and costs of settlement, including a uniform settlement statement;

the Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine
whether a financial institution is fulfilling its obligation to help meet the
housing needs of the community it serves;

the Equal Credit Opportunity Act, prohibiting discrimination on the basis of
race, sex, 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 from disclosure to government
agencies 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.

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 profiles among banks and
bank holding companies and account for off-balance sheet items. The guidelines
are minimums, and the federal regulators have noted that banks and bank
holding companies contemplating significant expansion programs should not
allow expansion to diminish their capital ratios and should maintain ratios in
excess of the minimums. We have not received any notice indicating that we are
subject to higher capital requirements. 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 shareholders’ equity, qualifying
perpetual preferred stock, and minority interests 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 reserves for loan and lease
losses up to 1% 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 applies. 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 equal to 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 a leverage
ratio of at least 4%.

The FDIC Improvement Act established a new capital-based regulatory scheme
designed to promote early intervention for troubled banks, which requires the
FDIC to choose the least expensive resolution of bank failures. The new
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. GB&T is currently considered “adequately capitalized” and
UB&T and CTB currently qualify as "well capitalized".
Under the FDIC Improvement Act 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 increases, and
the permissible activities of the institution decreases, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to do some or all of the
following:

submit a capital restoration plan;

raise additional capital;

restrict their growth, deposit interest rates, and other activities;

improve their management;

eliminate management fees; or

divest themselves of all or a part of their operations.

Bank holding companies controlling financial institutions can be called upon
to boost the institutions’ capital and to partially guarantee the
institutions’ performance under their capital restoration plans. These capital
guidelines can affect us in several ways. If we grow at a rapid pace, our
capital may be depleted too quickly, and a capital infusion from the holding
company may be necessary, which could impact our ability to pay dividends. Our
capital levels are currently more than adequate; however, rapid growth, poor
loan portfolio performance, poor earnings performance, or a combination of
these factors could change our capital position in a relatively short period
of time.

The FDIC Improvement Act requires the federal banking regulators to revise the
risk-based capital standards to provide for explicit consideration of
interest-rate risk, concentration of credit risk, and the risks of
untraditional activities. Failure to meet these capital requirements
would mean that a bank would be required to develop and file a plan with its
primary state and/or federal banking regulator describing the means and a

schedule for achieving the minimum capital requirements. In addition, such a
bank would generally not receive regulatory approval of any application that
requires the consideration of capital adequacy, such as a branch or merger
application, unless the bank could demonstrate a reasonable plan to meet the
capital requirement within a reasonable period of time.

Enforcement Powers. The Financial
Institution Reform Recovery and Enforcement Act expanded and increased civil
and criminal penalties available for use by the federal regulatory agencies
against depository institutions and certain "institution-affiliated
parties." Institution affiliated parties primarily include management,
employees, and agents of a financial institution, as well as independent
contractors and consultants such as attorneys and accountants and others who
participate in the conduct of the financial institution’s affairs. Civil
penalties may be as high as $1,000,000 a day for such violations. Criminal
penalties for some financial institution crimes have been increased to twenty
years. In addition, regulators are provided with greater flexibility to
commence enforcement actions against institutions and institution-affiliated
parties. Possible enforcement actions include the termination of deposit
insurance. Furthermore, banking agencies’ power to issue cease-and-desist
orders were expanded. Such orders may, among other things, require affirmative
action to correct any harm resulting from a violation or practice, including
restitution, reimbursement, indemnification or guarantee against loss. A
financial institution may also be ordered to restrict its growth, dispose of
certain assets, rescind agreements or contracts, or take other actions as
determined by the ordering agency to be appropriate.

Effect of Governmental Monetary Policies. Our
earnings are affected by domestic economic conditions and the monetary and
fiscal policies of the United States government and its agencies. The Federal
Reserve Bank’s monetary policies have had, and are likely to continue to have,
an important impact on the operating results of commercial banks through its
power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve Board have major effects upon the levels of bank loans, investments
and deposits through its open market operations in United States government
securities and through its regulation of the discount rate on borrowings of
member banks and the reserve requirements against member bank deposits. It is
not possible to predict the nature or impact of future changes in monetary and
fiscal policies.

ITEM
2. PROPERTIES

GB&T’s main office is owned
jointly by GB&T and Director Donald J. Carter. The three story
building is located in downtown Gainesville at the intersection of Jesse
Jewell Parkway and Race Street. GB&T occupies over two-thirds of the
building, with remaining space presently leased to other tenants.
GB&T’s main office also has a drive-in automated teller machine.

GB&T has four branch 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 1210 Thompson Bridge Road, the third located in a leased
shopping center facility at 475 Dawsonville Highway, and the fourth located at
1403 Atlanta Highway, all of which have an automated teller machine.

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

GB&T operates automated teller machines in a Gainesville-based retail
shopping center at 975 Dawsonville Road and in the hospital atrium at 675
White Sulphur Road in Gainesville, Georgia.

UB&T’s main office is located at 129 East Elm Street near downtown
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 Bank offices and operations. The Bank 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.

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. The Bank also has an automated teller machine.

CTB’s Dallas branch is an office
building owned by CTB and contains approximately 1,150 square feet of
space. The branch also has an automated teller machine.

CTB leases space in a shopping center
facility in each of the cities of Marietta and Kennesaw.

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

CashTrans leases office space in Dallas, Georgia.

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 2001.

PART II

ITEM
5. MARKET FOR REGISTRANT’S
COMMON EQUITY AND RELATED

STOCKHOLDER MATTERS

(a)	Our common stock is traded on the NASDAQ Stock Market under the symbol “GBTB.” The following table sets forth the high and low closing sale prices for our common stock.

	Sales Price
Calendar Period		Low		High


2000
First Quarter	$	16.00	$	21.50
Second Quarter		14.75		18.00
Third Quarter		14.50		18.75
Fourth Quarter		15.00		20.00

2001
First Quarter	$	14.88	$	19.50
Second Quarter		15.00		19.25
Third Quarter		13.65		18.45
Fourth Quarter		14.00		17.00

(b)

As of March 15, 2002, there were approximately 1,590 holders of record of our
common stock.

(c)

We paid a $.29 and $.24 per share cash dividend on our common stock for the
years ended December 31, 2001 and 2000, 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 “Regulation and
Supervision.”

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. All prior year
financial information has been restated to include the business combinations
with UBT Financial Services Corporation and Community Trust Financial Services
Corporation, which were both accounted for as a pooling of interests.

	As of and For the Year Ended December 31,

	2001	2000	1999	1998	1997

	(Dollars in thousands, except per share amounts)

Total Loans	$418,656	$384,691	$324,355	$242,578	$201,143
Total Deposits	426,758	401,302	345,252	299,978	273,442
Total Borrowings	70,169	64,299	48,460	9,099	2,230
Total Assets	547,596	512,488	439,697	346,906	306,377

Interest Income	42,349	41,794	32,701	27,606	24,190
Interest Expense	20,893	20,797	14,077	12,523	10,959
Net Interest Income	21,456	20,997	18,624	15,083	13,231
Provision for Loan Losses	1,306	1,149	1,896	1,006	645
Net Interest Income After Provision	20,150	19,848	16,728	14,077	12,586
Non-Interest Income	6,329	4,362	3,712	3,556	2,562
Non-Interest Expense	20,523	17,811	15,703	13,054	10,583
Income Before Income Taxes	5,956	6,399	4,737	4,579	4,565
Provision for Income Taxes	1,986	2,090	1,405	1,365	1,471
Net Income	3,970	4,309	3,332	3,214	3,094

Net Income Per Share:
Basic	.85	.93	.72	.76	.76
Diluted	.82	.90	.69	.72	.75

Cash Dividends Declared	.29	.24	.20	.16	.15
Book Value Per Share	9.45	8.72	7.82	7.51	7.24
Weighted Average Shares:
Basic	4,676	4,640	4,601	4,257	4,060
Diluted	4,816	4,791	4,801	4,446	4,123

ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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.

A Warning About Forward-Looking
Statements

Some of the statements made in this annual report (and in other documents to
which we refer) are “forward-looking statements.” When used in this
document, the words “anticipate,” “believe,”
“estimate,” and similar expressions generally identify
forward-looking statements. These statements are based on the beliefs,
assumptions, and expectations of management, and on information currently
available to those members of management. They are expressions of historical
fact, not guarantees of future performance. Forward-looking statements include
information concerning possible or assumed future results of our operations.

Forward-looking statements involve risks, uncertainties, and assumptions, and
certain factors could cause actual results to differ from results expressed or
implied by the forward-looking statements, including:

economic conditions (both
generally and in the markets where we operate);

competition from other
companies that provide financial services similar to those offered by us;

government regulation and
legislation;

changes in interest rates;
and

unexpected changes in the
financial stability and liquidity of our credit customers

We believe these forward-looking statements are reasonable. You should not,
however, place undue reliance on these forward-looking statements, because our
future results and shareholder values may differ materially from those
expressed or implied by these forward-looking statements.

During 2000 and 2001, we completed our acquisitions of UBT Financial Services
Corporation and Community Trust Financial Services Corporation, respectively,
which were both accounted for as a pooling of interests. All prior
financial information has been restated to reflect the combination as of the
earliest period presented. Our discussion and analysis reflects the
combined performance and financial position for the periods presented.

Summary

During 2001 and 2000, we continued to experience moderate growth in
interest-earning and total assets which was funded by increases in deposits,
borrowings, and the retention of net profits. We recorded net income of
$3,970,000 and $4,309,000 for the years ended December 31, 2001 and 2000,
respectively. Total equity at December 31, 2001 increased to
$44,773,000 from $40,554,000, or $4,219,000 from December 31, 2000.

Balance Sheets

Our total assets increased $35.1 million or 6.9% for the year ended December
31, 2001 compared to $72.8 million or 16.6% for the same period in 2000.
The increase in total assets for the year ended December 31, 2001
consists primarily of an increase in interest-earning assets of $32.2 million
or 6.8% compared to an increase of $82.0 million or 20.8% during the same
period in 2000. The overall growth in 2001 and 2000 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 8.8% or $34.0 million for the year ended December 31,
2001. This increase is compared to an increase of 18.6% or $60.3 million
during 2000. The increase in total loans for 2001 included a 44.3%
increase in real estate construction loans, or $30.5 million. The
economy in Gainesville, and Georgia as a whole, continues to be strong despite
the events of September 11,

2001. As of December 31, 2001, our
loan-to-deposit ratio was 98% compared to 96% in 2000. At
December 31, 2001 and 2000, we had total outstanding borrowings of $70.2
million and $64.3 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 is 84% and 83% at December 31,
2001 and 2000, respectively.

During 2001, total deposits grew by $25.5 million, or 6.3% compared to an
increase of $56.1 million or 16.2% in 2000. The increase in 2001
consists primarily of an increase in interest-bearing deposits of $20.4
million or 5.8% compared to an increase of $47.7 million or 15.7% during
2000. The decline in growth in deposits during the past year reflects
the increased competition for deposits and the decrease in deposit rates in
2001. Noninterest bearing demand deposits increased by $5.1 million
during 2001 compared to an $8.4 million increase in 2000.

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
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 volume
showed signs of declining slightly during the fourth quarter of 2000, and
continued through 2001. The events of September 11, 2001 have impacted
our operations due to the continued cutting of interest rates.

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,
2001, we had borrowed under Federal funds purchase lines and securities sold
under repurchase agreements $19.7 million compared to $17.1 million as of
December 31, 2000. These borrowings typically mature within one to four
business days.

Our liquidity and capital resources are monitored on a periodic basis by
management and state and Federal regulatory authorities. At December 31,
2001, our liquidity ratio was 17.23% 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, 2001, we had available borrowing capacity
totaling approximately $54.1 million through various borrowing arrangements
and available lines of credit. Our short-term investments and available
borrowing arrangements are adequate to cover any reasonably anticipated
immediate need for funds. We are not aware of any events or trends
likely to result in a material change in liquidity.

At December 31, 2001, our capital to asset ratios were considered adequate
based on guidelines established by the regulatory authorities. During
2001, we increased our capital by retaining net earnings of $4.0 million.

At December 31, 2001, we had outstanding commitments totaling approximately
$1.9 million for the construction of a full service branch facility and a
major computer conversion scheduled to be fully implemented during the third
quarter of 2002.

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 its 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.

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
interest rates which are effected by 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.

Results of Operations - For the
Years Ended December 31, 2001, 2000 and 1999

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 4.33% in 2001 from 4.74% in 2000. This decrease is attributable
primarily to the continued decrease in interest rates in 2001. In 2001,
the average yield on interest-earning assets decreased to 8.55% from 9.43% in
2000 while the average yield on interest-bearing liabilities decreased only to
4.85% in 2001 from 5.40% in 2000. The overall change in the interest
rate spread from 2000 to 2001 was a decrease of 33 basis points. The
decrease in the net interest spread is directly related to the 475 basis point
drop in prime interest rates during 2001 which ended its downward spiral at
4.75%.

The net yield on average interest-earning assets decreased by 46 basis points
to 4.74% from 5.20% for the year ended December 31, 2000 as compared to
1999. The decreased net yield in 2000 was attributable to an increase in
interest paid on interest-bearing liabilities which increased during that
period by 77 basis points to 5.40%. During that same period, interest
earned on interest-bearing assets only increased by 31 basis points.
During 2000, the prime interest rate increased 100 basis points.

The net interest spread for the years ended December 31, 2001 and 2000 has
dropped by 33 and 46 basis points which closely matches the drop in yield in
interest-earning assets which dropped by 41 and 46 basis points, respectively.

Net interest income, however, increased by $459,000 to $21.5 million in 2001,
compared to an increase of $2.4 million in 2000. The increase for both
years continues to reflect the continued increase in interest-

earning assets
during 2001 and 2000. The increase in interest-earning assets in 2000
was significantly higher than 2001, as discussed earlier. 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.

Provisions for loan losses increased by only $157,000 during 2001 compared to
a decrease of $747,000 during 2000. The provision for loan losses is the
charge to operations which management feels is necessary to fund the allowance
for loan losses. This provision is based on the growth of the loan
portfolio, the amount of historical net charge-offs incurred, and the general
economy as well as the local economies. The allowance for loan loss was
$5,522,000 or 1.32% of total loans at December 31, 2001 compared to $5,099,000
or 1.33% of total loans at December 31, 2000. We incurred net charge
offs of $883,000, $268,000 and $808,000 for the years ended December 31, 2001,
2000 and 1999, respectively. The percentage of net charge-offs to
average loans outstanding was .22% and .08% for the years ended
December 31, 2001 and 2000. The increase in the provision for loan
losses in 2001 was due to loan growth and not to any specific identified
trends. The increase in net charge-offs of $615,000 includes consumer
related net charge-offs of $277,000 and real estate net charge-offs of
$299,000 which accounts for 94% of all net charge-offs. 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 1 to 4 family residences or other real
estate with values exceeding the original loan balance, therefore minimizing
the risk of loss. Consumer loans, however, are oftentimes secured by
consumer goods and automobiles, or 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,
2001 was 1167.4%, which was up significantly from 318.3% at December 31,
2000. This increase is due to nonaccrual loans decreasing to $473,000 at
December 31, 2001 from $1,602,000 at December 31, 2000. During the same
period, other problem loans, including past due loans greater than 90 days
past due, decreased by $563,000 compared to a decrease of $133,000 in
2000. Based on management’s evaluations, the allowance for loan losses
is adequate to absorb potential losses on existing loans.

Other income increased during 2001 by $1,967,000 compared to an increase of
$650,000 in 2000. For the year ended December 31, 2001, the most
significant portion of the net increase consisted of an increase of $1,245,000
in service charges on deposit accounts and an increase of $611,000 in mortgage
origination fees. For the same period in 2000, service charges decreased
by $54,000 and mortgage origination fees increased by $93,000. The
increases in service charges on deposit accounts reflects the continued growth
in transaction accounts. The increase in mortgage origination fees is
directly related to the decrease in mortgage rates. In a decreasing rate
environment, refinancing of mortgage loans provided an excellent opportunity
for us to generate other fee income.

Other expense increased $2,712,000 and $2,108,000 for the years ended December
31, 2001 and 2000, respectively. Increases in salaries and employee
benefits represent the most significant portions of these increases, which
increased by $1,219,000 and $1,585,000 for the years ended 2001 and 2000,
respectively. The number of full-time equivalent employees decreased by
11 from December of 2000 to December of 2001 and by 15 for the same period
from 1999 to 2000. These reductions in number of employees is directly
related to the business combinations and the duplication of
responsibilities. In connection with the acquisition of Community Trust
Financial Services Corporation, we incurred one-time expenses of approximately
$884,000 of salary continuation benefits to officers and employees who are no
longer with the Company. In addition, we incurred normal increases due
to increases in profit sharing contributions, health insurance costs,
incentive compensation and salary increases for the years ended December 31,
2001 and 2000. Other operating expenses increased by $1,005,000 and
$114,000, respectively, for the years ended December 31, 2001 and 2000.
Professional and merger related expenses were $618,678 and $336,367 for the
years ended December 31, 2001 and 2000, respectively. These expenses are
recognized in other operating expenses due to the business combinations

consummated in 2001 and 2000 being accounted for as poolings of
interests. The Company actively pursues merger opportunities and expects
to incur expenses related to evaluating these opportunities.

Income tax expense decreased $104,000 to $1,986,000 in 2001 from $2,090,000 in
2000. The effective tax rate was 33% for the years ended December 31,
2001 and 2000.

Net income decreased by $339,000 for the year ended December 31, 2001, or by
7.91%. The increase in net income for the same period in 2000 was
$977,000, or 29.3%. The decrease in net income in 2001 is due to a
decrease in growth rate of interest-earning assets, an overall decline in
yields on interest-earning assets and one-time merger expenses recognized in
connection with the business combination with Community Trust Financial
Services Corporation. The increase in net income in 2000 was 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.

Table 1 -
Distribution of Assets, Liabilities and Stockholders’ Equity

Interest Rates and Interest Differentials

	Years Ended December 31

	2001			2000			1999

	Average Balances(1)	Income/ Expense	Yields/ Rates	Average Balances(1)	Income/ Expense	Yields/ Rates	Average Balances(1)	Income/ Expense	Yields/ Rates

				(Dollars in Thousands)

Taxable securities	68,639	4,360	6.35%	65,110	4,232	6.50%	52,762	3,189	6.04%
Nontaxable securities (5)	15,907	720	4.53	15,041	678	4.51	12,591	561	4.46
Federal funds sold	11,458	447	3.90	6,465	425	6.57	9,258	495	5.35
Interest-bearing deposits in banks	1,736	60	3.46	707	34	4.81	1,506	89	5.91
Loans (2) (4)	397,496	36,762	9.25	356,051	36,425	10.23	282,277	28,367	10.05


Total interest-earning assets	495,236	42,349	8.55%	443,374	41,794	9.43%	358,394	32,701	9.12%


Unrealized gains (losses) on securities	1,355			(1,471)			(269)
Allowance for loan losses	(5,498)			(3,232)			(2,390)
Cash and due from banks	14,107			13,530			8,755
Other assets	25,637			23,136			19,768


Total	530,837			475,337			384,258


Interest-bearing demand & savings	119,961	2,527	2.11	99,787	3,060	3.07	100,691	2,663	2.64
Time	248,906	14,958	6.01	220,938	13,976	6.33	174,900	9,899	5.66
Borrowings	62,283	3,408	5.47	64,389	3,761	5.84	28,764	1,515	5.27


Total interest-bearing liabilities	431,150	20,893	4.85%	385,114	20,797	5.40%	304,355	14,077	4.63%


Noninterest-bearing demand	50,462			47,047			41,185
Other liabilities	6,889			6,125			3,654
Stockholders’ equity (3)	42,336			37,051			35,064


Total	530,837			475,337			384,258


Net interest income		21,456			20,997			18,624

Net interest spread			3.70%			4.03%			4.49%
Net yield on average interest-earning assets			4.33%			4.74%			5.20%

(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 $844,000,

$(540,000), and
$(144,000) for 2001, 2000, and 1999, respectively.

(4)
Interest and fees on loans include $2,916,000, $2,390,000 and $2,517,000 of
loan fee income for the years ended December 31,

2001, 2000 and 1999,
respectively.

(5)
Yields on nontaxable securities are not presented on a tax-equivalent basis.

Table 2 - Rate and Volume Analysis

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

	Years Ended December 31,

	2001 to 2000						2000 to 1999

	Increase (decrease) due to change in						Increase (decrease) due to change in
	Rate			Volume		Net	Rate			Volume		Net

	(Dollars in Thousands)

Income from interest-earning assets:
Interest and fees on loans	$	(3,676)	$	4,013	$	337	$	517	$	7,541	$	8,058
Interest on taxable securities		(99)		227		128		256		787		1,043
Interest on nontaxable securities		3		39		42		6		111		117
Interest on federal funds sold		(219)		241		22		98		(168)		(70)
Interest on interest-bearing
deposits in other banks		(12)		38		26		(15)		(40)		(55)

Total interest income		(4,003)		4,558		555		862		8,231		9,093


Expense from interest-bearing
liabilities:
Interest on interest-bearing demand
deposits and savings deposits		(1,076)		543		(533)		422		(25)		397
Interest on time deposits		(730)		1,712		982		1,265		2,812		4,077
Interest on borrowings		(233)		(120)		(353)		180		2,066		2,246

Total interest expense		(2,039)		2,135		96		1,867		4,853		6,720


Net interest income	$	(1,964)	$	2,423	$	459	$	(1,005)	$	3,378	$	2,373

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 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, 2001 our cumulative one year interest rate sensitivity gap
ratio was .75%. 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,
2001, 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 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.


			After
			Three		After
			Months		One Year
	Within		But		But
	Three		Within		Within		After
	Months		One Year		Five Years		Five Years		Total

	(Dollars in Thousands)

Interest-earning assets:
Interest-bearing deposits	$	988	$	99	$	-	$	-	$	1,087
Federal funds sold		24		-		-		-		24
Securities		8,764		9,297		45,067		23,076		86,204
Loans		191,738		43,537		170,359		13,022		418,656


Total interest-earning assets		201,514		52,933		215,426		36,098		505,971


Interest-bearing liabilities:
Interest-bearing demand and savings	$	121,193	$	-	$	-	$	13,308	$	134,501
Time deposits		67,766		117,085		52,965		48		237,864
Federal funds purchased and
repurchase agreements		19,707		-		-		-		19,707
Other borrowings		830		14,107		25,525		10,000		50,462


Total interest-bearing liabilities	$	209,496	$	131,192	$	78,490	$	23,356	$	442,534


Interest rate sensitivity gap	$	(7,982)	$	(78,259)	$	136,936	$	12,742	$	63,437


Cumulative interest rate sensitivity gap	$	(7,982)	$	(86,241)	$	50,695	$	63,437


Interest rate sensitivity gap ratio		.96		.40		2.74		1.55


Cumulative interest rate sensitivity gap ratio		.96		.75		1.12		1.14

We actively manage the mix of asset andliability 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 50.3% 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.

SECURITIES
PORTFOLIO

The carrying value at the dates indicated of securities available-for-sale are
as follows:

	December 31,

		2001		2000		1999

	(Dollars in Thousands)


U. S. Treasury and U. S. government agencies and corporations	$	28,857	$	47,671	$	48,032
Mortgage-backed securities		36,835		14,224		10,602
State and municipal securities		16,590		16,213		14,368
Equity securities (1)		6,914		5,925		3,441

	$	89,196	$	84,033	$	76,443

(1)	Other securities consist of Federal Home Loan Bank stock, The Bankers Bank stock, common stock of three de novo banks 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, 2001 are shown in the
following table according to contractual maturities classified as; (1) one
year or less; (2) after one year through five years; (3) after five years
through ten years; and (4) after ten years.

	U. S. Treasury
	and Other U. S.
	Government Agencies
	and Corporations				Municipal Securities
			Yield				Yield
	Amount		(1)			Amount	(1)(2)

	(Dollars in Thousands)

Maturity:
One year or less	$	3,533	6.24	%	$	1,487	4.28	%
After one year through five years		19,052	6.00			9,129	4.49
After five years through ten years		9,001	5.90			4,245	4.89
After ten years		35,933	6.51			1,729	5.39

	$	67,519	6.27	%	$	16,590	4.66	%

(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.

LOAN PORTFOLIO

Types of Loans

Loans by type of collateral are presented below:

	December 31,

		2001		2000		1999		1998		1997

	(Dollars in Thousands)


Commercial	$	38,597	$	37,159	$	47,439	$	31,973	$	32,976
Real estate - construction		99,473		68,951		66,658		42,268		34,791
Real estate - mortgage (1)		247,311		240,635		170,557		136,191		104,928
Consumer		29,286		33,207		34,389		30,416		26,398
Other		3,989		4,739		5,312		1,730		2,050

		418,656		384,691		324,355		242,578		201,143
Less allowance for loan losses		(5,522)		(5,099)		(4,233)		(3,068)		(2,575)

Net loans	$	413,134	$	379,592	$	320,122	$	239,510	$	198,568

(1)
Real estate-mortgage loans are net of deferred loan fees.

Maturities and Sensitivities to
Changes in Interest Rates

Total
loans as of December 31, 2001 are shown in the following table according to
contractual maturity classifications (1) one year or less, (2) after one year
through five years, and (3) after five years.

(Dollars in
Thousands)

Commercial


One year or less

$
18,904


After one through five years


16,599


After five years


3,094




38,597



Construction


One year or less

71,080


After one through five years

18,841


After five years


6,552



99,473



Other


One year or less

72,398


After one through five years

171,450


After five years

36,738

280,586



$418,656

The following table summarizes loans at December 31, 2001 with the due dates
after one year for predetermined and floating or adjustable interest rates.

	(Dollars in Thousands)


Predetermined interest rates	$	199,024
Floating or adjustable interest rates		54,250

	$	253,274

Risk Elements

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

	December 31,

	2001		2000		1999		1998		1997

	(Dollars in Thousands)


Loans accounted for on a nonaccrual basis	$	473	$	1,602	$	589	$	772	$	441

Loans contractually past due ninety days or more
to interest or principal payments and still
accruing		196		773		906		876		589

Loans, the term of which have been renegotiated to provide
a reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower		14		-		-		-		-

Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms		-		-		-		-		-

The reduction in interest income associated with nonaccrual loans as of
December 31, 2001 is as follows:

	(Dollars in Thousands)
Interest income that would have been recorded
on nonaccrual loans under original terms		$	35

Interest income that was recorded on nonaccrual loans		$	14

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
ninety 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
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, 2001 and 2000 was $79.6 million
and $74.8 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 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.

SUMMARY OF LOAN
LOSS EXPERIENCE

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

	December 31,

	2001		2000		1999		1998		1997

	(Dollars in Thousands)


Average amount of loans outstanding	$	397,496	$	356,051	$	282,277	$	214,852	$	180,769


Balance of allowance for loan losses
at beginning of year	$	5,099	$	4,233	$	3,068	$	2,575	$	2,100


Loans charged off:
Real estate		(211)		(22)		(23)		(99)		(1)
Commercial		(78)		(68)		(42)		(171)		(50)
Installment		(801)		(481)		(861)		(319)		(212)
Credit cards		(28)		(11)		(8)		(6)		(3)

		(1,118)		(582)		(934)		(595)		(266)


Recoveries of loans previously charged off:
Real estate		21		131		-		9		3
Commercial		8		37		25		21		12
Installment		192		146		96		52		81
Credit cards		14		-		5		-		-

		235		314		126		82		96


Net loans charged off during the year		(883)		(268)		(808)		(513)		(170)

Allowance for loan losses acquired (sold)		-		(15)		77		-		-


Additions to allowance charged
to expense during year		1,306		1,149		1,896		1,006		645


Balance of allowance for loan losses
at end of year	$	5,522	$	5,099	$	4,233	$	3,068	$	2,575


Ratio of net loans charged off
during the year to average
loans outstanding		.22%		0.08%		0.29%		0.24%		0.09%

The
following table sets forth the allowance
for loan losses to total allowance for loan losses and the percent of loans to
total loans in each of the categories listed at the dates indicated.

	December 31,

	2001		2000		1999		1998		1997


	Amount	Percent of Loans in Each Category to Total Loans	Amount	Percent of Loans in Each Category to Total Loans	Amount	Percent of Loans in Each Category to Total Loans	Amount	Percent of Loans in Each Category to Total Loans	Amount	Percent of Loans in Each Category to Total Loans

					(Dollars in Thousands)

Commercial	$ 418	9.21%	$ 373	9.66%	$ 307	14.63%	$ 263	13.18%	$ 219	16.39%
Real estate-construction	690	23.76	574	17.92	471	20.55	392	17.42	275	17.30
Real estate-mortgage	3,288	59.13	2,787	62.55	2,450	52.58	1,785	56.14	1,343	52.17
Consumer and other	1,126	7.90	1,365	9.87	1,005	12.24	628	13.26	738	14.14

Total allowance	$5,522	100.00%	$5,099	100.00%	$4,233	100.00%	$3,068	100.00%	$2,575	100.00%

Allowance for Loan Losses

The allowance for loan losses is
created by direct charges to income. Losses on loans are charged against
the allowance in the year in which such loans, in management’s opinion,
become uncollectible. Recoveries are credited to this allowance.
The factors that influence management’s judgment in determining the amount
charged to income are past loan loss experience, composition of the loan
portfolio, evaluation of trends and possible losses, current economic
conditions and other relevant factors. Our allowance for loan losses was
approximately $5,522,000 at December 31, 2001, representing 1.32% of total
loans, compared with $5,099,000 at December 31, 2000, which represented 1.33%
of total loans. The allowance for loan losses is evaluated and adjusted
periodically based on management’s evaluation of current risk
characteristics of the loan portfolio, as well as the impact of prevailing and
expected economic and business conditions. Management considers the
allowance for loan losses adequate to cover possible losses at
December 31, 2001.

DEPOSITS

Average amounts of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, are presented below. (1)

	Year Ended December 31,

	2001					2000					1999

	Amount		Rate			Amount		Rate			Amount		Rate

	(Dollars in Thousands)


Noninterest-bearing demand deposits	$	50,462		-	%	$	47,047		-	%	$	41,185		-	%
Interest-bearing demand and
savings deposits		119,961		2.11			99,787		3.07			100,691		2.64
Time deposits		248,906		6.01			220,938		6.33			174,900		5.66

Total deposits	$	419,329				$	367,772				$	316,776

(1)
Average balances were determined using the daily average balances.

The amounts of time certificates of deposit issued in amounts of $100,000 or
more as of December 31, 2001 are shown below by category, which is based on
time remaining until maturity of (1) three months or less, (2) over three
through twelve months, and (3) over twelve months.

	(Dollars in Thousands)


Three months or less	$	18,629
Over three through twelve months		31,659
Over twelve months		7,373

Total	$	57,661

RETURN ON EQUITY
AND ASSETS

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

	Years Ended December 31,

	2001		2000		1999


Return on assets (1)	.75	%	.91	%	.87	%
Return on equity (2)	9.38		11.63		9.50
Dividend payout ratio (3)	35.37		26.67		28.99
Equity to assets ratio (4)	7.98		7.79		9.13

(1)
Net income divided by average total assets.

(2)
Net income divided by average equity.

(3)
Dividends declared per share divided by diluted earnings per share.

(4)
Average equity divided by average total assets.

SHORT TERM
BORROWINGS

Other Borrowings

As part of our operating strategy, we have utilized Federal funds purchased
and securities sold under repurchase agreements as an alternative to retail
deposits to fund our operations when borrowings are less costly and can be
invested at a positive interest rate spread or when we need additional funds
to satisfy loan demand. By utilizing Federal funds purchased and
securities sold under repurchase agreements, which possess varying stated
maturities, we can meet our liquidity needs without otherwise being dependent
upon retail deposits and revising our deposit rates to attract retail
deposits. At December 31, 2001, we had $19,707,000 in outstanding
Federal funds purchased and securities sold under repurchase agreements.

The following table sets forth certain information regarding Federal funds
purchased and securities sold under repurchase agreements at or for the years
ended on the dates indicated:

	At or For the Year Ended December 31,

	2001		2000		1999

	(Dollars in Thousands)

Average balance outstanding	$	12,785	$	19,115	$	9,552
Maximum amount outstanding at any month-end during the year		19,707		22,018		15,859
Balance outstanding at end of year		19,707		17,132		17,850
Weighted average interest rate during year		3.44%		5.90%		4.65%
Weighted average interest rate at end of year		1.74%		6.08%		5.25%

ITEM
7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

We are exposed only to U.S. dollar interest rate changes and accordingly, we
manage exposure by considering the possible changes in the net interest
margin. We do not have any trading instruments nor do we classify any portion
of the investment portfolio as held for trading. We do not engage in any
hedging activities or enter into any derivative instruments with a higher
degree of risk than mortgage-backed securities that are commonly pass through
securities. Finally, we have no exposure to foreign currency exchange rate
risk, commodity price risk, and other market risks. Interest rates play a
major part in the net interest income of a financial institution. The
sensitivity to rate changes is known as “interest rate risk.” The
repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of our asset/liability
management program, the timing of repriced assets and liabilities is referred
to as Gap management. It is our policy to maintain a Gap ratio in the one-year
time horizon of .80 to 1.20.

GAP management alone is not enough to properly manage interest rate
sensitivity, because interest rates do not respond at the same speed or at the
same level to market rate changes. For example, savings and money market rates
are more stable than loans tied to a “Prime” rate and thus respond
with less volatility to a market rate change.

We use a simulation model to monitor changes in net interest income due to
changes in market rates. The model of rising, falling and stable interest rate
scenarios allow management to monitor and adjust interest rate sensitivity to
minimize the impact of market rate swings. The analysis of impact on net
interest margins as well as market value of equity over a twelve-month period
is subjected to a 200 basis point increase and decrease in rate. The December
model reflects an increase of 2% in net interest income and a 14% decrease in
market value equity for a 200 basis point increase in rates. The same model
shows a 1% decrease in net interest income and a 16% increase in market value
equity for a 200 basis point decrease in rates. Our policy is to allow no more
than +- 8% change in net interest income and no more than +- 25% change in
market value equity for these scenarios. Therefore, we are within our policy
guidelines and are protected from any significant impact due to market rate
changes.

ITEM
8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA

Consolidated Balance Sheets -
December 31, 2001 and 2000

Consolidated Statements of Income –
Three Years Ended December 31, 2001, 2000, and 1999

Consolidated Statements of
Comprehensive Income – Three Years Ended December 31, 2001, 2000, and 1999

Consolidated Statements of
Stockholders’ Equity – Three Years Ended December 31, 2001, 2000, and 1999

Consolidated Statements of Cash Flows
– Three Years Ended December 31, 2001, 2000, and 1999

Notes to Consolidated Financial
Statements

ITEM
9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable

PART III

ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT

The information set forth under the caption “Election of Directors” and
“Executive Officers” in the Proxy Statement used in connection with our
2002 Annual Shareholders Meeting is incorporated herein by reference.

ITEM
11. EXECUTIVE COMPENSATION

The information set forth under the caption “Executive Compensation” in
the Proxy Statement used in connection with our 2002 Annual Shareholders
meeting is incorporated herein by reference.

ITEM
12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND

MANAGEMENT

The information set forth under the caption “Security Ownership of Certain
Beneficial Owners and Management” in the Proxy Statement used in connection
with our 2002 Annual Shareholders meeting is incorporated herein by reference.

ITEM
13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

The information set forth under the caption “Certain Transactions” in the
Proxy Statement used in connection with our 2002 Annual Shareholders meeting
is incorporated herein by reference.

ITEM
14. EXHIBITS AND REPORTS ON FORM 8K

(a)	Contents:

	1.	Consolidated financial statements:

	(a)	G B & T Bancshares, Inc. and Subsidiaries:

		(i)	Consolidated Balance Sheets - December 31, 2001 and 2000

		(ii)	Consolidated Statements of Income – Three Years Ended December 31, 2001, 2000, and 1999

		(iii)	Consolidated Statements of Comprehensive Income – Three Years Ended December 31, 2001, 2000, and 1999

		(iv)	Consolidated Statements of Stockholders' Equity – Three Years Ended December 31, 2001, 2000, and 1999

		(v)	Consolidated Statements of Cash Flows – Three Years Ended December 31, 2001, 2000, and 1999

		(vi)	Notes to Consolidated Financial Statements

	2.	Financial statement schedules:

		All schedules are omitted as the required information isinapplicable or the information is presented in the financial statements or related notes

(b)	Reports of Form 8-K:

		We did not file a report on Form 8-K during the last quarter of 2001.

Exhibit

No.

Description

3.1

Articles of Incorporation of
the Registrant (incorporated herein by reference to the Registrant’s
Registration Statement on Form S-3, filed on September 24, 1998).

3.2

By-Laws of the Registrant
(incorporated herein by reference to the Registrant’s Registration
Statement on Form S-3, filed on September 24, 1998).

4.1

See Exhibits 3.1 and 3.2 herein
for provisions of the Registrant’s Articles of Incorporation and
By-Laws which define the rights of the
holders of Common Stock of the Registrant.

10.1

Dividend Reinvestment and Share
Purchase Plan of the Registrant (incorporated herein by reference to the
Registration’s Registration
Statement on Form S-3, filed on September 24, 1998).

21.1

Subsidiary of the Registrant.

99.1

Report of Independent Certified Public Accountants by
Porter Keadle Moore, LLP

GB&T
BANCSHARES, INC.

AND SUBSIDIARIES

CONSOLIDATED
FINANCIAL REPORT

DECEMBER 31, 2001

TABLE OF
CONTENTS


		Page

INDEPENDENT AUDITOR’S REPORT		F-2

CONSOLIDATED FINANCIAL STATEMENTS

	Consolidated balance sheets	F-3
	Consolidated statements of income	F-4
	Consolidated statements of comprehensive income	F-5
	Consolidated statements of stockholders’ equity	F-6 and 7
	Consolidated statements of cash flows	F-8 and 9
	Notes to consolidated financial statements	F-10-32

F-1

INDEPENDENT
AUDITOR’S REPORT

To the Board of Directors

GB&T Bancshares, Inc. and Subsidiaries

Gainesville, Georgia

We have audited the accompanying consolidated balance sheets of GB&T
Bancshares, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of income, comprehensive income,
stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
did not audit the 2000 financial statements of Community Trust Financial
Services Corporation and subsidiaries, a company which was pooled with
GB&T Bancshares, Inc. in 2001, as explained in Note 16 to the consolidated
financial statements, which statements are included in the restated 2000
financial statements and reflect total assets and revenues constituting 31%
and 34%, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion for 2000 insofar as it relates to the amounts included for
Community Trust Financial Services Corporation, is based solely upon the
report of the other auditors.

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

In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of GB&T Bancshares, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

/s/
Mauldin & Jenkins, LLC

Atlanta, Georgia

February 1, 2002

F-2

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

Assets	2001		2000


Cash and due from banks	$	18,096,778	$	16,332,076
Interest-bearing deposits in banks		1,087,194		323,675
Federal funds sold		23,831		7,722,991
Securities available-for-sale		86,204,079		81,190,128
Restricted equity securities		2,992,469		2,842,469

Loans		418,655,292		384,690,470
Less allowance for loan losses		5,521,683		5,098,512

Loans, net		413,133,609		379,591,958


Premises and equipment		14,807,158		13,304,711
Other assets		11,250,634		11,180,428


Total assets	$	547,595,752	$	512,488,436


Liabilities and Stockholders’ Equity

Deposits
Noninterest-bearing	$	54,393,181	$	49,291,994
Interest-bearing		372,365,074		352,009,708

Total deposits		426,758,255		401,301,702
Federal funds purchased and securities
sold under repurchase agreements		19,707,004		17,131,999
Other borrowings		50,462,339		47,166,782
Other liabilities		5,894,683		6,333,606

Total liabilities		502,822,281		471,934,089


Commitments and contingencies

Stockholders’ equity
Common stock, par value $5; 20,000,000 shares
authorized, 4,739,139 and 4,651,100 shares
issued and outstanding, respectively		23,695,695		23,255,500
Capital surplus		1,893,779		1,600,636
Retained earnings		18,197,695		15,586,246
Accumulated other comprehensive income		986,302		111,965


Total stockholders’ equity		44,773,471		40,554,347


Total liabilities and stockholders’ equity	$	547,595,752	$	512,488,436



See Notes to Consolidated Financial Statements.

F-3

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001		2000		1999

Interest income
Loans	$	36,762,473	$	36,425,249	$	28,366,827
Taxable securities		4,359,627		4,231,921		3,189,257
Nontaxable securities		720,239		678,781		560,596
Federal funds sold		446,982		424,596		494,561
Deposits in banks		59,444		33,748		89,335

Total interest income		42,348,765		41,794,295		32,700,576


Interest expense
Deposits		17,484,630		17,036,542		12,561,403
Federal funds purchased, securities sold under
repurchase agreements and other borrowings		3,407,837		3,760,975		1,515,305

Total interest expense		20,892,467		20,797,517		14,076,708


Net interest income		21,456,298		20,996,778		18,623,868
Provision for loan losses		1,305,972		1,149,010		1,895,795

Net interest income after provision for loan losses		20,150,326		19,847,768		16,728,073


Other income
Service charges on deposit accounts		3,470,639		2,225,768		2,280,367
Other service charges and fees		925,046		817,058		646,553
Security transactions, net		34,298		130,273		(2,071)
Mortgage origination fees		1,061,681		450,788		358,254
Gain on sale of loans		184,656		53,001		61,457
Trust fees		127,208		123,121		100,108
Equity in loss of unconsolidated subsidiary		(146,258)		(148,662)		(14,849)
Other operating income		671,350		710,775		281,944

Total other income		6,328,620		4,362,122		3,711,763


Other expenses
Salaries and employee benefits		11,414,920		10,196,258		8,611,042
Occupancy expenses		3,354,354		2,865,714		2,456,998
Other operating expenses		5,753,700		4,749,457		4,635,449

Total other expenses		20,522,974		17,811,429		15,703,489


Income before income taxes		5,955,972		6,398,461		4,736,347

Income tax expense		1,986,213		2,089,916		1,404,506


Net income	$	3,969,759	$	4,308,545	$	3,331,841


Basic earnings per share	$	0.85	$	0.93	$	0.72


Diluted earnings per share	$	0.82	$	0.90	$	0.69


See Notes to Consolidated Financial Statements.

F-4

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001		2000		1999


Net income	$	3,969,759	$	4,308,545	$	3,331,841


Other comprehensive income (loss):

Unrealized holding gains (losses) arising during period,
net of tax (benefits) of $548,222, $602,566 and
$(840,477), respectively		895,602		994,884		(1,385,931)

Reclassification adjustment for (gains) losses realized
in net income, net of (taxes) benefits of $(13,033) ,
$9,326 and $704, respectively		(21,265)		15,215		1,367


Other comprehensive income (loss)		874,337		1,010,099		(1,384,564)


Comprehensive income	$	4,844,096	$	5,318,644	$	1,947,277




See Notes to Consolidated Financial Statements.

F-5

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


	Common Stock

	Shares	Par Value


Balance, December 31, 1998	2,745,951	$	13,729,755
Restatement to reflect the pooling of interests
with Community Trust Financial Services
Corporation at December 31, 1998 (Note 16)	1,804,779		9,023,895

Balance, December 31, 1998, as restated	4,550,730		22,753,650
Net income	-		-
Issuance of common stock to acquire assets	64,185		320,925
Options exercised, net of repurchases	8,477		42,385
Tax benefit of nonqualified stock options	-		-
Dividends reinvested	14,028		70,140
Dividends declared, $.20 per share	-		-
Other comprehensive loss	-		-

Balance, December 31, 1999	4,637,420		23,187,100
Net income	-		-
Options exercised, net of repurchases	13,978		69,890
Tax benefit of nonqualified stock options	-		-
Payment for fractional shares in connection with
UB&T Financial Services Corporation business combination	(298)		(1,490)
Dividends declared, $.24 per share	-		-
Other comprehensive income	-		-

Balance, December 31, 2000	4,651,100		23,255,500
Net income	-		-
Options exercised	88,328		441,640
Payment for fractional shares in connection with
Community Trust Financial Services Corporation
business combination	(289)		(1,445)
Tax benefit of nonqualified stock options	-		-
Dividends declared, $.29 per share	-		-
Other comprehensive income	-		-

Balance, December 31, 2001	4,739,139	$	23,695,695



See Notes to Consolidated Financial Statements.

F-6

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)






				Accumulated
				Other		Total
Capital		Retained		Comprehensive		Stockholders’
Surplus		Earnings		Income (Loss)		Equity


$	866,827	$	5,435,114	$	179,359	$	20,211,055


	78,854		4,561,383		307,071		13,971,203

	945,681		9,996,497		486,430		34,182,258
	-		3,331,841		-		3,331,841
	373,185		-		-		694,110
	(8,901)		-		-		33,484
	7,385		-		-		7,385
	268,175		-		-		338,315
	-		(921,480)		-		(921,480)
	-		-		(1,384,564)		(1,384,564)

	1,585,525		12,406,858		(898,134)		36,281,349
	-		4,308,545		-		4,308,545
	(13,206)		-		-		56,684
	32,729		-		-		32,729

	(4,412)		-		-		(5,902)
	-		(1,129,157)		-		(1,129,157)
	-		-		1,010,099		1,010,099

	1,600,636		15,586,246		111,965		40,554,347
	-		3,969,759		-		3,969,759
	98,948		-		-		540,588


	(3,743)		-		-		(5,188)
	197,938		-		-		197,938
	-		(1,358,310)		-		(1,358,310)

	-		-		874,337		874,337
$	1,893,779	$	18,197,695	$	986,302	$	44,773,471

F-7

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001		2000		1999

OPERATING ACTIVITIES
Net income	$	3,969,759	$	4,308,545	$	3,331,841
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		1,541,690		1,354,098		1,184,724
Provision for loan losses		1,305,972		1,149,010		1,895,795
Provision for losses on other real estate owned		100,000		-		92,954
Equity in loss of unconsolidated subsidiary		146,258		148,662		14,849
(Gain) loss on sale of securities		(34,299)		24,541		2,071
Gain on sale of restricted equity securities		-		(154,813)		-
Gain on sale of other real estate owned		(25,794)		(9,657)		(1,446)
Gain on sale of loans		-		(63,365)		-
(Gain) loss on disposal of premises and equipment		(2,843)		(15,834)		6,579
Deferred income taxes		(323,545)		(313,816)		(495,876)
(Increase) decrease in interest receivable		747,489		(967,822)		(277,578)
Increase (decrease) in interest payable		(914,949)		1,270,686		995,016
Increase in cash surrender value of life insurance		(219,348)		(103,063)		(3,682)
Net other operating activities		964,288		(48,244)		147,189


Net cash provided by operating activities		7,254,678		6,578,928		6,892,436


INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in banks		(763,519)		1,187,346		1,070,780
Purchases of securities available-for-sale		(48,649,885)		(18,029,989)		(42,162,921)
Purchases of restricted equity securities		(150,000)		(210,500)		(195,271)
Proceeds from sale of restricted equity securities		-		395,490		-
Proceeds from maturities of securities available-for-sale		41,759,992		9,072,386		22,363,863
Proceeds from sales of securities available-for-sale		3,313,534		2,969,741		2,550,318
Net (increase) decrease in federal funds sold		7,699,160		(600,801)		5,676,328
Net increase in loans		(36,852,556)		(61,282,938)		(81,935,564)
Acquisition of assets		-		-		(821,919)
Purchase of premises and equipment		(3,060,592)		(3,513,263)		(3,180,622)
Disposals of premises and equipment		84,019		73,627		2,245
Purchase of cash value life insurance policies		-		(1,650,000)		(500,000)
Proceeds from sale of other real estate owned		625,666		615,263		420,855
Proceeds from sale of loans and related goodwill		-		551,444		-


Net cash used in investing activities		(35,994,181)		(70,422,194)		(96,711,908)


FINANCING ACTIVITIES
Net increase in deposits		25,456,553		56,049,534		45,273,803
Net increase (decrease) in federal funds purchased
and securities sold under repurchase agreements		2,575,005		(718,239)		15,790,254
Net increase in other borrowings		3,295,557		11,662,879		28,465,103
Proceeds from issuance of common stock		540,588		56,684		33,484
Dividends reinvested		-		-		338,315
Dividends paid		(1,358,310)		(1,129,157)		(921,480)
Payment for fractional shares		(5,188)		(5,902)		-
Purchase of treasury stock		-		-		(50,975)


Net cash provided by financing activities		30,504,205		65,915,799		88,928,504

F-8

GB&T BANCSHARES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

	2001		2000		1999


Net increase (decrease) in cash and due from banks	$	1,764,702	$	2,072,533	$	(890,968)

Cash and due from banks at beginning of year		16,332,076		14,259,543		15,150,511


Cash and due from banks at end of year	$	18,096,778	$	16,332,076	$	14,259,543


SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest	$	21,838,416	$	19,526,831	$	13,081,692

Income taxes	$	1,804,228	$	2,211,989	$	1,796,700

NONCASH TRANSACTIONS
Principal balances of loans transferred to other
real estate owned	$	2,050,776	$	327,867	$	401,588

Financed sales of other real estate owned	$	45,843	$	-	$	-

Stock issued to acquire assets	$	-	$	-	$	694,110

Tax benefit of nonqualified stock options	$	197,938	$	32,729	$	7,385


See Notes to Consolidated Financial Statements.

F-9

GB&T
BANCSHARES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Nature
of Business

GB&T
Bancshares, Inc. (the “Company”) is a multi-bank holding company whose
business is conducted by its wholly-owned commercial bank subsidiaries,
Gainesville Bank & Trust, United Bank & Trust, and Community Trust
Bank (the “Banks”). Gainesville Bank & Trust is located in
Gainesville, Hall County, Georgia with the main office and four branches
located in Gainesville, one branch located in Oakwood, Georgia and one branch
located in Buford, Georgia. United Bank & Trust is located in
Rockmart, Polk County, Georgia with a branch in Cedartown, Georgia.
Community Trust Bank is located in Hiram, Paulding County, Georgia with one
branch in Dallas, Georgia, one branch in Marietta, Georgia, and one branch in
Kennesaw, Georgia. The Banks provide a full range of banking services to
individual and corporate customers in their primary market areas of Hall,
Polk, and Paulding Counties, respectively, and the surrounding counties.

The
consolidated financial statements also include its wholly-owned subsidiary,
Community Loan Company (“CLC”). CLC was incorporated in 1995 for the
purpose of acquiring and operating existing consumer finance companies under
the direction of the Company. The operations of CLC, located in the
Georgia cities of Rockmart, Rossville, Gainesville, Woodstock, Cartersville,
Dahlonega, Dalton and Rome, are funded principally through a line of credit
arrangement with another financial institution.

The Company
owns a 49% interest in Cash Transactions, L.L.C. (“CashTrans”), a company
that sells, leases and services automated teller machines. Community
Trust Bank has loans to CashTrans totaling approximately $586,685 and $504,000
at December 31, 2001 and 2000, respectively. The investment is accounted
for using the equity method of accounting.

Basis
of Presentation

The
consolidated financial statements include the accounts of the Company and its
subsidiaries. Significant intercompany transactions and balances are
eliminated in consolidation.

The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the balance
sheet date and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses, the valuation of foreclosed real estate and
deferred taxes.

Cash,
Due from Banks and Cash Flows

For purposes
of reporting cash flows, cash and due from banks includes cash on hand, cash
items in process of collection and amounts due from banks. Cash flows
from loans, federal funds sold, federal funds purchased and securities sold
under repurchase agreements, deposits and other borrowings are reported net.

The Company
maintains amounts due from banks which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.

F-10

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

Securities

Debt
securities that management has the positive intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized
cost. Securities not classified as held-to-maturity, including equity
securities with readily determinable fair values, are classified as
available-for-sale and recorded at fair value with unrealized gains and losses
excluded from earnings and reported in other comprehensive income.
Equity securities, including restricted stock, without a readily determinable
fair value are recorded at cost.

Interest and
dividends, including amortization of premiums and accretion of discounts, are
recognized in interest income. Gains and losses on the sale of
securities are determined using the specific identification method.
Declines in the fair value of held-to-maturity and available-for-sale
securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses.

Loans

Loans are
reported at their outstanding unpaid principal balances less unearned income,
including deferred fees and costs on originated loans, and the allowance for
loan losses. Interest income is accrued on the unpaid balance.
Loan origination fees, net of certain direct loan origination costs, are
deferred and recognized as an adjustment of the related loan yield over the
life of the loan.

The accrual
of interest on loans is discontinued when, in management’s opinion, the
borrower may be unable to meet payments as they become due, unless the loan is
well-secured. All interest accrued but not collected for loans that are
placed on nonaccrual or charged off is reversed against interest income.
Interest income on nonaccrual loans is subsequently recognized only to the
extent cash payments are received, until the loan is returned to accrual
status.

The
allowance for loan losses is established through a provision for loan losses
charged to expense. Loan losses are charged against the allowance when
management believes the collectibility of the principal is unlikely.
Subsequent recoveries are credited to the allowance.

The
allowance is an amount that management believes will be adequate to absorb
estimated losses in the loan portfolio. The allowance for loan losses is
evaluated on a regular basis by management and is based upon management’s
periodic review of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrower’s ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Company’s allowance for
loan losses, and may require the Company to make additions to the allowance
based on their judgment about information available to them at the time of
their examinations.

A loan is
considered impaired when it is probable the Company will be unable to collect
all principal and interest payments due in accordance with the contractual
terms of the loan agreement. Impaired loans are measured by either the
present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price, or the fair
value of the collateral if the loan is collateral dependent. The amount
of impairment, if any, and any subsequent changes are included in the
allowance for loan losses.

F-11

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

Premises
and Equipment

Land is
carried at cost. Premises and equipment are stated at cost less
accumulated depreciation computed principally by the straight-line method over
the estimated useful lives of the assets. The range of estimated useful
lives for premises and equipment are:

Buildings and improvements	20 – 40 years
Furniture and equipment	3 – 10 years

Other
Real Estate Owned

Other real
estate owned represents properties acquired through foreclosure. Other
real estate owned is held for sale and is carried at the lower of cost or fair
value less estimated costs of disposal. Any write-down to fair value at
the time of transfer to other real estate owned is charged to the allowance
for loan losses. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
The carrying amount of other real estate owned at December 31, 2001 and 2000
was $1,522,874 and $228,133, respectively.

Intangible
Assets

Intangible
assets, arising from the excess of cost over the fair value of net assets
acquired, is amortized on a straight-line basis over periods not exceeding 15
years. On an ongoing basis, management reviews the valuation and
amortization periods of goodwill to determine if events and circumstances
require the remaining lives to be reduced. The carrying amount of
goodwill as of December 31, 2001 and 2000 was $566,128 and $630,849,
respectively.

Transfers
of Financial Assets

Transfers of
financial assets are accounted for as sales when control over the assets has
been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.

The Company
originates and sells participations in certain loans. Gains are
recognized at the time the sale is consummated. The amount of gain
recognized on the sale of a specific loan is equal to the percentage resulting
from determining the fair value of the portion of the loan sold relative to
the fair value of the entire loan. Losses are recognized at the time the
loan is identified as held for sale and the loan’s carrying value exceeds
its fair value.

Income
Taxes

Deferred
income tax assets and liabilities are determined using the balance sheet
method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the temporary differences between the
book and tax bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws.

F-12

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

Profit-Sharing
Plan

Profit-sharing
plan costs are based on a percentage of individual employee’s salary, not to
exceed the amount that can be deducted for federal income tax purposes.

Stock
Compensation Plans

Statement of
Financial Accounting Standards (“SFAS”) No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value
based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the
award and is recognized over the service period, which is usually the vesting
period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, whereby compensation cost is the excess, if
any, of the quoted market price of the stock at the grant date over the amount
an employee must pay to acquire the stock. Stock options issued under
the Company’s stock option plan have no intrinsic value at the grant date,
and under Opinion No. 25 no compensation cost is recognized for them.
The Company has elected to continue with the accounting methodology in Opinion
No. 25 and, as a result, has provided pro forma disclosures of net income and
earnings per share and other disclosures, as if the fair value based method of
accounting had been applied.

Earnings
Per Share

Basic
earnings per share are computed by dividing net income by the weighted-average
number of shares of common stock outstanding. Diluted earnings per share
are computed by dividing net income by the sum of the weighted-average number
of shares of common stock outstanding and potential common shares.
Potential common shares consist of stock options.

Comprehensive
Income

Accounting
principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.

Reclassifications

Certain
assets, liabilities, income and expenses on the balance sheet and statement of
income as of and for the years ended December 31, 2000 and 1999 have been
reclassified, with no effect on net income, to be consistent with the
classifications adopted for the year ended December 31, 2001.

F-13

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)

Recent
Developments

In July
2001, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 141 (SFAS No. 141), "Business Combinations" and
Statement No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. SFAS No. 141
also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment. SFAS No. 141 was
effective July 1, 2001 while the provisions of SFAS No. 142 will be adopted
effective January 1, 2002.

As of
December 31, 2001, the Company had unamortized goodwill of approximately
$566,128, which will be subject to the transition provisions of SFAS No. 141
and SFAS No. 142. Amortization expense related to goodwill was $64,721
and $64,721 for the years ended December 31, 2001 and 2000,
respectively. The Company has not fully determined the impact of
adopting these Statements on the financial statements as of December 31, 2001.

NOTE
2. SECURITIES

The amortized cost and fair value of
securities available-for-sale are summarized as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

December 31, 2001:
U. S. Government and agency
securities	$	28,088,750	$	772,518	$	(3,898)	$	28,857,370
State and municipal securities		16,148,296		450,261		(8,633)		16,589,924
Mortgage-backed securities		36,523,548		368,200		(56,816)		36,834,932
Equity securities		2,095,439		-		-		2,095,439
Corporate bonds		1,765,319		66,798		(5,703)		1,826,414

	$	84,621,352	$	1,657,777	$	(75,050)	$	86,204,079


December 31, 2000:
U. S. Government and agency
securities	$	47,696,995	$	146,962	$	(173,412)	$	47,670,545
State and municipal securities		16,017,566		225,262		(29,360)		16,213,468
Mortgage-backed securities		14,216,787		86,276		(79,273)		14,223,790
Equity securities		2,095,439		-		-		2,095,439
Corporate bonds		983,908		2,978		-		986,886

	$	81,010,695	$	461,478	$	(282,045)	$	81,190,128

F-14

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE
2. SECURITIES
(Continued)

The
amortized cost and fair value of debt securities as of December 31, 2001 by
contractual maturity are shown below. Maturities may differ from
contractual maturities of mortgage-backed securities because the mortgages
underlying the securities may be called or repaid without penalty.
Therefore, these securities are not included in the maturity categories in the
following summary.

	Amortized Cost		Fair Value


Due within one year	$	4,634,180	$	4,703,586
Due from one to five years		28,913,682		29,735,564
Due from five to ten years		11,265,316		11,604,421
Due after ten years		1,189,187		1,230,137
Mortgage-backed securities		36,523,548		36,834,932

	$	82,525,913	$	84,108,640

Securities
with a carrying value of $39,159,884 and $57,819,269 at December 31, 2001 and
2000, respectively, were pledged to secure public deposits and for other
purposes required or permitted by law.

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

	Years Ended December 31,

	2001		2000		1999


Gross gains	$	48,374	$	154,814	$	8,177
Gross losses		(14,076)		(24,541)		(10,248)

Net realized gains (losses)	$	34,298	$	130,273	$	(2,071)

NOTE
3. LOANS

The
composition of loans is summarized as follows:

	December 31,

	2001		2000

Commercial, financial and agricultural	$	38,596,998	$	37,158,561
Real estate – construction		99,473,213		68,951,261
Real estate – mortgage		247,824,476		240,986,963
Consumer		29,286,063		33,206,621
Other		3,988,573		4,738,905

		419,169,323		385,042,311
Unearned income		(514,031)		(351,841)
Allowance for loan losses		(5,521,683)		(5,098,512)

Loans, net	$	413,133,609	$	379,591,958

F-15

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE
3. LOANS (Continued)

Changes in
the allowance for loan losses are as follows:

	Years Ended December 31,

	2001		2000		1999


Balance, beginning of year	$	5,098,512	$	4,232,413	$	3,067,850
Provision for loan losses		1,305,972		1,149,010		1,895,795
Loans charged off		(1,118,001)		(581,466)		(934,496)
Recoveries of loans previously charged off		235,200		313,547		127,013
Allowance for loan losses acquired (sold)		-		(14,992)		76,251

Balance, end of year	$	5,521,683	$	5,098,512	$	4,232,413

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

		As of and for the Years Ended December 31,

	2001		2000		1999


Impaired loans without a valuation allowance	$	189,416	$	21,046	$	-
Impaired loans with a valuation allowance		327,290		1,602,493		735,993

Total impaired loans	$	516,706	$	1,623,539	$	735,993

Valuation allowance related to impaired loans	$	49,094	$	185,160	$	106,002

Average investment in impaired loans	$	1,223,601	$	943,602	$	964,216

Interest income recognized on impaired loans	$	13,876	$	130,084	$	22,037

In the
ordinary course of business, the Company has granted loans to certain related
parties, including executive officers, directors and their affiliates.
The interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are customary
for the type of loan. Changes in related party loans for the year ended
December 31, 2001 are as follows:

Balance, beginning of year	$	9,808,378
Advances		5,560,965
Repayments		(7,424,879)
Change in directors		(255,008)

Balance, end of year	$	7,689,456

F-16

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
4. PREMISES AND
EQUIPMENT

Premises and
equipment are summarized as follows:

	December 31,

	2001		2000


Land	$	3,485,039	$	2,797,952
Land improvements		104,460		104,459
Buildings		7,095,616		6,172,521
Leasehold improvements		2,837,329		2,028,779
Furniture and equipment		9,606,164		8,429,659
Computer installation and construction in progress		482,441		1,198,214

		23,611,049		20,731,584
Accumulated depreciation		(8,803,891)		(7,426,873)

	$	14,807,158	$	13,304,711

Depreciation
expense was $1,476,969, $1,205,517 and $1,059,886 for the years ended December
31, 2001, 2000 and 1999, respectively.

At December
31, 2001, the Company’s 50% interest in the Gainesville Bank & Trust
main office banking facility with a carrying value (including land) of
$1,613,909 was pledged to a bank to secure a $751,173 borrowing of a director
who is the owner of the remaining 50% interest in the building.

At December
31, 2001, computer installation and construction in progress consisted of
costs incurred in constructing a new branch and a software upgrade.
Total estimated costs to complete both projects as of December 31, 2001 were
approximately $1,857,544.

Leases

The Company
leases the Gainesville Bank & Trust main office banking facility under a
noncancelable operating lease agreement from 400 Church Street Properties, a
partnership that is 50% owned by Gainesville Bank & Trust and 50% owned by
a director. The lease had an initial lease term of 10 years with four
five-year renewal options.

The Company
also leases various other branches under noncancelable operating lease
agreements.

Rental
expense under all operating leases amounted to $707,844, $651,352 and $539,361
for the years ended December 31, 2001, 2000 and 1999, respectively.

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

2002	$	571,918
2003		563,381
2004		538,810
2005		196,004
2006		139,112
Thereafter		235,469

	$	2,244,694

F-17

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
5. DEPOSITS

The
aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2001 and 2000 was $57,660,875 and $63,247,790,
respectively. The scheduled maturities of time deposits at December 31,
2001 are as follows:

2002	$	198,696,844
2003		27,769,400
2004		6,018,990
2005		4,036,830
2006		1,019,003

	$	237,541,067

NOTE
6. SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS

Securities
sold under repurchase agreements, which are secured borrowings, generally
mature within one to four days from the transaction date. Securities
sold under repurchase agreements are reflected at the amount of cash received
in connection with the transactions. The Company may be required to
provide additional collateral based on the fair value of the underlying
securities. The Company monitors the fair value of the underlying
securities on a daily basis. Securities sold under repurchase agreements
at December 31, 2001 and 2000 were $10,663,854 and $12,942,850, respectively.

NOTE
7. OTHER BORROWINGS

Other
borrowings consist of the following:

FHLB advances, interest payable at fixed rates ranging from 4.98%
to 6.48%, advances mature at various maturity dates from
November 13, 2002 through January 5, 2011.	$	35,551,375	$	35,602,857
FHLB advances, interest payable at variable rates from LIBOR
minus .23% to LIBOR minus .12%, advances mature at various
maturity dates from February 11, 2002 to May 19, 2003.		12,000,000		9,000,000
Note payable to bank.		-		419,000
Line of credit with bank with interest due quarterly at prime less
1.0% or 3.75% at December 31, 2001. Collateralized by 100%
of Community Trust Bank common stock, subject to various
loan covenants. As of December 31, 2001, the Company was
in substantial compliance with the loan covenants.		1,875,000		1,030,000
Line of credit with bank with interest due quarterly at prime less
.75% or 4.00% at December 31, 2001. Collateralized by a first
lien on loans receivable of CLC and 100% of Community Trust
Bank common stock.		180,000		715,921
Treasury, tax and loan note option account due on demand, bearing
interest equal to the 90 day Treasury bill rate.		855,964		399,004


	$	50,462,339	$	47,166,782

F-18

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
7. OTHER BORROWINGS

Contractual
maturities of other borrowings as of December 31, 2001 are as follows:

2002	$	7,087,339
2003		11,000,000
2004		7,000,000
2005		8,000,000
2006		-
Thereafter		17,375,000

	$	50,462,339

The advances
from the Federal Home Loan Bank are collateralized by blanket floating liens
on qualifying first mortgages, Federal Home Loan Bank stock, qualifying home
equity loans and certain other qualifying specific loans.

Loan
Guarantee

CashTrans
has a $1,000,000 revolving line of credit with another financial institution
which is guaranteed by the Company. At December 31, 2001, CashTrans had
$1,000,000 outstanding under this line of credit.

NOTE
8. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

The Company
has a 401(k) Employee Profit-Sharing Plan available to all eligible employees,
subject to certain minimum age and service requirements. The
contributions expensed were $239,640, $229,260 and $182,511 for the years
ended December 31, 2001, 2000 and 1999, respectively.

Deferred Compensation Plan

The Company
has various deferred compensation plans providing for death and retirement
benefits for certain officers. The estimated amounts to be paid under
the compensation plans have been funded through the purchase of life insurance
policies on the officers. Accrued deferred compensation of $360,204 and
$227,916 is included in other liabilities as of December 31, 2001 and 2000,
respectively. Cash surrender values of $4,321,007 and $4,101,659 on the
insurance policies is included in other assets at December 31, 2001 and
2000, respectively.

NOTE
9. STOCK COMPENSATION PLANS

The Company
has a 1992 stock option plan for key employees. Option prices reflect
the fair market value of the Company’s common stock on the dates the options
are granted. These options expire five years from the grant date and
vest in accordance with vesting schedules determined by the Board of
Directors.

F-19

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
9. STOCK
COMPENSATION PLANS (Continued)

The Company
has a 1997 stock option plan for the granting of options to directors,
officers, and employees. Option prices reflect the fair market value of
the Company’s common stock on the dates the options are granted. The
options may be exercised over a period of ten years in accordance with vesting
schedules determined by the Board of Directors.

Other
pertinent information related to the options is as follows:

2001

2000

1999

Shares

Weighted-

Average

Exercise

Price

Shares

Weighted-

Average

Exercise

Price

Shares

Weighted-

Average

Exercise

Price

Outstanding at beginning of year	559,092	$	10.19	551,561	$	9.87	495,964	$	9.32
Granted	46,364		13.35	42,386		15.01	71,697		13.02
Exercised	(146,814)		8.83	(19,056)		6.10	(11,379)		5.99
Terminated	(22,006)		13.73	(15,799)		16.29	(4,721)		10.77

Outstanding at end of year	436,636	$	10.81	559,092	$	10.19	551,561	$	9.87


Options exercisable at year-end	291,749	$	10.18	321,132	$	9.09	261,942	$	9.28
Weighted-average fair value of options
granted during the year		$	4.32		$	7.80		$	8.37

Information
pertaining to options outstanding at December 31, 2001 is as follows:

	Options Outstanding			Options Exercisable

Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price	Number Exercisable	Weighted- Average Exercise Price

$3.68 - $5.01	27,313	2.3 years	$	4.43	27,313	$	4.43
$6.36 - $9.01	21,970	3.4 years		7.19	20,720		7.13
$10.04 - $15.00	366,408	6.4 years		11.08	240,488		10.97
$16.50 - $23.00	20,945	8.4 years		18.18	3,228		19.21

	436,636	6.1 years	$	10.81	291,749	$	10.18

The Company
applies Opinion 25 and related Interpretations in accounting for the stock
option plan. Accordingly, no compensation cost has been
recognized. Had compensation cost for the stock option plan been
determined based on the fair value at the grant dates for awards under the
plan consistent with the method prescribed by FASB Statement No. 123, net
income and earnings per share would have been adjusted to the pro forma
amounts indicated below.

F-20

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
9. STOCK
COMPENSATION PLANS (Continued)

		Years Ended December 31,

		2001		2000		1999

		(In thousands, except per share data)


Net income	As reported	$	3,970	$	4,309	$	3,332
	Pro forma	$	3,748	$	4,227	$	3,113

Earnings per share	As reported	$	.85	$	.93	$	.72
	Pro forma	$	.80	$	.91	$	.68

Earnings per share -	As reported	$	.82	$	.90	$	.69
assuming dilution	Pro forma	$	.78	$	.88	$	.65

The fair
value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:

	Years Ended December 31,

	2001		2000		1999


Dividend yield		2.63%		1.25%	$	1.10%
Expected life		10 years		10 years		10 years
Expected volatility		27.60%		25.74%		14.31%
Risk-free interest rate		5.59%		6.24%		5.97%

NOTE
10. INCOME TAXES

The
components of income tax expense are as follows:

	Years Ended December 31,

	2001		2000		1999


Current	$	2,309,757	$	2,403,732	$	1,900,382
Deferred		(323,544)		(313,816)		(479,961)
Change in valuation allowance		-		-		(15,915)

	$	1,986,213	$	2,089,916	$	1,404,506

F-21

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
10. INCOME
TAXES (Continued)

The Company’s
income tax expense differs from the amounts computed by applying the federal
income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:

	Years Ended December 31,

	2001		2000		1999


Tax provision at statutory rate	$	2,025,030	$	2,175,477	$	1,610,359
Tax-exempt interest		(245,347)		(234,875)		(205,063)
Disallowed interest		42,305		43,977		29,281
Life insurance		(69,596)		(62,068)		(27,527)
State income taxes		36,544		50,382		31,459
Merger expenses		167,179		69,773		8,500
Other		30,098		47,250		(42,503)

Income tax expense	$	1,986,213	$	2,089,916	$	1,404,506

The
components of deferred income taxes are as follows:

	2001		2000


Deferred tax assets:
Loan loss reserves	$	1,667,711	$	1,544,821
Other real estate write-down		37,759		2,008
Deferred compensation		189,656		120,753
Organizational expenses		4,496		13,674
Deferred loan fees		64,372		19,086
Goodwill amortization		28,641		29,929
Nonbank bad debt reserve		202,731		139,199
Other		36,276		46,712

		2,231,642		1,916,182

Deferred tax liabilities:
Depreciation		166,999		176,896
Accretion of discount on securities		6,179		4,366
Securities available-for-sale		602,438		67,249

		775,616		248,511


Net deferred tax assets	$	1,456,026	$	1,667,671

F-22

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
11. EARNINGS PER SHARE

Presented
below is a summary of the components used to calculate basic and diluted
earnings per share:

	Years Ended December 31,

	2001		2000		1999


Net income	$	3,969,759	$	4,308,545	$	3,331,841


Weighted average number of
common shares outstanding		4,676,314		4,639,505		4,600,628
Effect of dilutive options		139,569		151,839		200,798

Weighted average number of common
shares outstanding used to calculate
dilutive earnings per share		4,815,883		4,791,344		4,801,426

NOTE
12. COMMITMENTS AND
CONTINGENCIES

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. Such commitments involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the
amount recognized in the balance sheets.

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

	December 31,

	2001		2000

Commitments to extend credit	$	70,932,849	$	66,937,389
Standby letters of credit		3,704,226		3,204,058
Credit card commitments		4,996,493		4,668,453

	$	79,633,568	$	74,809,900

Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Since many of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The amount of collateral obtained, if deemed necessary by
the Company upon extension of credit, is based on management’s credit
evaluation of the customer.

F-23

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE
12. COMMITMENTS AND CONTINGENCIES
(Continued)

Credit card
commitments are granted on an unsecured basis.

Standby
letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those letters
of credit are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
Collateral is required in instances which the Company deems necessary.

In the
normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from
such proceedings would not have a material effect on the Company’s financial
statements.

NOTE
13. CONCENTRATIONS OF CREDIT

The Company
originates primarily commercial, residential and consumer loans to customers
in Hall, Polk, Paulding and surrounding counties. The ability of the
majority of the Company’s customers to honor their contractual obligations
is dependent on the local and metropolitan Atlanta, Georgia economies.

Eighty-three
percent of the Company’s loan portfolio is concentrated in loans secured by
real estate. A substantial portion of these loans are in the Company’s
primary market areas. In addition, a substantial portion of the other
real estate owned is located in those same markets. Accordingly, the
ultimate collectibility of the Company’s loan portfolio and recovery of the
carrying amount of other real estate owned are susceptible to changes in
market conditions in the Company’s market areas. The other significant
concentrations of credit by type of loan are set forth in Note 3.

The Company,
as a matter of policy, does not generally extend credit to any single borrower
or group of related borrowers in excess of 25% of each Bank’s statutory
capital, or approximately $3,595,000, $1,210,000, and $2,500,000 for
Gainesville Bank & Trust, United Bank & Trust and Community Trust
Bank, respectively.

NOTE
14. REGULATORY MATTERS

The Banks
are subject to certain restrictions on the amount of dividends that may be
declared without prior regulatory approval. At December 31, 2001,
approximately $2,679,000 of retained earnings were available for dividend
declaration without regulatory approval.

The Company
and Banks are subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The
Company’s and the Banks’ capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions are
not applicable to bank holding companies.

Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Banks to maintain minimum amounts and ratios of Total and Tier
I capital to risk-weighted assets and of Tier I capital to average
assets. Management believes, as of December 31, 2001 and 2000, the
Company and the Banks met all capital adequacy requirements to which they are
subject.

F-24

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
14. REGULATORY MATTERS (Continued)

As of
December 31, 2001, the most recent notification from the Federal Deposit
Insurance Corporation categorized Gainesville Bank & Trust as adequately
capitalized and United Bank & Trust and Community Trust Bank as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Banks must maintain minimum Total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
following table. There are no conditions or events since that
notification that management believes have changed the Banks’ categories.

The Company
and Banks’ actual capital amounts and ratios are presented in the following
table.

							To Be Well
				For Capital			Capitalized Under
				Adequacy			Prompt Corrective
	Actual			Purposes			Action Provisions

	Amount		Ratio	Amount		Ratio	Amount		Ratio

	(Dollars in Thousands)

As of December 31, 2001:
Total Capital to Risk Weighted Assets:
Consolidated	$	48,764	11.19%	$	34,850	8%		N/A	N/A
Gainesville Bank & Trust	$	23,273	9.32%	$	19,987	8%	$	24,984	10%
United Bank & Trust	$	6,312	13.15%	$	3,842	8%	$	4,802	10%
Community Trust Bank	$	13,684	10.79%	$	10,148	8%	$	12,686	10%
Tier I Capital to Risk Weighted Assets:
Consolidated	$	43,243	9.93%	$	17,425	4%		N/A	N/A
Gainesville Bank & Trust	$	20,337	8.14%	$	9,994	4%	$	14,990	6%
United Bank & Trust	$	5,830	12.14%	$	1,921	4%	$	2,881	6%
Community Trust Bank	$	12,109	9.55%	$	5,074	4%	$	7,611	6%
Tier I Capital to Average Assets:
Consolidated	$	43,243	7.87%	$	21,974	4%		N/A	N/A
Gainesville Bank & Trust	$	20,337	6.40%	$	12,719	4%	$	15,899	5%
United Bank & Trust	$	5,830	9.06%	$	2,574	4%	$	3,217	5%
Community Trust Bank	$	12,109	7.55%	$	6,413	4%	$	8,016	5%

As of December 31, 2000:
Total Capital to Risk Weighted Assets:
Consolidated	$	44,773	11.00%	$	32,562	8%		N/A	N/A
Gainesville Bank & Trust	$	20,873	8.70%	$	19,202	8%	$	24,002	10%
United Bank & Trust	$	5,903	13.74%	$	3,438	8%	$	4,297	10%
Community Trust Bank	$	12,552	10.71%	$	9,373	8%	$	11,716	10%
Tier I Capital to Risk Weighted Assets:
Consolidated	$	39,811	9.78%	$	14,869	4%		N/A	N/A
Gainesville Bank & Trust	$	18,203	7.58%	$	9,601	4%	$	14,401	6%
United Bank & Trust	$	5,363	12.48%	$	1,719	4%	$	2,578	6%
Community Trust Bank	$	11,240	9.59%	$	4,686	4%	$	7,030	6%
Tier I Capital to Average Assets:
Consolidated	$	39,811	7.99%	$	19,930	4%		N/A	N/A
Gainesville Bank & Trust	$	18,203	6.25%	$	11,647	4%	$	14,559	5%
United Bank & Trust	$	5,363	9.94%	$	2,159	4%	$	2,699	5%
Community Trust Bank	$	11,240	7.44%	$	5,393	4%	$	6,992	5%

F-25

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
15. FAIR
VALUE OF FINANCIAL INSTRUMENTS

The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value
is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Company’s various
financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented
may not necessarily represent the underlying fair value of the Company.

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

Cash, Due From Banks, Interest-Bearing Deposits in Banks and Federal Funds

Sold:

The carrying
amounts of cash, due from banks, interest-bearing deposits in banks and
federal funds sold approximate fair value.

Securities:

Fair values
for securities are based on available quoted market prices. The carrying
values of equity securities with no readily determinable fair value
approximate fair values.

Loans:

For
variable-rate loans that reprice frequently and have no significant change in
credit risk, fair values are based on carrying values. For other loans,
the fair values are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. Fair values for impaired loans
are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.

Deposits:

The carrying
amounts of demand deposits, savings deposits, and variable-rate certificates
of deposit approximate their fair values. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.

Federal Funds Purchased, Repurchase Agreements and Other Borrowings:

The fair values of the Company’s
fixed rate other borrowings are estimated using discounted cash flow models
based on the Company’s current incremental borrowing rates for similar types
of borrowing arrangements. The carrying amounts of all other variable
rate borrowings, federal funds purchased, and securities sold under repurchase
agreements approximate their fair values.

F-26

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
15. FAIR
VALUE OF FINANCIAL INSTRUMENTS (Continued)

Accrued Interest:

The carrying
amounts of accrued interest approximate their fair values.

Off-Balance Sheet Instruments:

Fair values
of the Company’s off-balance sheet financial instruments are based on fees
currently charged to enter into similar agreements. Since the majority
of the Company’s off-balance-sheet instruments consist of nonfee-producing,
variable-rate commitments, the Company has determined they do not have a
distinguishable fair value.

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

December 31,
2001

December 31,
2000

Carrying

Amount

Fair

Value

Carrying

Amount

Fair

Value

(Dollars in
Thousands)

Financial assets:

Cash,
due from banks, interest-

bearing
deposits in banks

and
Federal funds sold

19,208

24,379

Securities

86,204

81,190

Restricted
equity securities

2,992

2,842

Loans

413,134

423,042

379,592

378,375

Accrued
interest receivable

3,198

3,945

Financial liabilities:

Deposits

426,758

433,836

401,302

403,045

Federal
funds purchased and

securities
sold under

repurchase
agreements

19,707

17,132

Other
borrowings

50,462

49,153

47,167

46,938

Accrued
interest payable

4,384

5,298

F-27

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
16. BUSINESS
COMBINATIONS

On June 30,
2001, the Company effected a business combination with Community Trust
Financial Services Corporation (“CTF”) by exchanging 1,890,662 shares of
its common stock for all of the common stock of CTF. The combination has
been accounted for as a pooling of interests and, accordingly, all prior year
financial statements have been restated to include CTF. The results of
operations of the separate companies for the periods prior to the combination
are summarized as follows:

	Total Revenues		Net Income (Loss)

	(Dollars in Thousands)


Six months ended June 30, 2001
GB&T Bancshares, Inc.	$	16,616	$	1,529
Community Trust Financial Services Corporation		8,291		(302)

	$	24,907	$	1,227


Year ended December 31, 2000
GB&T Bancshares, Inc.	$	30,629	$	3,239
Community Trust Financial Services Corporation		15,527		1,070

	$	46,156	$	4,309


Year ended December 31, 1999
GB&T Bancshares, Inc.	$	24,046	$	2,469
Community Trust Financial Services Corporation		12,367		863

	$	36,413	$	3,332

NOTE
17.
SUPPLEMENTAL FINANCIAL DATA

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

	Years Ended December 31,

	2001		2000		1999


Advertising	$	375,018	$	395,159	$	449,087
Legal fees and merger expenses		618,678		336,367		180,170

F-28

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
18. PARENT
COMPANY FINANCIAL INFORMATION

The
following information presents the condensed balance sheets as of December 31,
2001 and 2000 and statements of income and cash flows of GB&T Bancshares,
Inc. for the periods ended December 31, 2001, 2000 and 1999.

CONDENSED
BALANCE SHEETS

	2001		2000

Assets
Cash	$	853,986	$	229,721
Securities available-for-sale		1,295,440		1,295,440
Investment in subsidiaries		42,909,038		38,736,794
Premises and equipment		1,510,978		1,617,909
Other assets		234,343		152,621


Total assets	$	46,803,785	$	42,032,485


Liabilities
Other borrowings	$	1,875,000	$	1,449,000
Other liabilities		155,314		29,138


Total liabilities		2,030,314		1,478,138

Stockholders’ equity		44,773,471		40,554,347


Total liabilities and stockholders’ equity	$	46,803,785	$	42,032,485

F-29

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
18. PARENT
COMPANY FINANCIAL INFORMATION (CONTINUED)

CONDENSED
STATEMENTS OF INCOME

	2001		2000		1999


Income
Interest income	$	-	$	-	$	59,074
Dividends from subsidiaries		1,948,425		2,168,961		1,678,153
Management fees		-		296,769		252,830
Other income		145,622		18,222		-

		2,094,047		2,483,952		1,990,057


Expense
Interest		131,452		77,614		-
Other operating expense		1,861,594		1,236,812		1,017,139

		1,993,046		1,314,426		1,017,139


Income before income tax benefit and equity
in undistributed income of subsidiaries		101,001		1,169,526		972,918

Income tax benefits		570,850		353,123		267,558


Income before equity in undistributed
income of subsidiaries		671,851		1,522,649		1,240,476

Equity in undistributed income of subsidiaries		3,297,908		2,785,896		2,091,365


Net income	$	3,969,759	$	4,308,545	$	3,331,841

F-30

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
18. PARENT
COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED
STATEMENTS OF CASH FLOWS

	2001		2000		1999


OPERATING ACTIVITIES
Net income	$	3,969,759	$	4,308,545	$	3,331,841
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed income of subsidiaries		(3,297,908)		(2,785,896)		(2,091,365)
Amortization		-		-		36,416
Depreciation		86,341		51,206		14,323
Other operating activities		242,393		102,544		188,496


Net cash provided by operating activities		1,000,585		1,676,399		1,479,711


INVESTING ACTIVITIES
Purchase of securities available-for-sale		-		(378,000)		(917,440)
Capital contribution in CLC		-		-		(2,500,000)
Acquisition of assets on behalf of CLC		-		-		(821,919)
Purchase of premises and equipment		-		(1,326,747)		(341,027)
Sale of premises and equipment		20,590		-		-
Decrease in loans to subsidiaries		-		-		2,743,850


Net cash provided by (used in)
investing activities		20,590		(1,704,747)		(1,836,536)


FINANCING ACTIVITIES
Dividends paid		(1,358,310)		(1,129,157)		(921,480)
Proceeds from issuance of common stock		540,588		56,684		33,484
Dividends reinvested		-		-		338,315
Payment for fractional shares		(5,188)		(5,902)		-
Purchase of treasury stock		-		-		(50,975)
Proceeds from note payable		845,000		1,038,000		55,000
Repayment of note payable		(419,000)		-		-


Net cash used in financing activities		(396,910)		(40,375)		(545,656)


Net increase (decrease) in cash		624,265		(68,723)		(902,481)

Cash at beginning of period		229,721		298,444		1,200,925


Cash at end of year	$	853,986	$	229,721	$	298,444

F-31

NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

NOTE
19.
QUARTERLY DATA (Unaudited)

	Years Ended December 31,

	2001								2000

	Fourth		Third		Second		First		Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter		Quarter

	(In thousands, except per share data)

Interest income	$	10,478	$	10,292	$	10,704	$	10,875	$	11,319	$	10,808	$	10,139	$	9,528
Interest expense		4,444		5,200		5,494		5,755		5,904		5,475		4,911		4,507


Net interest income		6,034		5,092		5,210		5,120		5,415		5,333		5,228		5,021
Provision for loan losses		268		230		464		344		190		283		332		344


Net interest income after
provision for loan losses		5,766		4,862		4,746		4,776		5,225		5,050		4,896		4,677
Noninterest income		1,270		1,731		1,734		1,594		1,124		1,083		1,167		988
Noninterest expenses		4,963		4,616		5,927		5,017		4,513		4,330		4,343		4,625


Income before income taxes		2,073		1,977		553		1,353		1,836		1,803		1,720		1,040
Provision for income taxes		635		672		272		407		585		577		544		384


Net income	$	1,438	$	1,305	$	281	$	946	$	1,251	$	1,226	$	1,176	$	656


Earnings per share:
Basic	$	0.31	$	0.28	$	0.06	$	0.20	$	0.28	$	0.26	$	0.25	$	0.14

Diluted	$	0.30	$	0.27	$	0.06	$	0.19	$	0.27	$	0.25	$	0.24	$	0.14

F-32

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.

GB&T BANCSHARES, INC.

By:	/s/ Richard A. Hunt	DATE: March 29, 2002
	Richard A. Hunt, President, Chief
	Executive Officer and Director

By:	/s/ Gregory L. Hamby	DATE: March 29, 2002
	Gregory L. Hamby, Executive Vice President

By:	/s/ F. Abit Massey	DATE: March 29, 2002
	F. Abit Massey, Chairman and Director

By:	/s/ Philip A. Wilheit	DATE: March 29, 2002
	Philip A. Wilheit, Vice-Chairman and
	Director

By:	/s/ Samuel L. Oliver	DATE: March 29, 2002
	Samuel L. Oliver, Secretary and Director

By:	/s/ Donald J. Carter	DATE: March 29, 2002
	Donald J. Carter, Director

By:	/s/ Dr. John W. Darden	DATE: March 29, 2002
	Dr. John W. Darden, Director

By:	/s/ Bennie E. Hewett	DATE: March 29, 2002
	Bennie E. Hewett, Director

By:	/s/ John E. Mansfield, Sr.	DATE: March 29, 2002
	John E. Mansfield, Sr., Director

By:	/s/ Alan S. Wayne	DATE: March 29, 2002
	Alan S. Wayne, Director

By:	/s/ William A. Foster	DATE: March 29, 2002
	William A. Foster, Director

By:	/s/ James L. Lester	DATE: March 29, 2002
	James L. Lester, Director

Exhibit Index

Exhibit No.	Description


21.1	Subsidiary of the Registrant.

99.1	Report of Independent Certified Public Accountants by Porter Keadle Moore, LLP

Exhibit No.	Description

3.1	Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant’s Registration Statement on Form S-3, filed on September 24, 1998).

3.2	By-Laws of the Registrant (incorporated herein by reference to the Registrant’s Registration Statement on Form S-3, filed on September 24, 1998).

4.1	See Exhibits 3.1 and 3.2 herein for provisions of the Registrant’s Articles of Incorporation and By-Laws which define the rights of the holders of Common Stock of the Registrant.

10.1	Dividend Reinvestment and Share Purchase Plan of the Registrant (incorporated herein by reference to the Registration’s Registration Statement on Form S-3, filed on September 24, 1998).

21.1	Subsidiary of the Registrant.

99.1	Report of Independent Certified Public Accountants by Porter Keadle Moore, LLP