GB&T BANCSHARES INC - 10-K Annual Report

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

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

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.

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.

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 (“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 (“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 (“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 (“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.

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.

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.

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.

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.

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.

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).

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.

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.

Gramm-Leach-Bliley Act

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.

The Company

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:

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:

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:

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.

The Banks

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:

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:

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:

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:

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:

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.

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.

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.

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

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.

There were no matters submitted to a
vote of security holders during the fourth quarter of 2001.

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

STOCKHOLDER MATTERS

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.

ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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.

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:

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.

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.

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 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

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

	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

	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