##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB   Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2004   Commission File No. 0-22891 GEORGIA-CAROLINA BANCSHARES, INC. Incorporated under the laws of the State of Georgia (I.R.S. Employer Identification No. 58-2326075) 2805 Wrightsboro Road
Augusta, Georgia 30909 Telephone: (706) 736-2100   Securities registered under Section 12(b) of the Securities Exchange Act: None Securities registered under Section 12(g) of the Securities Exchange Act:
Common Stock, $0.001 Par Value   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 o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B 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-KSB or any amendment of this Form 10-KSB. Revenue for the fiscal year ended December 31, 2004: $26,659,162. The aggregate market value of the registrants common stock held by non-affiliates of the
registrant (1,824,554 shares), on March 24, 2005 was $40,596,326 based on the closing price of the
registrants common stock as reported on the Over-the-Counter Bulletin Board on March 24, 2005.
For purposes of this response, officers, directors and holders of 5% or more of the registrants
common stock are considered affiliates of the registrant at that date. As of March 24, 2005, 2,655,789 shares of the registrants common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrants definitive proxy statement to be delivered to shareholders in connection
with the 2005 Annual Meeting of Shareholders scheduled to be held on May 24, 2005 are incorporated
by reference in response to Part III of this Report. Transitional Small Business Disclosure Format (check one) Yes o      No þ




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TABLE OF CONTENTS  PART IItem 1. Description of BusinessItem 2. Description of PropertyItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Common Equity and Related Stockholder MattersItem 6. Managements Discussion and AnalysisItem 7. Financial StatementsItem 8. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 8A. Controls and ProceduresItem 8B. Other InformationPART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange ActItem 10. Executive CompensationItem 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Certain Relationships and Related TransactionsItem 13. ExhibitsItem 14. Principal Accountant Fees and ServicesSIGNATURESEX-10.5 FORM OF INCENTIVE STOCK OPTION AGREEMENTEX-21.1 SUBSIDIARIES OF THE REGISTRANTEX-23.1 CONSENT OF CHERRY, BEKAERT & HOLLAND, LLPEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 CERTIFICATIONS PURSUANT TO SECTION 906EX-99.1 FINANCIAL STATEMENT    Table of Contents  
 PART I Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Certain statements in this Annual Report on Form 10-KSB contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which statements generally can
be identified by the use of forward-looking terminology, such as may, will, expect,
estimate, anticipate, believe, target, plan, project, or continue or the negatives
thereof or other variations thereon or similar terminology, and are made on the basis of
managements plans and current analyses of the Company, its business and the industry as a whole.
These forward-looking statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to regulatory and
legislative changes. The above factors, in some cases, have affected, and in the future could
affect, the Companys financial performance and could cause actual future results to differ
materially from those expressed or implied in such forward-looking statements. The Company does
not undertake to publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied therein will not be
realized. 
 Item 1.Description of Business. General Georgia-Carolina Bancshares, Inc. (the Company) is a one-bank holding company and owns 100% of
the issued and outstanding stock of First Bank of Georgia (the Bank), an independent, locally
owned state-chartered commercial bank. The Bank operates two offices in Augusta, Georgia, two
offices in Martinez, Georgia and one office in Thomson, Georgia. The Bank operates as a locally owned bank that targets the banking needs of individuals and small
to medium-sized businesses by emphasizing personal service. The Bank offers a full range of
deposit and lending services and is a member of an electronic banking network that enables its
customers to use the automated teller machines of other financial institutions. In addition, the
Bank offers commercial and business credit services, as well as various consumer credit services,
including home mortgage loans, automobile loans, lines of credit, home equity loans and home
improvement loans. The Banks deposits are insured by the Federal Deposit Insurance Corporation
(the FDIC). The Company was organized in January 1997 at the direction of the Board of Directors of the Bank
based on a plan of reorganization developed by the Board to substantially strengthen the Banks
competitive position. The reorganization, in which the Bank became a wholly owned subsidiary of the
Company, was completed in June 1997. The following table sets forth the location of each of the Banks branch offices and the date each
branch opened for business: Branch
    
    Date OpenedThomson Office, Thomson, Georgia
Daniel Village Office, Augusta, Georgia
West Town Office, Martinez, Georgia
Medical Center Office, Augusta, Georgia
Furys Ferry Road Office, Martinez, Georgia
    
    January 1989
March 1999
October 1999
January 2001
April 2002
 In September 1999, the Bank established a mortgage division which operates as First Bank Mortgage
(the Mortgage Division). The Mortgage Division originates mortgage loans and offers a variety of
other mortgage products. As of December 31, 2004, First Bank Mortgage had locations in the
Augusta, Savannah and Pooler, Georgia markets as well as the Jacksonville and Orlando, Florida
markets. In December 2003, the Bank established a financial services division which operates as FB Financial
Services. FB Financial Services offers financial planning and investment services through its
relationship with 2




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Linsco/Private Ledger (Member NASD/SIPC), one of the nations leading independent brokerage firms.
A joint office of FB Financial Services and Linsco/Private Ledger is located in the Banks Furys
Ferry location. Market Area and Competition The primary service area of the Bank includes the counties of Richmond, Columbia and McDuffie,
Georgia, and the communities of Augusta and Thomson, Georgia which are approximately 30 miles
apart. The Bank encounters competition from other commercial banks, which offer a full range of
banking services and compete for all types of services, especially deposits. In addition, in
certain aspects of its banking business, the Bank also competes with credit unions, small loan
companies, consumer finance companies, brokerage houses, insurance companies, money market funds
and other financial service companies which attract customers that have traditionally been served
by banks. The extent to which other types of financial service companies compete with commercial banks has
increased significantly over the past several years as a result of federal and state legislation
which has permitted these organizations to compete for customers and offer products that have
historically been offered by banks. The impact of this legislation and other subsequent
legislation on the financial services industry cannot be predicted. See   Supervision and
Regulation. Distribution of Assets, Liabilities and Shareholders Equity; Interest Rates and Interest
Differential The following table presents the average balance sheet of the Bank for the years ended December 31,
2004, 2003 and 2002. Also presented is the Banks actual interest income and expense from each
asset and liability, the average yield of each interest-earning asset and the average cost of each
interest-bearing liability. This table includes all major categories of interest-earning assets
and interest-bearing liabilities: 3




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##### Table of Contents



AVERAGE BALANCE SHEETS
(Dollar amounts in thousands) Year Ended December 31,2004
    
    
    2003
    
    
    2002Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield /
    
    
    Average
    
    
    Income/
    
    
    Yield /
    
    
    Average
    
    
    Income/
    
    
    Yield /Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateASSETSINTEREST-EARNING ASSETSLoans, net of unearned income
    
    $
    242,158
    
    
    $
    14,713
    
    
    
    6.07
    %
    
    $
    227,242
    
    
    $
    13,956
    
    
    
    6.14
    %
    
    $
    175,022
    
    
    $
    12,063
    
    
    
    6.89
    %Investment securities
    
    
    38,416
    
    
    
    1,368
    
    
    
    3.56
    %
    
    
    31,407
    
    
    
    1,199
    
    
    
    3.82
    %
    
    
    23,320
    
    
    
    1,296
    
    
    
    5.56
    %Federal funds sold
    
    
    373
    
    
    
    7
    
    
    
    1.88
    %
    
    
    393
    
    
    
    4
    
    
    
    1.02
    %
    
    
    576
    
    
    
    9
    
    
    
    1.56
    %Total interest-earning assets
    
    
    280,947
    
    
    
    16,088
    
    
    
    5.73
    %
    
    
    259,042
    
    
    
    15,159
    
    
    
    5.85
    %
    
    
    198,918
    
    
    
    13,368
    
    
    
    6.72
    %NON-INTEREST-EARNING ASSETSCash and due from banks
    
    
    6,647
    
    
    
    
    
    
    
    
    
    
    
    7,071
    
    
    
    
    
    
    
    
    
    
    
    5,001Bank premises and fixed assets
    
    
    7,351
    
    
    
    
    
    
    
    
    
    
    
    7,200
    
    
    
    
    
    
    
    
    
    
    
    7,477Accrued interest receivable
    
    
    1,225
    
    
    
    
    
    
    
    
    
    
    
    1,139
    
    
    
    
    
    
    
    
    
    
    
    1,043Other assets
    
    
    1,528
    
    
    
    
    
    

    
    
    
    
    
    3,154
    
    
    
    
    
    
    
    
    
    
    
    2,831Allowance for loan losses
    
    
    (3,439
    )
    
    
    
    
    
    
    
    
    
    
    (2,840
    )
    
    
    
    
    
    
    
    
    
    
    (2,392
    )Total assets
    
    $
    294,259
    
    
    
    
    
    
    
    
    
    
    $
    274,766
    
    
    
    
    
    
    
    
    
    
    $
    212,878LIABILITIES AND SHAREHOLDERS
EQUITYINTEREST-BEARING DEPOSITSNOW accounts
    
    $
    36,681
    
    
    $
    417
    
    
    
    1.14
    %
    
    $
    30,871
    
    
    $
    386
    
    
    
    1.25
    %
    
    $
    16,077
    
    
    $
    261
    
    
    
    1.62
    %Savings accounts
    
    
    62,431
    
    
    
    941
    
    
    
    1.51
    %
    
    
    53,616
    
    
    
    878
    
    
    
    1.64
    %
    
    
    20,898
    
    
    
    490
    
    
    
    2.34
    %Money market accounts
    
    
    9,520
    
    
    
    97
    
    
    
    1.02
    %
    
    
    11,072
    
    
    
    174
    
    
    
    1.57
    %
    
    
    12,496
    
    
    
    254
    
    
    
    2.03
    %Time accounts
    
    
    99,153
    
    
    
    2,384
    
    
    
    2.40
    %
    
    
    99,709
    
    
    
    2,941
    
    
    
    2.95
    %
    
    
    103,504
    
    
    
    3,735
    
    
    
    3.61
    %Total interest-bearing deposits
    
    
    207,785
    
    
    
    3,839
    
    
    
    1.85
    %
    
    
    195,268
    
    
    
    4,379
    
    
    
    2.24
    %
    
    
    152,975
    
    
    
    4,740
    
    
    
    3.10
    %OTHER INTEREST-BEARING
LIABILITIESFunds purchased
    
    
    30,681
    
    
    
    629
    
    
    
    2.05
    %
    
    
    27,434
    
    
    
    532
    
    
    
    1.94
    %
    
    
    20,327
    
    
    
    432
    
    
    
    2.13
    %Total interest-bearing
liabilities
    
    
    238,466
    
    
    
    4,468
    
    
    
    1.87
    %
    
    
    222,702
    
    
    
    4,911
    
    
    
    2.21
    %
    
    
    173,302
    
    
    
    5,172
    
    
    
    2.98
    %NON-INTEREST-BEARING LIABILITIES
AND SHAREHOLDERS EQUITYDemand deposits
    
    
    30,837
    
    
    
    
    
    
    
    
    
    
    
    28,619
    
    
    
    
    
    
    
    
    
    
    
    22,243Other liabilities
    
    
    1,438
    
    
    
    
    
    
    
    
    
    
    
    1,794
    
    
    
    
    
    
    
    
    
    
    
    2,285Shareholders equity
    
    
    23,518
    
    
    
    
    
    
    
    
    
    
    
    21,651
    
    
    
    
    
    
    
    
    
    
    
    15,048Total liabilities and
shareholders equity
    
    $
    294,259
    
    
    
    
    
    
    
    
    
    
    $
    274,766
    
    
    
    
    
    
    
    
    
    
    $
    212,878Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.86
    %
    
    
    
    
    
    
    
    
    
    
    3.64
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %Net interest income
    
    
    
    
    
    $
    11,620
    
    
    
    
    
    
    
    
    
    
    $
    10,248
    
    
    
    
    
    
    
    
    
    
    $
    8,196Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.14
    %
    
    
    
    
    
    
    
    
    
    
    3.96
    %
    
    
    
    
    
    
    
    
    
    
    4.12
    %Average interest-earning assets
to average total assets
    
    
    
    
    
    
    
    
    
    
    95.48
    %
    
    
    
    
    
    
    
    
    
    
    94.28
    %
    
    
    
    
    
    
    
    
    
    
    93.44
    %Average loans to average deposits
    
    
    
    
    
    
    
    
    
    
    101.48
    %
    
    
    
    
    
    
    
    
    
    
    101.50
    %
    
    
    
    
    
    
    
    
    
    
    99.89
    %
 4




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##### Table of Contents



Rate/Volume Analysis of Net Interest Income The following table sets forth information regarding changes in net interest income attributable to
changes in average balances and changes in rates for the periods indicated. The effect of a change
in average balance has been determined by applying the average rate in the earlier period to the
change in average balance in the later period, as compared with the earlier period. The balance of
the change in interest income or expense and net interest income has been attributed to a change in
average rate. Non-accruing loans have been included in the category Net loans and loans held for
sale. Year Ended December 31, 2004Compared withYear Ended December 31, 2003(In thousands)Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    TotalInterest earned on:Tax-exempt securities
    
    $
    48
    
    
    $
    (3
    )
    
    $
    45Taxable securities
    
    
    252
    
    
    
    (128
    )
    
    
    124Federal funds sold
    
    
    (2
    )
    
    
    5
    
    
    
    3Net loans and loans held for sale
    
    
    916
    
    
    
    (159
    )
    
    
    757Total interest income
    
    $
    1,214
    
    
    $
    (285
    )
    
    $
    929Interest paid on:NOW deposits
    
    
    73
    
    
    
    (42
    )
    
    
    31Money market deposits
    
    
    (24
    )
    
    
    (53
    )
    
    
    (77
    )Savings deposits
    
    
    145
    
    
    
    (82
    )
    
    
    63Time deposits
    
    
    (16
    )
    
    
    (541
    )
    
    
    (557
    )Borrowed funds
    
    
    63
    
    
    
    34
    
    
    
    97Total interest expense
    
    $
    241
    
    
    $
    (684
    )
    
    $
    (443
    )Increase (decrease) in net interest income
    
    $
    973
    
    
    $
    399
    
    
    $
    1,372
 5




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##### Table of Contents



Year Ended December 31, 2003Compared withYear Ended December 31, 2002(In thousands)Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    TotalInterest earned on:Tax-exempt securities
    
    $
    49
    
    
    $
    (1
    )
    
    $
    48Taxable securities
    
    
    383
    
    
    
    (528
    )
    
    
    (145
    )Federal funds sold
    
    
    (3
    )
    
    
    (2
    )
    
    
    (5
    )Net loans and loans held for sale
    
    
    3,598
    
    
    
    (1,705
    )
    
    
    1,893Total interest income
    
    $
    4,027
    
    
    $
    (2,236
    )
    
    $
    1,791Interest paid on:NOW deposits
    
    
    240
    
    
    
    (115
    )
    
    
    125Money market deposits
    
    
    (29
    )
    
    
    (51
    )
    
    
    (80
    )Savings deposits
    
    
    766
    
    
    
    (378
    )
    
    
    388Time deposits
    
    
    (137
    )
    
    
    (657
    )
    
    
    (794
    )Borrowed funds
    
    
    151
    
    
    
    (51
    )
    
    
    100Total interest expense
    
    
    991
    
    
    
    (1,252
    )
    
    
    (261
    )Increase (decrease) in net interest income
    
    $
    3,036
    
    
    $
    (984
    )
    
    $
    2,052
 Deposits The Bank offers a wide range of commercial and consumer interest bearing and non-interest bearing
deposit accounts, including checking accounts, money market accounts, negotiable order of
withdrawal (NOW) accounts, individual retirement accounts, certificates of deposit and regular
savings accounts. The sources of deposits are residents, businesses and employees of businesses
within the Banks market area, obtained through the personal solicitation of the Banks officers
and directors, direct mail solicitation and advertisements published in the local media. The Bank
pays competitive interest rates on time and savings deposits. In addition, the Bank has
implemented a service charge fee schedule competitive with other financial institutions in the
Banks market area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and similar items. 6




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The following table details, for the periods indicated, the average amount of and average rate paid
on each of the following deposit categories (dollar amounts in thousands): Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAverage
    
    
    Rate
    
    
    Average
    
    
    Rate
    
    
    Average
    
    
    RateDeposit Category
    
    Amount
    
    
    Paid
    
    
    Amount
    
    
    Paid
    
    
    Amount
    
    
    PaidNon-interest bearing demand deposits
    
    $
    30,837
    
    
    
    -
    
    
    $
    28,619
    
    
    
    -
    
    
    $
    22,243
    
    
    
    -NOW and money
market deposits
    
    
    46,201
    
    
    
    1.11
    %
    
    
    41,943
    
    
    
    1.33
    %
    
    
    28,573
    
    
    
    1.80
    %Savings deposits
    
    
    62,431
    
    
    
    1.51
    %
    
    
    53,616
    
    
    
    1.64
    %
    
    
    20,898
    
    
    
    2.34
    %Time deposits
    
    
    99,153
    
    
    
    2.40
    %
    
    
    99,709
    
    
    
    2.95
    %
    
    
    103,504
    
    
    
    3.61
    %
 The maturities of certificates of deposit and individual retirement accounts of $100,000 or more as
of December 31, 2004 were as follows (in thousands): Three months or less
    
    $
    7,001Over three months through six months
    
    
    10,886Over six months through twelve months
    
    
    12,355Over twelve months
    
    
    34,884Total
    
    $
    65,126
 Borrowed funds consist of short-term borrowings, including federal funds purchased, retail and
other repurchase agreements and lines of credit with the Federal Home Loan Bank. The average
balance of borrowed funds was approximately $30.7 million for the year ended December 31, 2004,
compared to $27.4 million for the year ended December 31, 2003. The most significant borrowed funds categories for the Bank are two lines of credit from the
Federal Home Loan Bank, consisting of a warehouse line of credit and a 1-4 family line of credit. At December 31, 2004, the outstanding balance on the warehouse line of credit was $30,001,709
with an interest rate of 2.94%. At December 31, 2003, the outstanding balance on the warehouse
line of credit was $10,000,000 with an interest rate of 1.65%. The average balance outstanding on
the warehouse line of credit was $15,271,565 for 2004 with a weighted average interest rate of
2.31%. The average balance outstanding on the warehouse line of credit was $19,555,620 for 2003
with a weighted average interest rate of 2.00%. The maximum amount outstanding on the warehouse
line of credit at any month end during 2004 was $30,001,709, and was $50,104,841 during 2003. The
warehouse line of credit is secured by the mortgage loans held for sale originated with the
borrowed funds. The interest rate on the warehouse line of credit is equal to the Federal Home
Loan Banks Daily Rate Credit Program rate plus 50 basis points. At December 31, 2004, the outstanding balance on the 1-4 family line of credit was $10,235,000 with
an interest rate of 2.44%. The average balance outstanding on the 1-4 family line of credit was
$8,635,590 for 2004 with a weighted average interest rate of 1.62%. The maximum amount outstanding
on the 1-4 family line of credit at any month end during 2004 was $10,235,000. This line of credit
was established in May 2003 and is secured by the Banks portfolio of 1-4 family first mortgage
loans, excluding those loans that are held for sale. The interest rate on the 1-4 family line of
credit is equal to the Federal Home Loan Banks Daily Rate Credit Program rate. Loan Portfolio The Bank engages in a full complement of lending activities, including commercial,
consumer/installment and real estate loans. As of December 31, 2004, the Banks loan portfolio
consisted of 58.9% real estate mortgage loans, 21.5% real estate construction loans, 14.2%
commercial loans and 5.4% consumer/installment loans. 7




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##### Table of Contents



Commercial lending is directed principally towards businesses whose demands for funds fall within
the Banks legal lending limits and which are potential deposit customers of the Bank. This
category of loans includes loans made to individual, partnership or corporate borrowers, and
obtained for a variety of business purposes. These loans include short-term lines of credit,
short- to medium-term plant and equipment loans, loans for general working capital and letters of
credit. The Banks consumer loans consist primarily of installment loans to individuals for personal,
family or household purposes, including automobile loans to individuals and pre-approved lines of
credit. The Banks real estate mortgage loans include commercial mortgage lending and residential mortgage
lending. The Banks commercial mortgage loans are generally secured by office buildings, retail
establishments and other types of property. The Banks residential mortgage loans are primarily
single-family residence loans secured by the residential property. The Banks real estate construction loans consist of residential and commercial construction loans
as well as land development loans. These loans are primarily construction and development loans to
builders in the Augusta and Savannah, Georgia areas and the Jacksonville, Florida area. While risk of loss in the Banks loan portfolio is primarily tied to the credit quality of the
various borrowers, risk of loss may also increase due to factors beyond the Banks control, such as
local, regional and/or national economic downturns. General conditions in the real estate market
may also impact the relative risk in the Banks real estate portfolio. With respect to loans which exceed the Banks lending limits or established credit criteria, the
Bank may originate the loan and sell it to another bank. The Bank may also purchase loans
originated by other banks. Management of the Bank does not believe that loan purchase
participations will necessarily pose any greater risk of loss than loans which the Bank originates. The following table presents the categories of loans contained in the Banks loan portfolio as of
the end of the five most recent fiscal years and the total amount of all loans for such periods: December 31,Type of Loan
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(In thousands)Commercial, financial and
agricultural
    
    $
    30,820
    
    
    $
    24,552
    
    
    $
    24,105
    
    
    $
    26,863
    
    
    $
    24,582Real estate  construction
    
    
    46,581
    
    
    
    37,201
    
    
    
    26,117
    
    
    
    20,312
    
    
    
    17,648Real estate  mortgage
    
    
    127,691
    
    
    
    99,179
    
    
    
    79,374
    
    
    
    53,730
    
    
    
    21,850Installment and consumer
    
    
    11,705
    
    
    
    15,500
    
    
    
    15,832
    
    
    
    14,435
    
    
    
    9,247Subtotal
    
    $
    216,797
    
    
    $
    176,432
    
    
    $
    145,428
    
    
    $
    115,340
    
    
    $
    73,327Less:Unearned income and deferred loan
fees
    
    
    (69
    )
    
    
    (65
    )
    
    
    (58
    )
    
    
    (114
    )
    
    
    (146
    )Allowance for possible loan
losses
    
    
    (3,416
    )
    
    
    (3,164
    )
    
    
    (2,436
    )
    
    
    (2,187
    )
    
    
    (1,194
    )Total (net of allowance)
    
    $
    213,312
    
    
    $
    173,203
    
    
    $
    142,934
    
    
    $
    113,039
    
    
    $
    71,987
 In addition to the above, at December 31, 2004, the Bank also had $56.7 million of single family
residential mortgage loans held for sale that were originated by the Banks Mortgage Division. 8




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##### Table of Contents



The table below presents an analysis of maturities of certain categories of loans as of December
31, 2004: Due in 1Year or
    
    
    Due in 1 to
    
    
    Due AfterType of Loan
    
    Less
    
    
    5 Years
    
    
    5 Years
    
    
    Total(In thousands)Commercial, financial
and agricultural
    
    $
    18,913
    
    
    $
    11,485
    
    
    $
    422
    
    
    $
    30,820Real estate-construction
    
    
    45,437
    
    
    
    703
    
    
    
    441
    
    
    
    46,581Total
    
    $
    64,350
    
    
    $
    12,188
    
    
    $
    863
    
    
    $
    77,401
 The following is a presentation of an analysis of sensitivities of certain loans (those presented
in the maturity table above) to changes in interest rates as of December 31, 2004 (in thousands): Loans due after 1 year with predetermined interest rates
    
    $
    9,135Loans due after 1 year with floating interest rates.
    
    $
    3,916
 The following table presents information regarding non-accrual and past due loans at the dates
indicated: December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollars in thousands)Loans accounted
for on a
non-accrual basisNumber
    
    
    75
    
    
    
    58
    
    
    
    43
    
    
    
    24
    
    
    
    10Amount
    
    $
    1,664
    
    
    $
    1,057
    
    
    $
    597
    
    
    $
    302
    
    
    $
    161Accruing loans
which are
contractually past
due 90 days or more
as to principal and
interest paymentsNumber
    
    
    6
    
    
    
    13
    
    
    
    3
    
    
    
    3
    
    
    
    10Amount
    
    $
    444
    
    
    $
    496
    
    
    $
    91
    
    
    $
    160
    
    
    $
    98
 The Bank does not have any loans which are troubled debt restructurings as defined in SFAS No.
15. Accrual of interest is discontinued when a loan becomes 90 days past due as to principal and
interest or, when in managements judgment, the interest will not be collectible in the normal
course of business. Additional interest income of $90,623 in 2004 would have been recorded if all
loans accounted for on a non-accrual basis had been current in accordance with their original
terms. No interest income has been recognized in 2004 on loans that have been accounted for on a
non-accrual basis. At December 31, 2004, there were no loans classified for regulatory purposes as doubtful,
substandard or special mention that have not been disclosed above which (i) represent or result
from trends or uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or (ii) represent material credits about which
management is aware of any information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms. 9




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##### Table of Contents



Summary of Loan Loss Experience An analysis of the Banks loss experience is furnished in the following table for the periods
indicated. Years Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Dollar amounts in thousands)Allowance, beginning of year
    
    $
    3,164
    
    
    $
    2,436
    
    
    $
    2,187
    
    
    $
    1,194
    
    
    $
    1,000Charge-offs:Commercial, financial and
agricultural
    
    
    240
    
    
    
    55
    
    
    
    11
    
    
    
    13
    
    
    
    195Installment and consumer
    
    
    127
    
    
    
    141
    
    
    
    195
    
    
    
    103
    
    
    
    26Real estate  mortgage
    
    
    333
    
    
    
    10
    
    
    
    7
    
    
    
    8
    
    
    
    700
    
    
    
    206
    
    
    
    213
    
    
    
    124
    
    
    
    221Recoveries:Commercial, financial and
agricultural
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    4
    
    
    
    1Installment and consumer
    
    
    14
    
    
    
    53
    
    
    
    6
    
    
    
    6
    
    
    
    52Real estate  mortgage
    
    
    130
    
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    1144
    
    
    
    54
    
    
    
    11
    
    
    
    11
    
    
    
    54Net (charge-offs) recoveries
    
    
    (556
    )
    
    
    (152
    )
    
    
    (202
    )
    
    
    (113
    )
    
    
    (167
    )Provision charged to operations
    
    
    808
    
    
    
    880
    
    
    
    451
    
    
    
    1,106
    
    
    
    361Allowance, end of year
    
    $
    3,416
    
    
    $
    3,164
    
    
    $
    2,436
    
    
    $
    2,187
    
    
    $
    1,194Ratio of net (charge-offs)
recoveries during the period
to average loans outstanding
during the period
    
    
    (.25
    %)
    
    
    (.07
    %)
    
    
    (.11
    %)
    
    
    (.08
    %)
    
    
    (.25
    %)
 Loan Loss Allowance In the normal course of business, the Bank has recognized and will continue to recognize losses
resulting from the inability of certain borrowers to repay loans and the insufficient realizable
value of collateral securing such loans. Accordingly, management has established an allowance for loan losses, which totaled approximately
$3,416,000 at December 31, 2004, which is allocated according to the following table, along with
the percentage of loans in each category to total loans: 10




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##### Table of Contents



2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollar amounts in thousands)Commercial,
financial and
agricultural
    
    $
    581
    
    
    
    14.2
    %
    
    $
    410
    
    
    
    13.9
    %
    
    $
    330
    
    
    
    16.6
    %
    
    $
    320
    
    
    
    23.3
    %
    
    $
    181
    
    
    
    33.5
    %Real estate -
construction
    
    
    1,165
    
    
    
    21.5
    %
    
    
    1,100
    
    
    
    21.1
    %
    
    
    704
    
    
    
    17.9
    %
    
    
    589
    
    
    
    17.6
    %
    
    
    356
    
    
    
    24.1
    %Real estate -
Mortgage
    
    
    1,432
    
    
    
    58.9
    %
    
    
    1,385
    
    
    
    56.2
    %
    
    
    920
    
    
    
    54.6
    %
    
    
    782
    
    
    
    46.6
    %
    
    
    368
    
    
    
    29.8
    %Consumer and
installment
    
    
    152
    
    
    
    5.4
    %
    
    
    249
    
    
    
    8.8
    %
    
    
    387
    
    
    
    10.9
    %
    
    
    180
    
    
    
    12.5
    %
    
    
    75
    
    
    
    12.6
    %Unallocated
    
    
    86
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    214
    
    
    
    Total
    
    $
    3,416
    
    
    
    
    
    
    $
    3,164
    
    
    
    
    
    
    $
    2,436
    
    
    
    
    
    
    $
    2,187
    
    
    
    
    
    
    $
    1,194
 In evaluating the Banks allowance for loan losses, management has taken into consideration
concentrations within the loan portfolio, past loan loss experience, growth of the portfolio,
current economic conditions and the appraised value of collateral securing loans. Although
management believes the allowance for loan losses is adequate, their evaluation is dependent upon
future events. Managements evaluation of losses is a continuing process which may necessitate
adjustments to the allowance in future periods. Real estate mortgage loans constituted approximately 58.9% of outstanding loans at December 31,
2004. These loans include both commercial and residential mortgage loans. Management believes the
risk of loss for commercial real estate loans is generally higher than residential loans.
Management continuously monitors the performance of the commercial real estate portfolio and
collateral values. Residential mortgages are generally secured by the underlying residence.
Management of the Bank believes that these loans are adequately secured. Real estate construction loans represented approximately 21.5% of the Banks outstanding loans at
December 31, 2004. This category of the loan portfolio consists of commercial and residential
construction and development loans located in the Banks market areas in Georgia and Florida.
Management of the Bank closely monitors the performance of these loans and periodically inspects
properties and development progress. Management considers these factors in estimating and
evaluating the allowance for loan losses. Commercial loans represented approximately 14.2% of outstanding loans at December 31, 2004.
Commercial loans are generally considered by management as having greater risk than other
categories of loans in the Banks loan portfolio. However, the Bank generally originates
commercial loans on a secured basis, and at December 31, 2004, over 90% of the Banks commercial
loans were secured. Management believes that the secured status of a substantial portion of the
commercial loan portfolio greatly reduces the risk of loss inherently present in commercial loans. Consumer and installment loans represented approximately 5.4% of outstanding loans at December 31,
2004 and are also well secured. At December 31, 2004, the majority of the Banks consumer loans
were secured by collateral primarily consisting of automobiles, boats and other personal property.
Management believes that these loans inherently possess less risk than other categories of loans. Loans held for sale consist of single family residential mortgage loans originated by the Banks
Mortgage Division. These loans are originated with an investor purchase commitment and are sold
shortly after origination by the Bank. The Banks management and Board of Directors monitor the loan portfolio monthly to evaluate the
adequacy of the allowance for loan losses. Ratings on classified loans are also reviewed and
performance is evaluated in determining the allowance. The provision for loan losses charged to
operations is based on this analysis. In addition, management and the Board consider such factors
as delinquent loans, collateral values and economic conditions in their evaluation of the adequacy
of the allowance for loan losses. 11




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##### Table of Contents



Investments As of December 31, 2004, investment securities comprised approximately 13.0% of the Banks assets.
The Bank invests primarily in obligations of the United States or agencies of the United States,
mortgage-backed securities and obligations, other taxable securities and in certain obligations of
states and municipalities. The Bank also enters into federal funds transactions with its principal
correspondent banks. The Bank may act as a net seller or net purchaser of such funds. The following table presents, for the dates indicated, the estimated fair market value of the
Banks investment securities available for sale. The Bank has classified all of its investment
securities as available for sale. December 31,2004
    
    
    2003
    
    
    2002(In thousands)Obligations of U.S government agencies
    
    $
    15,887
    
    
    $
    17,450
    
    
    $
    13,427Mortgage-backed securities
    
    
    20,232
    
    
    
    12,415
    
    
    
    10,756Obligations of States and political subdivisions
    
    
    3,279
    
    
    
    2,494
    
    
    
    990Corporate obligations
    
    
    1,557
    
    
    
    2,152
    
    
    
    2,173Total investment securities
    
    $
    40,955
    
    
    $
    34,511
    
    
    $
    27,346Federal Home Loan Bank stock
    
    
    2,420
    
    
    
    1,083
    
    
    
    1,570Total investment securities and FHLB stock
    
    $
    43,375
    
    
    $
    35,594
    
    
    $
    28,916
 12




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##### Table of Contents



The following tables present the contractual maturities and weighted average yields of the Banks
investments as of December 31, 2004: Maturities of Investment SecuritiesAfter One
    
    
    After FiveWithin
    
    
    Through
    
    
    Through
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten Years(In thousands)Obligations of U.S. government agencies
    
    $
    1,175
    
    
    $
    8,939
    
    
    $
    5,773
    
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    3,504
    
    
    



    7,648
    
    
    
    9,080Obligations of States and political subdivisions
    
    
    
    
    
    
    223
    
    
    
    1,202
    
    
    
    1,854Corporate obligations
    
    
    504
    
    
    
    1,053
    
    
    
    
    
    
    
    Total
    
    $
    1,679
    
    
    $
    13,719
    
    
    $
    14,623
    
    
    $
    10,934
 Weighted Average YieldsAfter One
    
    
    After FiveWithin
    
    
    Through
    
    
    Through
    
    
    AfterOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Ten YearsObligations of U.S. government agencies
    
    
    3.44
    %
    
    
    3.11
    %
    
    
    3.72
    %
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    3.16
    %
    
    
    3.59
    %
    
    
    4.12
    %Obligations of States and political subdivisions
    
    
    
    
    
    
    2.50
    %
    
    
    2.27
    %
    
    
    3.96
    %Corporate obligations
    
    
    6.47
    %
    
    
    6.17
    %
    
    
    
    
    
    
    Total weighted average yield
    
    
    4.35
    %
    
    
    3.35
    %
    
    
    3.53
    %
    
    
    4.09
    %
 With the exception of U.S. government agencies securities shown above, the Bank did not have
investments with a single issuer exceeding, in the aggregate, 10% of the Companys shareholders
equity. Return on Equity and Assets The following table presents certain profitability, return and capital ratios for the Company as of
the end of the past three fiscal years. December 31,2004
    
    
    2003
    
    
    2002Return on Assets
    
    
    1.19
    %
    
    
    1.92
    %
    
    
    1.44
    %Return on Equity
    
    
    14.86
    %
    
    
    25.97
    %
    
    
    22.14
    %Dividend Payout
    
    
    
    
    
    
    
    
    
    
    Equity to Assets
    
    
    7.63
    %
    
    
    7.88
    %
    
    
    7.07
    %
 Asset/Liability Management It is the objective of the Bank to manage assets and liabilities to provide a satisfactory,
consistent level of profitability within the framework of established cash, loan investment,
borrowing and capital policies. An investment committee is responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the asset/liability mix, stability
and leverage of all sources of funds while adhering to prudent banking practices. It is the
overall philosophy of management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and corporations.
Management of the Bank seeks to invest the largest portion of the Banks assets in commercial,
consumer and real estate loans. 13




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##### Table of Contents



The Banks asset/liability mix is monitored on a daily basis and further evaluated with a quarterly
report that reflects interest-sensitive assets and interest-sensitive liabilities. This report is
prepared and presented to the Banks Investment Committee and Board of Directors. The objective of
this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on the Companys earnings. Correspondent Banking Correspondent banking involves the delivery of services by one bank to another bank which cannot
provide that service for itself from an economic or practical standpoint. The Bank purchases
correspondent services offered by larger banks, including check collections, purchase of federal
funds, security safekeeping, investment services, coin and currency supplies, over line and
liquidity loan participations and sales of loans to or participations with correspondent banks. The Bank sells loan participations to correspondent banks. The Bank has established correspondent
relationships with The Bankers Bank, the Federal Home Loan Bank of Atlanta and SunTrust Bank. As
compensation for services provided by a correspondent, the Bank maintains certain balances with
such correspondent in both non-interest bearing and interest bearing accounts. Data Processing The Bank has entered into a data processing servicing agreement with Fidelity Information Services,
under which the Bank receives a full range of data processing services, including an automated
general ledger, deposit accounting, commercial, real estate and installment lending data
processing, central information file and ATM processing. Employees At December 31, 2004, the Company and the Bank employed 149 persons on a full-time or part-time
basis, including 35 officers. Monetary Policies The results of operations of the Bank are affected by credit policies of monetary authorities,
particularly the Federal Reserve Board. The instruments of monetary policy employed by the Federal
Reserve Board include open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member bank deposits and
limitations on interest rates which member banks may pay on time and savings deposits. In view of
changing conditions in the national economy and in the money markets, as well as the effect of
action by monetary and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of the Bank. Supervision and Regulation The following discussion sets forth some of the material elements of the regulatory
framework applicable to bank holding companies and their subsidiaries and provides some specific
information relative to the Company. The regulatory framework is intended primarily for the
protection of depositors and the Bank Insurance Fund and not for the protection of security holders
and creditors. To the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular statutory and regulatory
provisions. The Company General.As a bank holding company, the Company is regulated under the Bank Holding Company
Act of 1956 (the BHC Act), as well as other federal and state laws governing the banking
business. The Federal Reserve Board is the primary regulator of the Company, and supervises the
Companys activities on a continual basis. The Bank is also subject to regulation and supervision
by various regulatory authorities, including the Federal Reserve Board, the Georgia Department of
Banking 14




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##### Table of Contents



and Finance and the Federal Deposit Insurance Corporation (the FDIC). Bank Holding Company Regulation.In general, the BHC Act limits bank holding company business
to owning or controlling banks and engaging in other banking-related activities. Bank holding
companies must obtain the Federal Reserve Boards approval before they:  
    acquire direct or indirect ownership or control of any voting shares of any bank that
results in total ownership or control, directly or indirectly, of more than 5% of the
voting shares of such bank;
    merge or consolidate with another bank holding company; or
    acquire substantially all of the assets of any additional banks. Subject to certain state laws, a bank holding company that is adequately capitalized and
adequately managed may acquire the assets of both in-state and out-of-state banks. With certain
exceptions, the BHC Act prohibits bank holding companies from acquiring direct or indirect
ownership or control of voting shares in any company that is not a bank or a bank holding company
unless the Federal Reserve Board determines such activities are incidental or closely related to
the business of banking. The Change in Bank Control Act of 1978 requires a person (or group of persons acting in
concert) acquiring control of a bank holding company to provide the Federal Reserve Board with 60
days prior written notice of the proposed acquisition. Following receipt of this notice, the
Federal Reserve Board has 60 days (or up to 90 days if extended) within which to issue a notice
disapproving the proposed acquisition. In addition, any company must obtain the Federal Reserve
Boards approval before acquiring 25% (5% if the company is a bank holding company) or more of
the outstanding shares or otherwise obtaining control over the Company. Financial Services Modernization. The Gramm-Leach-Bliley Financial Modernization Act of 1999
(the Modernization Act), enacted on November 12, 1999, amended the BHC Act and,  
    allows bank holding companies that qualify as financial holding companies to engage in
a substantially broader range of non-banking activities than was permissible under prior
law;
    allows insurers and other financial services companies to acquire banks;
    allows national banks, and some state banks, either directly or through operating
subsidiaries, to engage in certain non-banking financial activities;
    removes various restrictions that applied to bank holding company ownership of
securities firms and mutual fund advisory companies; and
    establishes the overall regulatory structure applicable to bank holding companies that
also engage in insurance and securities operations. If the Company, which has not obtained qualification as a financial holding company, were to
do so in the future, the Company would be eligible to engage in, or acquire companies engaged in,
the broader range of activities that are permitted by the Modernization Act, provided that if any
of the Companys banking subsidiaries were to cease to be well capitalized or well managed
under applicable regulatory standards, the Federal Reserve Board could, among other things, place
limitations on the Companys ability to conduct these broader financial activities or, if the
deficiencies persisted, require the Company to divest the banking subsidiary. In addition, if the
Company were to be qualified as a financial holding company and any of its banking subsidiaries
were to receive a rating of less than satisfactory under the Community Reinvestment Act of 1977
(the CRA), the Company would be prohibited from engaging in any additional activities other than
those permissible for bank holding companies that are not financial holding companies. The broader
range of activities that financial holding companies are eligible to engage in includes those that
are determined to be financial in nature, including insurance underwriting, securities
underwriting and dealing, and making merchant banking investments in commercial and financial
companies. Transactions with Affiliates.The Company and the Bank are deemed to be affiliates within the 15




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##### Table of Contents



meaning of the Federal Reserve Act, and transactions between affiliates are subject to certain
restrictions. Generally, the Federal Reserve Act limits the extent to which a financial
institution or its subsidiaries may engage in covered transactions with an affiliate. It also
requires all transactions with an affiliate, whether or not covered transactions, to be on terms
substantially the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term covered transaction includes the making of loans, purchase
of assets, issuance of a guarantee and other similar types of transactions. Tie-In Arrangements.The Company and the Bank cannot engage in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property or furnishing of services. For
example, with certain exceptions, neither the Company nor the Bank may condition an extension of
credit on either a requirement that the customer obtain additional services provided by either the
Company or the Bank, or an agreement by the customer to refrain from obtaining other services from
a competitor. The Federal Reserve Board has adopted exceptions to its anti-tying rules that allow
banks greater flexibility to package products with their affiliates. These exceptions were
designed to enhance competition in banking and non-banking products and to allow banks and their
affiliates to provide more efficient, lower cost service to their customers. Source of Strength.Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to the Bank and to commit resources to support the Bank. This support
may be required at times when, absent that Federal Reserve Board policy, the Company may not find
itself able to provide it. Capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other indebtedness of such
subsidiary banks. In the event of a bank holding companys bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank
will be assumed by the bankruptcy trustee and entitled to a priority of payment. Subsidiary Dividends.The Company is a legal entity separate and distinct from the Bank. A
major portion of the Companys revenues results from amounts paid as dividends to the Company by
the Bank. The Georgia Department of Banking and Finances approval must be obtained before the
Bank may pay cash dividends out of retained earnings if (i) the total classified assets at the most
recent examination of the Bank exceeded 80% of the equity capital, (ii) the aggregate amount of
dividends declared or anticipated to be declared in the calendar year exceeds 50% of the net
profits, after taxes but before dividends for the previous calendar year, or (iii) the ratio of
equity capital to adjusted assets is less than 6%. In addition, the Company and the Bank are subject to various general regulatory policies and
requirements relating to the payment of dividends, including requirements to maintain adequate
capital above regulatory minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a bank or bank holding
company that the payment of dividends would be an unsafe or unsound practice and to prohibit
payment thereof. The appropriate federal regulatory authorities have indicated that paying
dividends that deplete a banks capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay dividends only out of current
operating earnings. State Law Restrictions.As a Georgia business corporation, the Company may be subject to
certain limitations and restrictions under applicable Georgia corporate law. The Bank General. The Bank, as a Georgia state-chartered bank, is subject to regulation and
examination by the State of Georgia Department of Banking and Finance, as well as the FDIC.
Georgia state laws regulate, among other things, the scope of the Banks business, its investments,
its payment of dividends to the Company, its required legal reserves and the nature, lending limit,
maximum interest charged and amount of and collateral for loans. The laws and regulations
governing the Bank generally have been promulgated by Georgia to protect depositors and not to
protect shareholders of the Company or the Bank. 16




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##### Table of Contents



Community Reinvestment Act.The Community Reinvestment Act requires that, in connection with
examinations of financial institutions within their jurisdiction, the FDIC evaluate the record of
the financial institutions in meeting the credit needs of their local communities, including low
and moderate income neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions, and applications to open a
branch or facility. Insider Credit Transactions. Banks are also subject to certain restrictions imposed by the
Federal Reserve Act on extensions of credit to executive officers, directors, principal
shareholders, or any related interests of such persons. Extensions of credit must be made on
substantially the same terms, including interest rates and collateral, and follow credit
underwriting procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not employees. Also, such
extensions of credit must not involve more than the normal risk of repayment or present other
unfavorable features. Federal Deposit Insurance Corporation Improvement Act. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the FDICIA), each federal banking agency has prescribed, by
regulation, noncapital safety and soundness standards for institutions under its authority. These
standards cover internal controls, information systems, and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, such other operational and managerial standards as the agency determines to be
appropriate, and standards for asset quality, earnings and stock valuation. Interstate Banking and Branching.The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the IBBEA) permits nationwide interstate banking and branching under certain
circumstances. This legislation generally authorizes interstate branching and relaxes federal law
restrictions on interstate banking. Currently, bank holding companies may purchase banks in any
state, and states may not prohibit such purchases. Additionally, banks are permitted to merge with
banks in other states as long as the home state of neither merging bank has opted out. The IBBEA
requires regulators to consult with community organizations before permitting an interstate
institution to close a branch in a low-income area. The IBBEA also prohibits the interstate
acquisition of a bank if, as a result, the bank holding company would control more than ten percent
of the total United States insured depository deposits or more than thirty percent, or the
applicable state law limit, of deposits in the acquired banks state. Under recent FDIC
regulations, banks are prohibited from using their interstate branches primarily for deposit
production. The FDIC has accordingly implemented a loan-to-deposit ratio screen to ensure
compliance with this prohibition. Georgia has opted in to the IBBEA and allows in-state banks to merge with out-of-state banks
subject to certain requirements. Georgia law generally authorizes the acquisition of an in-state
bank by an out-of-state bank by merger with a Georgia financial institution that has been in
existence for at least 3 years prior to the acquisition. With regard to interstate bank branching,
out-of-state banks that do not already operate a branch in Georgia may not establish de novo
branches in Georgia. Deposit Insurance.The deposits of the Bank are currently insured to a maximum of $100,000
per depositor through a fund administered by the FDIC. All insured banks are required to pay
semi-annual deposit insurance premium assessments to the FDIC. Capital Adequacy Federal bank regulatory agencies use capital adequacy guidelines in the examination and
regulation of bank holding companies and banks. If capital falls below minimum guideline levels,
the holding company or bank may be denied approval to acquire or establish additional banks or
nonbank businesses or to open new facilities. The FDIC and Federal Reserve Board use risk-based capital guidelines for banks and bank
holding companies. These are designed to make such capital requirements more sensitive to
differences 17




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##### Table of Contents



in risk profiles among banks and bank holding companies, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.
The guidelines are minimums, and the Federal Reserve Board has noted that bank holding companies
contemplating significant expansion programs should not allow expansion to diminish their capital
ratios and should maintain ratios well in excess of the minimum. 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 for bank
holding companies includes common shareholders equity, certain qualifying perpetual preferred
stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles
except as described above. The FDIC and Federal Reserve Board also employ a leverage ratio, which is Tier 1 capital as a
percentage of total assets less intangibles, to be used as a supplement to risk-based guidelines.
The principal objective of the leverage ratio is to constrain the maximum degree to which a bank
holding company or bank may leverage its equity capital base. A minimum leverage ratio of 3% is
required for the most highly rated bank holding companies and banks. Other bank holding companies,
banks and bank holding companies seeking to expand, however, are required to maintain minimum
leverage ratios of at least 4% to 5%. The FDICIA created a statutory framework of supervisory actions indexed to the capital level
of the individual institution. Under regulations adopted by the FDIC and the Federal Reserve
Board, an institution is assigned to one of five capital categories depending on its total
risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together with
certain subjective factors. Institutions which are deemed to be undercapitalized depending on
the category to which they are assigned are subject to certain mandatory supervisory corrective
actions. Other Laws and Regulations International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.On October
26, 2001, the USA PATRIOT Act was enacted. It includes the International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001 (the IMLAFA) and strong measures to prevent,
detect and prosecute terrorism and international money laundering. As required by the IMLAFA, the
federal banking agencies, in cooperation with the U.S. Treasury Department, established rules that
generally apply to insured depository institutions and U.S. branches and agencies of foreign banks. Among other things, the new rules require that financial institutions implement reasonable
procedures to (1) verify the identity of any person opening an account; (2) maintain records of the
information used to verify the persons identity; and (3) determine whether the person appears on
any list of known or suspected terrorists or terrorist organizations. The rules also prohibit
banks from establishing correspondent accounts with foreign shell banks with no physical presence
and encourage cooperation among financial institutions, their regulators and law enforcement to
share information regarding individuals, entities and organizations engaged in terrorist acts or
money laundering activities. The rules also limit a financial institutions liability for
submitting a report of suspicious activity and for voluntarily disclosing a possible violation of
law to law enforcement. Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the SOA) was enacted to address
corporate and accounting fraud. It established a new accounting oversight board that enforces
auditing standards and restricts the scope of services that accounting firms may provide to their
public company audit clients. Among other things, it also (i) requires chief executive officers
and chief financial officers to certify to the accuracy of periodic reports filed with the
Securities and Exchange Commission (the SEC); (ii) imposes new disclosure requirements regarding
internal controls, off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii)
accelerates the time frame for reporting of insider transactions and periodic disclosures by
certain public companies; and (iv) requires companies to disclose whether or not they have adopted
a code of ethics for senior financial officers and whether the audit committee includes at least
one audit committee financial expert. 18




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##### Table of Contents



The SOA requires the SEC, based on certain enumerated factors, to regularly and systematically
review corporate filings. To deter wrongdoing, it (i) subjects bonuses issued to top executives to
disgorgement if a restatement of a companys financial statements was due to corporate misconduct;
(ii) prohibits an officer or director from misleading or coercing an auditor; (iii) prohibits
insider trades during pension fund blackout periods; (iv) imposes new criminal penalties for
fraud and other wrongful acts; and (v) extends the period during which certain securities fraud
lawsuits can be brought against a company or its officers. Privacy.Under the Modernization Act, federal banking regulators adopted rules limiting the
ability of banks and other financial institutions to disclose nonpublic information about consumers
to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and,
in some circumstances, allow consumers to prevent disclosure of certain personal information to
nonaffiliated third parties. The privacy provisions of the Modernization Act affect how consumer
information is transmitted through diversified financial services companies and conveyed to outside
vendors. Future Legislation.Changes to federal and state laws and regulations can affect the
operating environment of bank holding companies and their subsidiaries in substantial and
unpredictable ways. From time to time, various legislative and regulatory proposals are
introduced. These proposals, if codified, may change banking statutes and regulations and the
Companys operating environment in substantial and unpredictable ways. If codified, these
proposals could increase or decrease the cost of doing business, limit or expand permissible
activities or affect the competitive balance among banks, savings associations, credit unions and
other financial institutions. The Company cannot accurately predict whether those changes in laws
and regulations will occur, and, if those changes occur, the ultimate effect they would have upon
the Companys financial condition or results of operation. 
 Item 2. Description of Property. The Companys main office is located at 2805 Wrightsboro Road at Daniel Village in Augusta,
Georgia, which also serves as one of the Banks banking offices. The Bank operates two banking offices in Augusta, Georgia, two banking offices in Martinez, Georgia
and one banking office in Thomson, Georgia. The following table sets forth the location of each of
the Banks branch offices and the date each branch opened for business: Branch
    
    Date OpenedThomson Office, Thomson, Georgia
    
    January 1989Daniel Village Office, Augusta, Georgia
    
    March 1999West Town Office, Martinez, Georgia
    
    October 1999Medical Center Office, Augusta, Georgia
    
    January 2002Furys Ferry Road Office, Martinez, Georgia
    
    April 2003
 In November 2001, the Bank purchased a site located on Wheeler Road in Augusta, Georgia. In
January 2002, the Bank purchased a site located in Evans, Georgia. In March 2005, the Bank entered
into a contract to purchase another site in Evans, Georgia. Construction of a full service banking
facility, to serve as the Banks new Main Office, has begun on the Wheeler Road site with an
expected completion date of August 2005. The Bank will continue to evaluate the possibility of
constructing a full service banking facility on one of the two sites in Evans, Georgia. The Bank also leases office space at one location in Augusta to house the Mortgage Division and its
financial and accounting operations and another location in Augusta to house its human resources
and loan operations. The Mortgage Division also operates offices in Savannah and Pooler, Georgia
and Jacksonville, Florida out of leased office space. 19




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##### Table of Contents



Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Company or the Bank is a party or of
which any of their properties are subject; nor are there material proceedings known to the Company
or the Bank to be contemplated by any governmental authority; nor are there material proceedings
known to the Company or the Bank, pending or contemplated, in which any director, officer or
affiliate or any principal security holder of the Company or the Bank, or any associate of any of
the foregoing is a party or has an interest adverse to the Company or the Bank. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter ended December 31, 2004 to a vote of security
holders of the Company. 
 PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters.  A.
    Market InformationThe Companys common stock trades on the Over-The-Counter Bulletin Board under the symbol
GECR. The market for the Companys common stock must be characterized as a limited market
due to its relatively low trading volume and lack of analyst coverage. The following table
sets forth for the periods indicated the quarterly high and low bid quotation per share as
reported by the Over-The-Counter Bulletin Board. These quotations also reflect inter-dealer
prices without retail mark-ups, mark-downs, or commissions and may not necessarily represent
actual transactions. The share prices below reflect the 2-for-1 stock split effected on
January 30, 2004, and the 5-for-4 stock split to be effected on April 1, 2005. High
    
    
    LowFiscal year ended December 31, 2004First Quarter
    
    $
    17.90
    
    
    $
    16.00Second Quarter
    
    $
    17.00
    
    
    $
    12.80Third Quarter
    
    $
    15.20
    
    
    $
    12.20Fourth Quarter
    
    $
    17.44
    
    
    $
    14.00Fiscal year ended December 31, 2003First Quarter
    
    $
    9.30
    
    
    $
    6.50Second Quarter
    
    $
    10.00
    
    
    $
    8.62Third Quarter
    
    $
    12.00
    
    
    $
    9.20Fourth Quarter
    
    $
    17.12
    
    
    $
    10.80
  B.
    Holders of Common StockAs of March 15, 2005, the number of holders of record of the Companys common stock was 622.C.
    DividendsNo cash dividends were paid by the Company during the years ended December 31, 2004 or 2003.
On January 30, 2004, the Company effected a 2-for-1 split of its common stock in the form
of a 100% stock dividend to shareholders of record as of January 5, 2004. On April 1,
2005, the Company will effect a 5-for-4 split of its common stock in the form of a 25% stock
dividend to shareholders of record as of March 1, 2005. 20




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##### Table of Contents



Future dividends will be determined by the Board of Directors of the Company in light of
circumstances existing from time to time, including the Companys growth, financial
condition and results of operations, the continued existence of the restrictions described
below on the Banks ability to pay dividends and other factors that the Board of Directors
of the Company considers relevant. In addition, the Board of Directors of the Company may
determine, from time to time, that it is prudent to pay special nonrecurring cash dividends
in addition to or in lieu of regular cash dividends. Such special dividends will depend
upon the financial performance of the Company and will take into account its capital
position. No special dividend is presently contemplated.Because the Companys principal operations are conducted through the Bank, the Company
generates cash to pay dividends primarily through dividends paid to it by the Bank.
Accordingly, any dividends paid by the Company will depend on the Banks earnings, capital
requirements, financial condition and other factors. Under Georgia law, the Bank may pay
dividends only when and if the Bank is not insolvent. In addition, dividends may not be
declared or paid at any time when the Bank does not have combined paid-in capital and
appropriated retained earnings equal to at least 20% of the Banks capital stock. Moreover,
dividends may not be paid by the Bank without the prior approval of the Georgia Banking
Department, if the dividends are in excess of specified amounts fixed by the Georgia Banking
Department.D.
    Recent Sales of Unregistered SecuritiesNot Applicable. 
 Item 6. Managements Discussion and Analysis. The following discussion provides information about the major components of the results of
operations and financial condition, liquidity and capital resources of the Company and Bank and
should be read in conjunction with the Business and Financial Statements sections included
elsewhere in this Report. Critical Accounting Policies The accounting and reporting policies of the Company and Bank are in accordance with accounting
principles generally accepted in the United States and conform to general practices within the
banking industry. Application of these principles requires management to make estimates or
judgments that affect the amounts reported in the financial statements and the accompanying notes.
These estimates are based on information available as of the date of the financial statements;
accordingly, as this information changes, the financial statements could reflect different
estimates or judgments. Certain policies inherently have a greater reliance on the use of
estimates, and as such have a greater possibility of producing results that could be materially
different than originally reported. Estimates or judgments are necessary when assets and liabilities are required to be recorded at
fair value, when a decline in the value of an asset not carried on the financial statements at fair
value warrants an impairment write-down or valuation reserve to be established, or when an asset or
liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at
fair value inherently results in more financial statement volatility. The fair values and the
information used to record the valuation adjustments for certain assets and liabilities are based
either on quoted market prices or are provided by other third-party sources, when available. When
third-party information is not available, valuation adjustments are estimated in good faith by
management primarily through the use of internal cash flow modeling techniques. The most significant accounting policies for the Company and Bank are presented in Note 1 to
the consolidated financial statements. These policies, along with the disclosures presented in the
other financial statement notes provide information on how significant assets and liabilities are
valued in the financial statements and how those values are determined. Management views critical
accounting policies to be those that are highly dependent on subjective or complex judgments,
estimates and assumptions, and where changes in those estimates and assumptions could have a
significant impact on the financial statements. Management currently views the determination of the
allowance for loan losses to be the only critical accounting policy. 21




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##### Table of Contents



The allowance for loan losses represents managements estimate of probable credit losses inherent
in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant
judgment and the use of estimates related to the amount and timing of expected future cash flows on
impaired loans, estimated losses on non-impaired loans based on historical loss experience, and
consideration of current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type on the consolidated
balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts
previously charged off are credited to the allowance. A provision for loan losses is charged to
operations based on managements periodic evaluation of the factors previously mentioned, as well
as other pertinent factors. The allowance for loan losses consists of an allocated component and an unallocated component. The
components of the allowance for loan losses represent an estimation made pursuant to either
Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies,or SFAS
114, Accounting by Creditors for Impairment of a Loan.The allocated component of the allowance for
loan losses reflects expected losses resulting from analyses developed through specific credit
allocations for individual loans and historical loss experience for each loan category. The
specific credit allocations are based on regular analyses of all loans over a fixed-dollar amount
where the internal credit rating is at or below a predetermined classification. These analyses
involve a high degree of judgment in estimating the amount of loss associated with specific loans,
including estimating the amount and timing of future cash flows and collateral values. The
historical loss element is determined using the average of actual losses incurred over prior years
for each type of loan. The historical loss experience is adjusted for known changes in economic
conditions and credit quality trends such as changes in the amount of past due and nonperforming
loans. The resulting loss allocation factors are applied to the balance of each type of loan after
removing the balance of impaired loans from each category. There are many factors affecting the allowance for loan losses; some are quantitative while others
require qualitative judgment. Although management believes its process for determining the
allowance adequately considers all the potential factors that could potentially result in credit
losses, the process includes subjective elements and may be susceptible to significant change. To
the extent actual outcomes differ from management estimates, additional provision for loan losses
could be required that could adversely affect earnings or financial position in future periods. Additional information on the Banks loan portfolio and allowance for loan losses can be found in
the Managements Discussion and Analysis and in Item 1, Loan Portfolio. Note 1 to the consolidated
financial statements also includes additional information on the Banks accounting policies related
to the allowance for loan losses. Consolidated Financial Information Certain financial information for the Company and Bank consolidated, and solely the Bank as of and
for the years ended December 31, 2004 and 2003 is presented below: 2004
    
    
    2003Total Assets
    
    
    Net Income
    
    
    Total Assets
    
    
    Net Income(Dollar amounts in thousands)Consolidated
    
    $
    332,393
    
    
    $
    3,502
    
    
    $
    266,025
    
    
    $
    5,032Bank only
    
    $
    332,325
    
    
    $
    3,696
    
    
    $
    265,899
    
    
    $
    5,220
 During 2004, the Company funded operational costs primarily through internally generated
funds and proceeds from the exercise of stock options. The Company incurred approximately $311,270
in operational costs for the year ended December 31, 2004. The Company recorded an income tax
benefit of $117,700, resulting in a net loss of $193,570 for 2004. The Company received no revenue
in the form of dividends from the Bank in 2004. The Company has entered into an agreement with The Bankers Bank that provides the Company with a
line of credit of up to $3 million and bears interest at the prime rate minus 50 basis points and
matures in 2014. As of December 31, 2004 and 2003, the outstanding balance under the line of
credit was $900,000 and $1 million 22




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##### Table of Contents



respectively. The arrangement requires the Company and the Bank to comply with certain financial
and other covenants. At December 31, 2004, the Company and the Bank were in compliance with all
applicable covenants. The Bank Results of Operations For the year ended December 31, 2004, the Bank experienced an increase in total assets and a
decrease in net income. Total assets increased 25.0% to $332.3 at December 31, 2004 from $265.9
million at December 31, 2003. Net income decreased 29.3% to $3.69 million for 2004 from $5.22
million for 2003. Average total assets were $294.3 million for 2004 and were $274.8 million for
2003, an increase of $19.5 million or 7.1%. This increase in average assets is primarily the
result of strong loan demand during 2004. Net loans held for investment increased from $173.2
million at December 31, 2003 to $213.3 million at December 31, 2004, an increase of 23.2%.
Commercial loans increased $6.3 million, or 25.5%, from $24.5 million at December 31,2003 to $30.8
million at December 31, 2004. Real estate mortgage loans increased $28.5 million, or 28.7%, from
$99.2 million at December 31, 2003 to $127.7 million at December 31, 2004, and real estate
construction loans increased $9.4 million, or 25.2%, from $37.2 million at December 31, 2003 to
$46.6 million at December 31, 2004. Installment and consumer loans decreased $3.8 million or
24.5%, from $15.5 million at December 31, 2003 to $11.7 million at December 31, 2004. The decrease
in installment and consumer loans is primarily the result of softer demand in this segment of the
loan portfolio. The increases in each of the other loan categories are the result of the Banks
continuing efforts to obtain these types of lending opportunities. Loans held for sale by the Bank
increased from $32.4 million at December 31, 2003 to $56.7 million at December 31, 2004. The allowance for loan losses was $3,416,000 at December 31, 2004 and was $3,164,000 at December
31, 2003. This represents an increase of $252,000, or 8.0%. The increase in the allowance is
based upon managements rating and assessment of the loan portfolio and the credit risk inherent in
the portfolio, and reflects the growth in the Banks loan portfolio. The Banks ratio of allowance
for loan losses to gross loans was 1.24% at December 31, 2004 and 1.51% at December 31, 2003.
Substantially all loans held for sale originated by the Bank consist of well-secured single family
residence mortgage loans and are originated with a sales commitment and are sold in the secondary
market shortly after origination, thus greatly reducing the Banks credit risk. The Banks ratio
of allowance for loan losses to gross loans, excluding loans held for sale, was 1.58% at December
31, 2004, compared to 1.79% at December 31, 2003. The asset growth of the Bank during 2004 was funded through deposit account growth within the
Banks existing market areas, through short-term borrowings from correspondent banks, and from
lines of credit established with the Federal Home Loan Bank. Total deposit accounts at December
31, 2004 were $257.8 million, an increase of $36.1, million or 16.3%, from $221.7 million at
December 31, 2003. Total other borrowings by the Bank were $47.0 million at December 31, 2004, an
increase of $27.0 million, or 135%, from the balance of $20.0 million at December 31, 2003. The Banks loan to deposit ratio was 106.1% at December 31, 2004 and 94.2% at December 31, 2003.
Excluding mortgage loans held for sale, this ratio was 84.1% for 2004 and 79.6% for 2003. Interest income was $16.1 million for 2004, compared to $15.2 million for 2003. This represents an
increase of $0.9 million, or 5.9%. This increase was primarily attributable to an increase in
loans partially offset by slightly lower yields. Interest expense decreased $0.4 million, or 9.0%,
from $4.9 million for 2003 to $4.5 million for 2004. Although deposit account balances of the bank
increased during 2004, this decrease resulted primarily from a reduced cost of deposit funds. The
increase in deposit accounts was a result of marketing efforts in the local markets served by the
Bank and strategic planning with respect to obtaining out-of-market funds. The Bank focuses on
obtaining growth in deposit accounts to effectively fund the Banks loan growth. Non-interest
bearing deposits increased $7.1 million, or 27.1%, from 2003 to 2004. Net interest income for 2004
was $11.6 million, representing an increase of $1.4 million, or 13.4%, from $10.2 million for 2003. Non-interest income was $10.6 million in 2004, a decrease of $5.0 million, or 32.0%, from the $15.5
million recorded during 2003. This decrease was primarily due to the decrease in the gain on sale
of mortgage loans 23




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##### Table of Contents



for 2004, and was expected given the unusually high level of purchase and refinancing transactions
during 2003. Non-interest expense decreased from $16.2 million in 2003 to $15.4 million in 2004, a decrease of
$.8 million, or 4.9%. The decrease resulted primarily from reduced personnel costs associated with
normal attrition and some planned reductions in the number of personnel within the Mortgage
Division during 2004. Net income decreased $1.5 million, or 29.2%, from $5.2 million in 2003 to $3.7 million in 2004 as a
result of each of the above matters. Liquidity and Interest Rate Sensitivity Deposit levels and the associated timing and quantity of funds flowing into and out of a bank
inherently involve a degree of uncertainty. In order to ensure that it is capable of meeting
depositors demands for funds, the Bank must maintain adequate liquidity. Liquid assets consisting
primarily of cash and deposits due from other banks, federal funds sold and investment securities
maturing within one year provide the source of such funds. Insufficient liquidity may force a bank
to engage in emergency measures to secure necessary funding, which could be costly and negatively
affect earnings. The Bank monitors its liquidity on a monthly basis and seeks to maintain it at an
optimal level. As of December 31, 2004, the Banks liquidity ratio was 16.9% as compared to 25.4% at December 31,
2003. In addition to the liquid assets described above, the Bank has a reserve funding source in
the form of federal funds lines of credit with The Bankers Bank and SunTrust Bank. Management is
not aware of any demands, commitments or uncertainties which could materially affect the Banks
liquidity position. However, should an unforeseen demand for funds arise, the Bank held readily
marketable investment securities at December 31, 2004 with a market value of $40.9 million in its
available-for-sale portfolio which would provide an additional source of liquidity. Gap management is a conservative asset/liability strategy designed to maximize earnings over a
complete interest rate cycle while reducing or minimizing the Banks exposure to interest rate
risk. Various assets and liabilities are termed to be rate sensitive when the interest rate can
be replaced. By definition, the gap is the difference between rate sensitive assets and rate
sensitive liabilities in a given time horizon. At December 31, 2004, the Bank was liability
sensitive through five years and asset sensitive thereafter. The following is an analysis of rate sensitive assets and liabilities as of December 31, 2004 (in
thousands): 5 years0- 3 mos.
    
    
    3  12 mos.
    
    
    1  5 years
    
    
    or more
    
    
    TotalTaxable securities
    
    $
    675
    
    
    $
    1,004
    
    
    $
    13,719
    
    
    $
    25,360
    
    
    $
    40,758Tax-exempt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197
    
    
    
    197Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans
    
    
    86,102
    
    
    
    75,252
    
    
    
    90,391
    
    
    
    21,713
    
    
    
    273,458Total rate sensitive assets
    
    
    86,777
    
    

    
    76,256
    
    
    
    104,110
    
    
    
    47,270
    
    
    
    314,413NOW and money market deposits
    
    
    51,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,310Savings deposits
    
    
    54,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,110Time deposits
    
    
    15,825
    
    
    
    49,172
    
    
    
    53,906
    
    
    
    
    
    
    
    118,903Total rate sensitive deposits
    
    
    121,245
    
    
    
    49,172
    
    
    
    53,906
    
    
    
    
    
    
    
    224,323Borrowed funds
    
    
    36,752
    
    
    
    10,235
    
    
    
    
    
    
    
    
    
    
    
    46,987Total rate sensitive liabilities
    
    
    157,997
    
    
    
    59,407
    
    
    
    53,906
    
    
    
    
    
    
    
    271,310Excess of rate sensitive assets less rate
sensitive liabilities
    
    $
    (71,220
    )
    
    $
    16,849
    
    
    $
    50,204
    
    
    $
    47,270
    
    
    $
    43,103Cumulative ratio of rate sensitive assets
to liabilities
    
    
    55
    %
    
    
    75
    %
    
    
    98
    %
    
    
    116
    %Cumulative gap
    
    $
    (71,220
    )
    
    $
    (54,371
    )
    
    $
    (4,167
    )
    
    $
    43,103
 24




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##### Table of Contents



Capital Resources The equity capital of the Bank totaled $26.2 million at December 31, 2004, an increase of $3.5
million, or 15.3%, from equity capital of $22.8 million at December 31, 2003. The increase in
equity capital was attributable to the Banks net income of $3.7 million, and a decrease of $.2
million in the Banks after-tax unrealized gain/(loss) on available-for-sale securities, which
under Statement of Financial Accounting Standard No. 115, is recognized in the available-for-sale
portion of the bond portfolio by making adjustments to the equity capital account. The equity capital of the Company totaled $25.4 million at December 31, 2004. Management believes that the capitalization of the Company and the Bank is adequate to sustain the
growth experienced in 2004. The following table sets forth the applicable actual and required
capital ratios for the Company and the Bank as of December 31, 2004: MinimumBank
    
    December 31, 2004
    
    
    Regulatory RequirementTier 1 Capital ratio
    
    
    9.42%
    
    
    
    4.0%Total risk-based capital ratio
    
    
    10.65%
    
    
    
    8.0%Leverage ratio
    
    
    8.25%
    
    
    
    4.0%Company  ConsolidatedTier 1 Capital ratio
    
    
    9.11%
    
    
    
    4.0%Total risk-based capital ratio
    
    
    10.34%
    
    
    
    8.0%Leverage ratio
    
    
    7.98%
    
    
    
    4.0%
 The above ratios indicate that the capital position of the Company and the Bank are sound
and that the Company is well positioned for future growth. There are no commitments of capital resources known to management which would have a material
impact on the Banks capital position. Off-Balance Sheet Arrangements In the ordinary course of business, the Bank may enter into off-balance sheet financial instruments
which are not reflected in the financial statements. These instruments include commitments to
extend credit and standby letters of credit. Such financial instruments are recorded in the
financial statements when funds are disbursed or the instruments become payable. Following is an analysis of significant off-balance sheet financial instruments at December 31,
2004 and 2003. At
    
    
    AtDecember 31, 2004
    
    
    December 31, 2003(In thousands)Commitments to extend credit
    
    $
    47,663
    
    
    $
    48,485Standby letters of credit
    
    
    837
    
    
    
    223$
    48,500
    
    
    $
    48,708
 25




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##### Table of Contents



Item 7.Financial Statements. The following financial statements are filed as Exhibit 99.1 to this Report and incorporated herein
by reference: Report of Independent Registered Public Accounting FirmConsolidated Statements of Financial Condition as ofDecember 31, 2004 and 2003Consolidated Statements of Income for the years endedDecember 31, 2004, 2003 and 2002Consolidated Statements of Comprehensive Income (Loss)for the years ended December 31, 2004, 2003 and 2002Consolidated Statements of Shareholders Equity forthe years ended December 31, 2004, 2003 and 2002Consolidated Statements of Cash Flows for the years endedDecember 31, 2004, 2003 and 2002Notes to Consolidated Financial Statements
 
 Item 8.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. There has been no occurrence requiring a response to this item. 
 Item 8A.Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have evaluated the Companys
disclosure controls and procedures as of the end of the fiscal year covered by this Report on Form
10-KSB and have concluded that the Companys disclosure controls and procedures are effective.
During the fourth quarter of 2004, there were no changes in the Companys internal control over
financial reporting that have materially affected, or that are reasonably likely to materially
affect, the Companys internal control over financial reporting. 
 Item 8B.Other Information. Not applicable. 
 PART III Certain information required by Part III of this Form 10-KSB is incorporated by reference from the
Companys definitive proxy statement to be filed pursuant to Regulation 14A for the Companys
Annual Meeting of Shareholders to be held on May 24, 2005 (the Proxy Statement). The Company
will, within 120 days of the end of its fiscal year, file the Proxy Statement with the Securities
and Exchange Commission. 
 Item 9.Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act. The information responsive to this item is incorporated by reference from the sections entitled
Corporate Governance and Board Matters, Election of Directors and Executive Officers
contained in the Proxy Statement. 26




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##### Table of Contents



Item 10.Executive Compensation. The information responsive to this item is incorporated by reference from the section entitled
Executive Compensation contained in the Proxy Statement. 
 Item 11.Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. The information responsive to this item is incorporated by reference from the section entitled
Ownership of Common Stock contained in the Proxy Statement. 
 Item 12.Certain Relationships and Related Transactions. The information responsive to this item is incorporated by reference from the section entitled
Related Party Transactions contained in the Proxy Statement. 
 Item 13.Exhibits. The following exhibits are filed with this report: ExhibitNumber
    
    
    
    Description of Exhibit3.1
    
    -
    
    Articles of Incorporation of the Company (incorporated herein by
reference to the exhibit of the same number in the Companys
Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, Registration No. 333-69763, previously filed with
the Commission).3.1.1
    
    -
    
    Articles of Amendment to the Articles of Incorporation of the
Company (incorporated herein by reference to the exhibit of the same
number in the Companys Annual Report on Form 10-KSB for the year
ended December 31, 2000, previously filed with the Commission).3.2
    
    -
    
    By-Laws of the Company (incorporated herein by reference to the
exhibit of the same number in the Companys Registration Statement
on Form SB-2 under the Securities Act of 1933, as amended
(Registration No. 333-69763)).10.1
    
    -
    
    Employment Agreement dated October 6, 1997 between the Company and
Patrick G. Blanchard (incorporated herein by reference to the
exhibit of the same number in the Companys Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997, previously filed
with the Commission).10.1.1
    
    -
    
    Amendment No. 1 to Employment Agreement dated October 6, 1997
between First Bank of Georgia, the Company and Patrick G. Blanchard,
dated September 30, 1998 (incorporated herein by reference to the
exhibit of the same number in the Companys Registration Statement
on Form SB-2, as amended, Registration No. 333-69763, previously
filed with the Commission).10.1.2
    
    -
    
    Amendment No. 2 to Employment Agreement dated October 6, 1997
between First Bank of Georgia, the Company and Patrick G. Blanchard,
dated December 23, 1998 (incorporated herein by reference to the
exhibit of the same number in the Companys Registration Statement
on Form SB-2, as amended, Registration No. 333-69763, previously
filed with the Commission).
 27




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit10.2
    
    -
    
    1997 Stock Option Plan (incorporated herein by reference to the
exhibit of the same number in the Companys Annual Report on Form
10-KSB for the year ended December 31, 2002, previously filed with
the Commission).10.3
    
    -
    
    Directors Stock Purchase Plan (incorporated herein by reference to
the exhibit of the same number in the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2002, previously filed
with the Commission).10.4
    
    -
    
    2004 Incentive Plan (incorporated herein by reference to Appendix A
of the Companys Proxy Statement for its 2004 Annual Meeting of
Shareholders, filed with the Commission on May 5, 2004).10.5
    
    -
    
    Form of Incentive Stock Option Agreement under the Companys 2004
Incentive Plan.14.1
    
    -
    
    Code of Ethics (incorporated herein by reference from Exhibit 99.2
contained in the Companys Annual Report on Form 10-KSB for the year
ended December 31, 2003, previously filed with the Commission).21.1
    
    -
    
    Subsidiaries of the Registrant.23.1
    
    -
    
    Consent of Cherry, Bekaert & Holland, L.L.P.31.1
    
    -
    
    Certification of President and Chief Executive Officer Pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.31.2
    
    -
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.99.1
    
    -
    
    Financial Statements
 
 Item 14.Principal Accountant Fees and Services. The information responsive to this item is incorporated by reference from the section entitled
Independent Public Accountants contained in the Proxy Statement. 28




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized. GEORGIA-CAROLINA BANCSHARES, INC.Date: March 29, 2005
    
    By:
    
    /s/ Patrick G. BlanchardPatrick G. BlanchardPresident and Chief Executive Officer(principal executive officer)Date: March 29, 2005
    
    By:
    
    /s/ James M. ThomasJames M. ThomasChief Financial Officer(principal financial and accounting officer)
 29




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##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. DIRECTORS
    
    DATE
    
    DIRECTORS
    
    DATE/s/ Patrick G. Blanchard
    
    March 29, 2005
    
    /s/ Hugh L. Hamilton, Jr.
    
    March 29, 2005Patrick G. Blanchard
    
    
    
    Hugh L. Hamilton, Jr./s/ Remer Y. Brinson, III
    
    March 29, 2005
    
    /s/ William G. Hatcher, Sr.
    
    March 29, 2005Remer Y. Brinson, III
    
    
    
    William G. Hatcher/s/ Larry DeMeyers
    
    March 29, 2005
    
    /s/ George O. Hughes
    
    March 29, 2005Larry DeMeyers
    
    
    
    George O. Hughes/s/ Philip G. Farr
    
    March 29, 2005
    
    /s/ George H. Inman
    
    March 29, 2005Philip G. Farr
    
    
    
    George H. Inman/s/ Samuel A. Fowler, Jr.
    
    March 29, 2005
    
    /s/ David W. Joesbury, Sr.
    
    March 29, 2005Samuel A. Fowler, Jr.
    
    
    
    David W. Joesbury/s/ Arthur J. Gay, Jr.
    
    March 29, 2005
    
    /s/ James L. Lemley, M.D.
    
    March 29, 2005Arthur J. Gay, Jr.
    
    
    
    James L. Lemley, M.D./s/ Joseph D. Greene
    
    March 29, 2005
    
    /s/ Julian W. Osbon
    
    March 29, 2005Joseph D. Greene
    
    
    
    Julian W. Osbon/s/ J. Randall Hall
    
    March 29, 2005
    
    /s/ Bennye M. Young
    
    March 29, 2005J. Randall Hall
    
    
    
    Bennye M. Young/s/ John W. Lee
    
    March 29, 2005
    
    /s/ A. Montague Miller
    
    March 29, 2005John W. Lee
    
    
    
    A. Montague Miller/s/ Robert N. Wilson, Jr.
    
    March 29, 2005Robert N. Wilson, Jr.
 30




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT10.5
    
    Form of Incentive Stock Option Agreement under the Companys 2004 Incentive Plan.21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Cherry, Bekaert & Holland, L.L.P.31.1
    
    Certification of President and
Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial
Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 200232.1
    
    Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.99.1
    
    Financial Statements