<PAGE>   1
                       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, 1998


                           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)

                              110 EAST HILL STREET
                             THOMSON, GEORGIA 30824

                            TELEPHONE: (706) 595-1600
-------------------------------------------------------------------------------
 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  X  No
                                       ---    ---   

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.  X
                  ---

Revenue for the fiscal year ended December 31, 1998: $3,611,023.

The aggregate market value of the registrant's common stock held by
nonaffiliates of the registrant (396,614 shares), computed using the book value
of the registrant's common stock as of December 31, 1998 was $4,606,710. 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 December 31, 1998, 635,380 shares of the registrant's common stock were
outstanding.

Portions of the registrant's definitive proxy statement to be delivered to
shareholders in connection with the 1999 Annual Meeting of Shareholders
scheduled to be held May 12, 1999 are incorporated by reference in response to
Part III of this Report.

Transitional Small Business Disclosure Format (check one)
Yes     No  X
   ---     ---


<PAGE>   2



                                     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 results for fiscal 1998 and beyond 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") was incorporated under
the laws of the State of Georgia on January 31, 1997, to operate as a bank
holding company under the federal Bank Holding Company Act of 1956, as amended.

        The Company is a one-bank holding company and owns 100% of the issued
and outstanding stock of First Bank of Georgia (the "Bank"), a state-chartered
commercial bank that operates two offices in Thomson, Georgia under the name
First Bank-McDuffie. Subsequent to the Company's December 31, 1998 year end the
Bank completed construction of and opened an additional office located in
Augusta, Georgia.

        The Bank began operations in January 1989 as an independent, locally
owned commercial bank conducting business in McDuffie County, Georgia. The
Bank's deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC"). 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, which 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, home improvement loans and credit card accounts.

        The Company was organized in 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. On April 28, 1997,
the shareholders of the Bank, at the Bank's Annual Meeting of Shareholders, duly

                                       -1-

<PAGE>   3



approved and authorized the reorganization, in which the Bank would become a
wholly-owned subsidiary of the Company. After final regulatory approvals, the
reorganization was completed on June 6, 1997.

        In February 1997, while Bank management and the Board of Directors of
the Bank were pursuing the organization of the Company, the Bank was contacted
by certain businessmen located in and around Augusta, Georgia who were
interested in chartering a new bank to serve the markets of Augusta and
neighboring Columbia County as a subsidiary of the Company. In October 1997 the
Company and the businessmen reached an agreement, subsequently approved by the
Company's shareholders and subject to certain other conditions, whereby the
Company has agreed to register certain shares of its common stock for sale to
the public and to use the proceeds of such sale to expand the Bank, through the
establishment of offices, into Augusta and Columbia County. The Company is
currently conducting an "any and all" best efforts public offering of its common
stock pursuant to a registration statement filed with the Securities and
Exchange Commission registering 740,741 shares of the common stock. As of March
24, 1999, the Company had sold 264,918 shares and received proceeds of
approximately $3,576,393. See "Item 5. Market for Common Equity and Related
Shareholder Matters."

MARKET AREA AND COMPETITION

        The primary service area (the "PSA") of the Bank is the County of
McDuffie, Georgia and the community of Thomson, Georgia which is approximately
30 miles west of Augusta, Georgia. As a result of the Bank's opening of its new
location in Augusta, the Bank is now serving customers in the Augusta area. The
Bank encounters competition in its PSA and in surrounding areas from other
commercial banks. These competitors 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 services companies which have
recently started to attract customers that have traditionally been served by
banks.

        The extent to which other types of financial services 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.

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, 1998 and 1997. Also presented is the Bank's actual
interest income and expense from each asset and 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:



                                       -2-

<PAGE>   4



                             AVERAGE BALANCE SHEETS
                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                             December 31,
                                             --------------------------------------------------------------------------
                                                              1998                                1997
                                             -------------------------------------    ---------------------------------
                                                            Interest       Average                Interest      Average
                                              Average       Income/         Yield     Average     Income/       Yield
                                              Balance       Expense        / Rate     Balance     Expense       / Rate
<S>                                          <C>            <C>            <C>        <C>         <C>           <C>
ASSETS
INTEREST-EARNING ASSETS
  Loans, net                                 $ 21,533       $  2,232       10.37%     $19,729     $2,034        10.31%
  Investment securities                        14,477            897        6.20%      12,047        758         6.29%
  Interest-bearing deposits in banks              100              7        7.00%         143         11         7.69%
  Federal funds sold                            3,370            169        5.01%       2,924        160         5.47%
                                             --------       --------       -----      -------     ------        -----
     TOTAL INTEREST-EARNING ASSETS             39,480          3,305        8.37%      34,843      2,963         8.50%

NON-INTEREST EARNING ASSETS
  Cash and due from banks                       1,770                                     984
  Premises and fixed assets                     1,976                                   1,459
  Accrued interest receivable                     412                                     342
  Other assets                                    717                                     865
  Allowance for loan losses                      (824)                                   (907)
                                             --------                                 -------
     TOTAL ASSETS                            $ 43,531                                 $37,586
                                             ========                                 =======


LIABILITIES AND SHAREHOLDERS'
EQUITY
INTEREST-BEARING DEPOSITS
  NOW accounts                               $  7,601       $    145        1.91%     $ 4,464     $  102         2.28%
  Savings accounts                              1,970             50        2.54%       1,816         45         2.48%
  Money Market Accounts                         3,034            101        3.33%       2,650         86         3.25%
  Other time accounts                          19,065          1,104        5.79%      17,876        978         5.47%
                                             --------       --------       -----      -------     ------        -----
     TOTAL INTEREST-BEARING DEPOSITS           31,670          1,400        4.42%      26,806      1,211         4.52%

OTHER INTEREST-BEARING
 LIABILITIES
  Funds purchased                                  --             --          --           32          2         6.25%
                                             --------       --------       -----      -------     ------        -----
     TOTAL INTEREST-BEARING LIABILITIES        31,670          1,400        4.42%      26,838      1,213         4.52%

NON-INTEREST-BEARING LIABILITIES
 AND SHAREHOLDERS' EQUITY
  Demand deposits                               4,046                                   3,361
  Other liabilities                               446                                     420
  Shareholders' equity                          7,369                                   6,967
                                             --------                                 -------
     TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY                                 $ 43,531                                 $37,586
                                             ========                                 =======

Interest rate spread                                                        3.95%                                3.98%
Net interest income                                            1,905                               1,750
Net interest margin                                                         4.83%                                5.02%
Average interest-earning assets to
     average total assets                                                  90.69%                               92.70%
Average loans to average deposits                                          60.29%                               65.40%
</TABLE>

                                       -3-

<PAGE>   5



RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

The effect on interest income, interest expense and net interest income in the
periods indicated, of changes in average balance and rate from the corresponding
prior period is shown below. 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.
Changes resulting from average balance/rate variances are included in changes
resulting from rate. The balance of the change in interest income or expense and
net interest income has been attributed to a change in average rate.

<TABLE>
<CAPTION>


                                                  Year Ended December 31, 1998
                                                          Compared with
                                                  Year Ended December 31, 1997
                                                  (Dollar amounts in thousands)
                                                --------------------------------
                                                 Increase (Decrease)
                                                      Due to
                                                --------------------------------
                                                 Volume       Rate        Total
                                                 ------       ----        -----
<S>                                              <C>          <C>         <C>
Interest earned on:
  Tax-exempt securities                          $ (34)       $ (3)       $ (37)
  Taxable securities                               205         (29)         176
  Federal funds sold                                23         (14)           9
  Net loans                                        169          29          198
  Interest-bearing deposits in banks                (3)         (1)          (4)
                                                 -----        ----        -----

Total interest income                              360         (18)         342
                                                 -----        ----        -----

Interest paid on:
  NOW deposits                                      60         (17)          43
  Money market deposits                             13           4           17
  Savings deposits                                   4           1            5
  Time deposits                                     69          55          124
  Federal funds purchased                           (1)         (1)          (2)
                                                 -----        ----        -----

Total interest expense                             145          42          187
                                                 -----        ----        -----

Increase (decrease) in net interest income       $ 215        $(60)       $ 155
                                                 =====        ====        =====
</TABLE>


                                       -4-

<PAGE>   6



<TABLE>
<CAPTION>

                                             Year Ended December 31, 1997
                                                    Compared with
                                             Year Ended December 31, 1996
                                            (Dollar amounts in thousands)
                                           --------------------------------
                                           Increase (Decrease)
                                                  Due to
                                           --------------------------------
                                           Volume        Rate        Total
                                           ------        ----        -----
<S>                                        <C>          <C>          <C>
Interest earned on:
  Tax-exempt securities                    $   8        $ (15)       $  (7)
  Taxable securities                           7          (14)          (7)
  Federal funds sold                         (18)          91           73
  Net loans                                 (195)          51         (144)
  Interest-bearing deposits in banks          (1)          (4)          (5)
                                           -----        -----        -----

Total interest income                       (199)         109          (90)
                                           -----        -----        -----

Interest paid on:
  NOW deposits                                 8          (11)          (3)
  Money market deposits                       10           15           25
  Savings deposits                            (3)          --           (3)
  Time deposits                             (145)         (47)        (192)
  Federal funds purchased                      3           (2)           1
                                           -----        -----        -----

Total interest expense                      (127)         (45)        (172)
                                           -----        -----        -----

Change in net interest income              $ (72)       $ 154        $  82
                                           =====        =====        =====
</TABLE>

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.



                                       -5-

<PAGE>   7



     The following table details, for the periods indicated, the average amount
of and average rate paid on each of the following deposit categories:


<TABLE>
<CAPTION>

                                                 Year Ended December 31, 1998            Year Ended December 31, 1997
                                                 ----------------------------            ----------------------------
                                                 (Dollar amounts in thousands)           (Dollar amounts in thousands)
                                              Average Amount  Average Rate Paid       Average Amount     Average Rate Paid
                                              --------------  -----------------       --------------     -----------------
<S>                                           <C>             <C>                     <C>                <C>
Deposit Category

Non-interest bearing demand deposits              $ 4,046                --               $ 3,361                --

NOW and money market deposits                      10,635              2.30%              $ 7,114              2.64%

Savings deposits                                    1,970              2.54%              $ 1,816              2.48%

Time deposits                                      19,065              5.79%              $17,876              5.47%
</TABLE>

     The maturities of certificates of deposit and individual retirement
accounts of $100,000 or more as of December 31, 1998 were as follows:

<TABLE>
<CAPTION>

                                                                            (In thousands)

    <S>                                                                     <C>
    Three months or less                                                       $1,173
    Over three months through twelve months                                     3,029
    Over twelve months                                                             --
                                                                               ------
                                          Total                                $4,202
                                                                               ======
</TABLE>

LOAN PORTFOLIO

        The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. The Bank concentrates
its lending efforts in the areas of consumer/installment and real estate loans,
particularly home mortgage lending. As of December 31, 1998, the Bank's loan
portfolio consisted of 17% commercial loans, 14% consumer/installment loans and
69% real estate loans.

        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. Such loans include short-term lines of credit,
short to medium-term plant and equipment loans, short to medium-term land
acquisition and development loans, construction loans and letters of credit.

        The Bank's consumer loans consist primarily of residential first and
second mortgage loans, home equity loans, 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 loans are of various types and include both
mortgage and construction and development lending. Mortgage lending by the Bank
is generally secured by office buildings, retail establishments and other types
of property. The Bank also originates residential real estate loans on single
and multi-family properties. The Bank's construction and development portfolio
includes real estate

                                       -6-

<PAGE>   8



mortgage loans in suburban Atlanta. These loans are generated by a third party
loan broker and consist primarily of construction loans to builders of new homes
and commercial office buildings.

        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.

        Management of the Bank originates loans and participates with other
banks with respect to loans which exceed the Bank's lending limits. Management
of the Bank does not believe that loan participations will necessarily pose any
greater risk of loss than loans which the Bank originates.

        The following table presents various categories of loans contained in
the Bank's loan portfolio as of December 31, 1998 and 1997 and the total amount
of all loans for such periods:

<TABLE>
<CAPTION>

                                                                          December 31,
                                                               -------------------------------
                                                                 1998                   1997
                                                               --------               --------
                                                                (Dollar amounts in thousands)
<S>                                                            <C>                    <C>
Type of Loan
  Commercial, financial and agricultural                       $  3,969               $  3,722
  Real estate - construction                                      5,614                  4,893
  Real estate - mortgage                                         10,084                  8,441
  Installment and consumer                                        3,212                  2,676
                                                               --------               --------

                          Subtotal                               22,879                 19,732

Less:
  Unearned income and deferred loan fees                             (4)                    (8)
  Allowance for possible loan losses                               (835)                  (752)
                                                               --------               --------

                         Total (net of allowance)              $ 22,040               $ 18,972
                                                               ========               ========
</TABLE>


        The table below presents an analysis of maturities of certain categories
of loans as of December 31, 1998:

<TABLE>
<CAPTION>

                                                   Due in 1     Due in 1 to      Due After
Type of Loan                                     Year or Less     5 Years         5 Years           Total
------------                                     ------------  -------------    -----------        -------
                                                                   (Dollar amounts in thousands)

<S>                                              <C>            <C>              <C>               <C>
Commercial, financial and agricultural              $2,755      $1,214             $-              $3,969
Real estate construction                             4,905         700              9               5,614
                                                    ------      ------             --              ------

                        Total                       $7,660      $1,914             $9              $9,583
                                                    ======      ======             ==              ======

</TABLE>

                                       -7-

<PAGE>   9



        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, 1998:

         Loans due after 1 year with predetermined interest rates  $1,923,000

         Loans due after 1 year with floating interest rates       $     --     

        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. At December 31, 1998,
the Bank had three loans aggregating $220,000 accounted for on a nonaccrual
basis, and there were two loans aggregating $1,000 that were past due 90 days or
more as to principal or interest and were still accruing. At December 31, 1997,
the Bank had five loans aggregating $43,000 accounted for on a nonaccrual basis,
and there were no accruing loans which were past due 90 days or more.

        At December 31, 1998 and 1997, 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.


                                       -8-

<PAGE>   10



SUMMARY OF LOAN LOSS EXPERIENCE

        An analysis of the Bank's loss experience is furnished in the following
table for the periods indicated.


<TABLE>
<CAPTION>

                                                            Summary of Loan Loss Experience
                                                            --------------------------------
                                                                       December 31,
                                                                 1998             1997
                                                            --------------  --------------
                                                            (Dollar amounts in thousands)

<S>                                                         <C>             <C>
Allowance for loan losses, beginning of year                     $ 752            $ 889

Charge-offs:
  Commercial, financial and agricultural (primarily
   single payment)                                                  --              (91)
  Customer (primarily installment)                                 (34)            (141)
  Credit cards                                                      (3)             (10)
                                                                 -----            -----
                                                                   (37)            (242)
                                                                 -----            -----

Recoveries:
  Commercial, financial and agricultural (primarily
   single payment                                                   22                8
  Customer (primarily installment)                                  98               80
  Credit cards                                                      --                1
                                                                 -----            -----
                                                                   120               89
                                                                 -----            -----

Net charge-offs (recovery)                                         (83)             153
                                                                 -----            -----
Provision charged to operations                                     --               16
                                                                 -----            -----

Allowance for loan losses, end of year                           $ 835            $ 752
                                                                 =====            =====

Ratio of net charge-offs (recoveries) during the period
 to average loans outstanding during the period                  (0.39)%           0.80%
</TABLE>


LOAN LOSS ALLOWANCE

        In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1998, 17% of
outstanding loans are in the category of commercial loans. Commercial loans are
generally considered by management as having greater risk than other categories
of loans in the Bank's loan portfolio. However, over 97% of these commercial
loans at December 31, 1998 were made on a secured basis. Management believes
that the secured condition of a substantial portion of its commercial loan
portfolio greatly reduces the risk of loss inherently present in commercial
loans.


                                       -9-

<PAGE>   11



        At December 31, 1998, the loan loss allowance was allocated as follows:

<TABLE>
<CAPTION>

                                               Allowance for Loan Losses
                                           ---------------------------------
                                                           Percent of Loans
                                                           In Each Category
                                               Amount       To Total Loans
                                           --------------  -----------------
                                             (Dollar amounts in thousands)

<S>                                        <C>             <C>
Commercial, financial and agricultural          $194           17.35%
Real estate - construction                        90           24.54
Real estate - mortgage                           239           44.08
Installment and consumer                         106           14.03
Unallocated                                      206             N/A
                                                ----          ------

                                 Total          $835           100.0%
                                                ====          ======
</TABLE>

     The Bank's consumer loan portfolio is also well secured. At December 31,
1998 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 involve less risk than other categories of
loans.

     Real estate mortgage loans constitute 44% of outstanding loans.
Approximately $4.6 million, or 46%, of this category represents residential real
estate mortgages. The remaining portion of this category consists of commercial
real estate loans. Risk of loss for these loans is generally higher than
residential loans.

     The Bank's Board of Directors monitors the loan portfolio quarterly to
enable it to evaluate the adequacy of the allowance for loan losses. The loans
are rated and the allowance established based on the assigned rating. The
provision for loan losses charged to operating expenses is based on this
established allowance. Factors considered by the Board in rating the loans
include delinquent loans, underlying collateral value, payment history and local
and general economic conditions affecting collectibility.

INVESTMENTS

     As of December 31, 1998, federal funds sold and investment securities
comprised approximately 42% of the Bank's assets, with loans comprising
approximately 48% of the Bank's assets. The Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by 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, and primarily acts as a net seller of such funds. The sale
of federal funds amounts to a short-term loan from the Bank to another bank.

     The following table presents, for the periods indicated, the estimated fair
market value of the Bank's investment securities available-for-sale. The Bank
has classified as available-for-sale all investment securities.


                                      -10-

<PAGE>   12

<TABLE>
<CAPTION>



                                                        December 31,
                                                 -------------------------
                                                   1998             1997
                                                 -------          -------
                                                     (Dollar amounts
                                                      in thousands)

<S>                                              <C>              <C>
Obligations of U.S. government agencies          $12,499          $10,477
U.S. Treasury notes                                   --              249
Mortgage-backed securities                           740            1,227
State, county and municipal securities               837            1,825
                                                 -------          -------
                                                  14,076           13,778
Federal Home Loan Bank stock                         132               --
                                                 -------          -------

         Total                                   $14,208          $13,778
                                                 =======          =======
</TABLE>

     The following tables present the contractual maturities and weighted
average yields of the Bank's investments:

<TABLE>
<CAPTION>


                                                        Maturities of Investment Securities
                                               --------------------------------------------------------
                                                             After One         After Five
                                                Within        Through           Through         After
                                               One Year      Five Years        Ten Years      Ten Years
                                               --------      ----------        ---------      ---------
<S>                                            <C>           <C>               <C>            <C>
Obligation of U.S. government agencies          $  --          $3,333          $9,166          $ --
U.S. Treasury notes                                --              --              --            --
Mortgage-backed securities                         --             726              --            14
State, county and municipal securities             --             221             616            --
Federal Home Loan Bank stock                       --              --              --           132
                                                -----          ------          ------          ----
                             Total              $  --          $4,280          $9,782          $146
                                                =====          ======          ======          ====
</TABLE>


<TABLE>
<CAPTION>

                                                                             Weighted Average Yields
                                                                 --------------------------------------------------
                                                                            After One      After Five
                                                                  Within     Through         Through        After
                                                                 One Year   Five Years     Ten Years      Ten Years
                                                                 --------   ----------     ---------      ---------

<S>                                                              <C>        <C>            <C>            <C>
Obligation of U.S. government agencies                               0%        6.22%          6.28%            0%
U.S. Treasury notes                                                  0            0              0             0
Mortgage-backed securities                                           0         5.60              0         10.00
State, county and municipal securities                               0            0           4.73             0
Federal Home Loan Bank stock                                         0            0              0             0
                                                                   ---         ----           ----         -----

                             Total weighted average yield            0%        6.02%          6.18%          .96%
                                                                   ===         ====           ====         =====
</TABLE>

     With the exception of the U.S. Treasury notes and U.S. government agencies
securities shown above, the Bank did not have investments with a single issuer
exceeding, in the aggregate, 10% of the Bank's shareholders' equity.


                                      -11-

<PAGE>   13



RETURN ON EQUITY AND ASSETS

     The following table presents certain profitability, return and capital
ratios for the Company at or as of the end of the past two fiscal years.

<TABLE>
<CAPTION>

                                          December 31,
                                 ----------------------------
Ratio                              1998                1997
-----                            --------            --------
<S>                              <C>                  <C>
Return on Assets                    .11%                .58%
Return on Equity                    .65%               3.22%
Dividend Payout                  131.25%              54.27%
Equity to Assets                  16.18%              17.94%
</TABLE>

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 assets and
liabilities management 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.

     The Bank's asset/liability mix is monitored on a daily basis with a monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Bank's 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 Bank's
earnings.

CORRESPONDENT BANKING

     Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase 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. Management of
the Bank has established correspondent relationships with The Bankers Bank and
SunTrust Bank. As compensation for services provided by a correspondent, the
Bank maintains certain balances with such correspondent in non-interest bearing
accounts.

DATA PROCESSING

     The Bank has entered into a data processing servicing agreement with The
Intercept Group, Inc. This servicing agreement provides for the Bank to receive
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.


                                      -12-

<PAGE>   14



FACILITIES

     The Company's main office is located at 110 East Hill Street in Thomson,
Georgia. The property consists of a two-story building with approximately 6,000
square feet of usable space on the first floor and approximately 2,800 square
feet of unfinished space on the second floor designated for future expansion.
The building is constructed on 3.4 acres of land owned by the Bank. In addition,
the Branch Office, which is located at 1043 Washington Road, in Thomson,
Georgia, is approximately two miles north of the Bank's main office. The Branch
Office is approximately 2,600 square feet in size and is located on 1.25 acres
of land.

     On March 15, 1999, the Bank officially opened its Daniel Village Office at
2805 Wrightsboro Road at Daniel Village in Augusta, Georgia. The branch office
is approximately 3,300 square feet in size and located on approximately .90
acres of land.  In addition, the Bank recently purchased property at 3820
Washington Road in the business district of Martinez, Georgia, which is located
in Columbia County.  This office will be referred to as the West Town Office.

EMPLOYEES

     The Bank employs 27 persons on a full-time or part-time basis, including
six officers. The Bank will hire additional persons as needed on a full-time or
part-time basis, including additional tellers and customer service
representatives.

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 Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of regulatory agencies, including the Federal Reserve
Board, the Georgia Department of Banking and Finance (the "Georgia Banking
Department") and the Federal Deposit Insurance Corporation ("FDIC").

     The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act, which requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5% of
the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board

                                      -13-

<PAGE>   15



policy, the Company may be required to provide financial support to a subsidiary
bank at a time when, absent such Federal Reserve Board policy, the Company may
not deem it advisable to provide such assistance.

     Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994, the Company, or any other bank holding company located in Georgia, may
acquire a bank located in any other state, and a bank holding company located
outside Georgia may acquire any Georgia-based bank, in either case subject to
certain deposit percentage and other restrictions. In addition, adequately
capitalized and managed bank holding companies may consolidate their multi-state
bank operations into a single bank subsidiary and may branch interstate through
acquisitions unless an individual state has elected to prohibit out-of-state
banks from operating interstate branches within its territory. De novo branching
by an out-of-state bank is lawful only if it is expressly permitted by the laws
of the host state. The authority of a bank to establish and operate branches
within a state remains subject to applicable state branching laws.

     The State of Georgia has adopted an interstate banking statute allowing
banks to branch interstate through mergers, consolidations and acquisitions. The
State of Georgia has adopted an interstate banking statute authorizing bank
holding companies located throughout the United States to acquire banks and bank
holding companies located in Georgia under certain circumstances. Establishment
of de novo bank branches in Georgia by out-of-state financial institutions is
not permitted under Georgia law.

     A bank holding company is generally prohibited from acquiring control of
any company which is not a bank and from engaging in any business other than the
business of banking or managing and controlling banks. However, there are
certain activities which have been identified by the Federal Reserve Board to be
so closely related to banking as to be a proper incident thereto and thus
permissible for bank holding companies. Effective April 21, 1997, the Federal
Reserve Board revised and expanded the list of permissible nonbanking
activities, which includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and real property or acting as a broker
with respect thereto; providing management and employee benefits consulting
advice and career counseling services to nonaffiliated banks and nonbank
depository institutions; operating certain nonbank depository institutions;
performing certain trust company functions; providing certain agency
transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity financing; providing check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.

     In determining whether an activity is so closely related to banking as to
be permissible for bank holding companies, the Federal Reserve Board is required
to consider whether the performance of such activities by a bank holding company
or its subsidiaries can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, and gains in
efficiency, that outweigh such possible adverse effects as undue concentration
of resources, decreased or unfair competition, conflicts of interest, and
unsound banking practices. Generally, bank holding companies must obtain
approval of the Federal Reserve

                                      -14-

<PAGE>   16



Board to engage in any activity not previously approved by the Federal Reserve
Board or to modify in any material respect an activity for which Federal Reserve
Board approval has been obtained.

     The Company is also regulated by the Georgia Banking Department under the
Financial Institutions Code of Georgia, which requires a Georgia bank holding
company to obtain the prior approval of the Georgia Commissioner of Banking
before acquiring more than 5% of the voting shares of any bank or all or
substantially all of the assets of a bank, or before merging or consolidating
with any other bank holding company. A Georgia bank holding company is generally
prohibited from acquiring ownership or control of 5% or more of the voting
shares of any bank unless the banks being acquired has been in existence and
continuously operating as a bank for a period of five years or more prior to the
date of acquisition and is either (i) a bank for purposes of the federal Bank
Holding Company Act of 1956 or (ii) a federal or state savings and loan
association or a savings bank or federal savings bank whose deposits are insured
by the federal deposit insurance program.

     The Bank is also subject to the Georgia banking and usury laws restricting
the amount of interest which it may charge in making loans or other extensions
of credit. In addition, the Bank, as a subsidiary of the Company, is subject to
restrictions under federal law in dealing with the Company and other affiliates,
if any. These restrictions apply to extensions of credit to an affiliate,
investments in the securities of an affiliate, and the purchase of assets from
an affiliate.

     Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board. The Federal Reserve Board has
issued risk-based capital guidelines for bank holding companies and banks which
make regulatory capital requirements more sensitive to differences in risk
profiles of various banking organizations. The capital adequacy guidelines
issued by the Federal Reserve Board are applied to bank holding companies, on a
consolidated basis with the banks owned by the holding company, as well as to
state member banks. The Federal Reserve Board's requirements provide that
banking organizations must have capital equivalent to at least 8% of
risk-weighted assets. The risk weights assigned to assets are based primarily on
credit risks. Depending upon the riskiness of a particular asset, it is assigned
to a risk category. For example, securities with an unconditional guarantee by
the United States government are assigned to the lowest risk category, while a
risk weight of 50% is assigned to loans secured by owner-occupied one to four
family residential mortgages provided that certain conditions are met. The
aggregate amount of assets assigned to each risk category is multiplied by the
risk weight assigned to that category to determine the weighted values, which
are added together to determine total risk-weighted assets. The Federal Reserve
Board has also implemented minimum capital leverage ratios to be used in tandem
with the risk-based guidelines in assessing the overall capital adequacy of
banks and bank holding companies. Under these rules, banking institutions must
maintain a ratio of at least 3% "Tier 1" capital to total weighted risk assets
(net of goodwill, certain intangible assets, and certain deferred tax assets).
Tier 1 capital includes common shareholders equity, noncumulative perpetual
preferred stock and related surplus, and minority interests in the equity
accounts of consolidated subsidiaries.

     Both the risk-based capital guidelines and the leverage ratio are minimum
requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. All but the most highly-rated
banks and all banks with high levels of risk or experiencing or

                                      -15-

<PAGE>   17



anticipating significant growth will maintain ratios at least 100 to 200 basis
points above the stated minimums. The Federal Reserve Board requires bank
holding companies without a BOPEC-1 rating to maintain a ratio of at least 4%
Tier 1 capital to total assets; furthermore, banking organizations with
supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.

     The FDIC adopted a rule substantially similar to that issued by the Federal
Reserve Board, establishing a minimum leverage ratio of 3% and providing that
FDIC-regulated banks with anything less than a CAMELS-1 rating must maintain a
ratio of at least 4%. In addition, the FDIC rule specifies that a depository
institution operating with less than the applicable minimum leverage capital
requirement will be deemed to be operating in an unsafe and unsound manner
unless the institution is in compliance with a plan, submitted to and approved
by the FDIC, to increase the ratio to an appropriate level. Finally, the FDIC
requires any insured depository institution with a leverage ratio of less than
2% to enter into and be in compliance with a written agreement between it and
the FDIC (or the primary regulator, with the FDIC as a party to the agreement).
Such an agreement will nearly always contemplate immediate efforts to acquire
the capital required to increase the ratio to an appropriate level. Institutions
that fail to enter into or maintain compliance with such an agreement will be
subject to enforcement action by the FDIC.

     The Federal Reserve Board's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets.

     The risk-based capital guidelines of the Federal Reserve Board and the FDIC
explicitly include provisions regarding a bank's exposure to declines in the
economic value of its capital due to changes in interest rates to ensure that
the guidelines take adequate account of interest rate risk. Interest rate risk
is the adverse effect that changes in market interest rates may have on a bank's
financial condition and is inherent to the business of banking. The exposure of
a bank's economic value generally represents the change in the present value of
its assets, less the change in the value of its liabilities, plus the change in
the value of its interest rate off- balance sheet contracts. Concurrently, the
agencies issued a joint policy statement to bankers, effective June 26, 1996, to
provide guidance on sound practices for managing interest rate risk. In the
policy statement, the agencies emphasize the necessity of adequate oversight by
a bank's Board of Directors and senior management and of a comprehensive risk
management process. The policy statement also describes the critical factors
affecting the agencies' evaluations of a bank's interest rate risk when making a
determination of capital adequacy. The agencies' risk assessment approach used
to evaluate a bank's capital adequacy for interest rate risk relies on a
combination of quantitative and qualitative factors. Banks that are found to
have high levels of exposure and/or weak management practices will be directed
by the agencies to take corrective action.

     The Federal Reserve Board and the FDIC recently added a provision to the
risk-based capital guidelines that supplements and modifies the usual risk-based
capital calculations to ensure that institutions with significant exposure to
market risk maintain adequate capital to support that exposure. Market risk is
the potential loss to an institution resulting from changes in market prices.
The modifications are intended to address two types of market risk: general
market risk, which includes changes in general interest rates, equity prices,
exchange rates, or commodity prices, and specific market risk, which includes
particular risks faced by the individual institution, such as event and default
risks. The provision defines a new category of capital, Tier 3, which includes
certain types of subordinated debt. The provision automatically applies only to
those

                                      -16-

<PAGE>   18



institutions whose trading activity, on a worldwide consolidated basis, equals
either (i) 10% or more of total assets or (ii) $1 billion or more, although the
agencies may apply the provision's requirements to any institution for which
application of the new standard is deemed necessary or appropriate for safe
banking practices. For institutions to which the modifications apply, Tier 3
capital may not be included in the calculation rendering the 8% credit risk
ratio; the sum of Tier 2 and Tier 3 capital may not exceed 100% of Tier 1
capital; and Tier 3 capital is used in both the numerator and denominator of the
normal risk-based capital ratio calculation to account for the estimated maximum
amount that the value of all positions in the institution's trading account, as
well as all foreign exchange and commodity positions, could decline within
certain parameters set forth in a model defined by the statute. Furthermore,
beginning no later than January 1, 1999, covered institutions must "backtest,"
comparing the actual net trading profit or loss for each of its most recent 250
days against the corresponding measures generated by the statutory model. Once
per quarter, the institution must identify the number of times the actual net
trading loss exceeded the corresponding measure and must then apply a statutory
multiplication factor based on that number for the next quarter's capital charge
for market risk.

     The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.

     As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.


                                      -17-

<PAGE>   19



     In response to the directive issued under the Act, the FDIC adopted
regulations which, among other things, prescribe the capital thresholds for each
of the five capital categories established by the Act. The following table
reflects the proposed capital thresholds:

<TABLE>
<CAPTION>


                                             Total Risk -       Tier I Risk -         Tier I
                                            Based Capital      Based Capital         Leverage
                                               Ratio              Ratio                Ratio
                                               -----              -----                -----

<S>                                         <C>                <C>                    <C>
Well capitalized(1)                               10%                 6%                  5%

Adequately capitalized(1)                          8%                 4%                  4%(2)

Undercapitalized(4)                               <8%                <4%                 <4%(3)

Significantly undercapitalized(4)                 <6%                <3%                 <3%

Critically undercapitalized                       --                 --                  <2%(5)
                                                                                         --
</TABLE>

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

(1)    An institution must meet all three minimums.

(2)    3% for composite 1-rated institutions, subject to appropriate
       federal banking agency guidelines.

(3)    <3% for composite 1-rated institutions, subject to appropriate
       federal banking agency guidelines.

(4)    An institution falls into this category if it is below the
       specified capital level for any of the three capital measures.

(5)    Ratio of tangible equity to total assets.

        As a state-chartered bank, most of the Bank's operations are regulated
and examined by the Georgia Banking Department and the FDIC, including the
allowance for loan losses and other contingencies, loans, investments,
borrowings, deposits, mergers, issuances of securities, payments of dividends,
interest rates payable on deposits, interest rates or fees chargeable on loans,
establishment of branches, consolidation or corporate reorganization, and
maintenance of books and records. The Bank is required by the Georgia Banking
Department to prepare reports on its financial condition and to conduct an
annual external audit of its financial affairs, in compliance with minimum
standards and procedures prescribed by the Georgia Banking Department. Reports
of the Bank's auditors must be filed with the Georgia Banking Department within
15 days after the Bank's receipt of any such report. The Bank is also subject to
the Georgia banking and usury laws restricting the amount of interest which it
may charge in making loans or other extensions of credit.

        As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the BHC Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.

        The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation. In
addition, regulators may require higher capital levels on a case-by-case basis
based on such factors as the risk characteristics or management of a particular
institution. The Company and the Bank are not aware of any attributes of their
operating plan that would cause regulators to impose higher requirements.


                                      -18-

<PAGE>   20



ITEM 2.       DESCRIPTION OF PROPERTY.

        The Company's main office is located at 110 East Hill Street in Thomson,
Georgia. The property consists of a two-story building with approximately 6,000
square feet of usable space on the first floor and approximately 2,800 square
feet of unfinished space on the second floor designated for future expansion.
The building is constructed on 3.4 acres of land owned by the Bank. In addition,
a branch office, which is located at 1043 Washington Road, in Thomson, Georgia,
is approximately two miles north of the Bank's main office. The branch office is
approximately 2,600 square feet in size and is located on 1.25 acres of land
owned by the Bank.

        On March 15, 1999, the Bank officially opened its Daniel Village Office
at 2805 Wrightsboro Road at Daniel Village in August, Georgia. The branch office
is approximately 3,300 square feet in size and located on approximately .90
acres of land. The Bank recently purchased property at 3820 Washington Road in
the business district of in Martinez, Georgia, which is located in Columbia
County. This office will be referred to as the West Town Office.

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,
1998 to a vote of security holders of the Company.

                                     PART II

ITEM 5.       MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

        A.    MARKET INFORMATION

              During the period covered by this report and to date, there has
        been no established public trading market for the Company's common
        stock.

        B.    HOLDERS OF COMMON STOCK

              As of March 24, 1999, the number of holders of record of the
        Company's common stock was 697.

        C.    DIVIDENDS

              Prior to being reorganized into a holding company structure in
        1997, the Bank paid a cash dividend of $.10 per share on its common
        stock in April 1996, January 1997 and April 1997.

                                      -19-

<PAGE>   21



        Subsequent to the Bank's reorganization into a holding company
        structure, the Company paid a cash dividend of $.10 per share in April
        1998.

              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 condition relevant by the
        Company's Board of Directors. Pursuant to the Georgia code, 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.    USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES

              The Company is currently conducting an "any and all" best efforts
        public offering (the "Offering") of its Common Stock, $.001 par value
        per share (the "Common Stock"). The shares of the Common Stock being
        sold in the Offering are registered under the Securities Act of 1933, as
        amended, on a Registration Statement on Form SB-2 (the "Registration
        Statement," registration number 333- 69763). The Registration Statement,
        which registered 740,741 shares of the Common Stock, was declared
        effective by the Securities and Exchange Commission on January 25,1999.
        The Offering commenced on January 25, 1999.

              Each share of the Common Stock is being offered at a price to the
        public of $13.50 per share for an aggregate offering price of
        approximately $10 million.

              The following table sets forth the expenses estimated to be
        incurred in connection with the Offering. All of the amounts shown in
        the table are estimated except for the Securities and Exchange
        Commission (the "SEC") registration fee. None of the amounts shown were
        paid directly or indirectly to any director, officer, general partner of
        the Company or their associates, persons owning 10% or more of any class
        of equity securities of the Company, or an affiliate of the Company.

<TABLE>
<CAPTION>

                    <S>                                                                              <C>
                    SEC registration fee......................................                       $  2,780
                    Blue sky qualification fees and expenses..................                          2,000
                    Printing and engraving expenses...........................                         20,000
                    Legal fees and expenses...................................                         28,000
                    Financial advisor fee.....................................                         70,000
                    Accounting fees and expenses..............................                          5,000
                    Miscellaneous.............................................                         22,220
                                                                                                     --------
                    Total.....................................................                       $150,000
                                                                                                     ========

</TABLE>

                                      -20-

<PAGE>   22





              The Company expects to close the Offering on or about March 31,
        1999. As of March 24, 1999, the Company had sold 264,918 shares and
        received proceeds of approximately $3,576,393. The Company intends to
        use the proceeds of the Offering for its expansion into Augusta and
        Columbia County.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

        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 should be read in conjunction with the "Business"
and "Financial Statements" sections included elsewhere in this Report.

THE COMPANY

        During the year ended December 31, 1998, the Company funded its
operational costs through a $93,000 dividend from the Bank. Throughout 1998, the
Company was in the process of raising capital to fund the expansion of the
Company to new market areas. Substantial costs were incurred in an effort to
raise capital for the Company. The services of a third party were obtained to
fully underwrite a public offering on a firm commitment basis. However, due to
unfavorable market conditions, the third party withdrew from the process prior
to closing the offering. Costs incurred relating to the efforts to raise capital
included legal fees related to the offering, legal and accounting fees for the
preparation of the registration statement and an independent pricing appraisal.

        As the Company withdrew its registration statement relating to the
underwritten offering due to the withdrawal of the underwriter, the Company
charged certain of the offering costs totaling approximately $219,000 to expense
during 1998. The Company subsequently filed a new registration statement with
the SEC for the registration of securities for sale in an "any and all" public
offering of its common stock.

        Primarily as a result of the $219,000 of offering costs charged to
expense during 1998, the Company recorded an income tax benefit of approximately
$79,000 for the year ended December 31, 1998.


                                      -21-

<PAGE>   23



THE BANK

RESULTS OF OPERATIONS

1998 Compared to 1997

        For the year ending December 31, 1998, assets increased and earnings
decreased. Total assets increased by 12.9% from $40,561,000 in 1997 to
$45,797,000 in 1998. Average total assets were $43,531,000 for 1998 and were
$37,586,000 for 1997, an increase of $5,945,000 or 15.8%. This increase in
assets resulted partially from an increase in bank premises and fixed assets of
$1,012,000, or 70.0% from $1,446,000 in 1997 to $2,457,000 in 1998. This
increase resulted from the acquisition of additional property and the
construction of a new office located in Augusta, Georgia. Net loans increased
from $18,792,000 in 1997 to $22,040,000 in 1998, a change of $3,248,000 or
17.3%. The increase in lending activity included a $721,000, or 14.7% increase
from 1997 in real estate construction and development lending, which includes
the Bank's construction lending in suburban Atlanta. In addition, real estate
mortgage loans increased $947,000, or 10.4%, from 1997, primarily resulting from
the Bank's continued efforts to obtain this type of funding for its portfolio.
The allowance for loan losses was $835,000 at December 31, 1998 and was $752,000
at December 31, 1997. This represents an increase of $83,000 or 11.0%. The
increase in the allowance is based on management's rating and assessment of the
loan portfolio and the credit risk inherent in the portfolio. The Bank's ratio
of allowance for loan losses to gross loans was 3.65% at December 31, 1998 and
was 3.81% at December 31, 1997.

        The increase in loan demand is reflected in the Bank's loan to deposit
ratio of 62.3% for 1998, compared to 59.9% in 1997. This increase contributed to
an increase in total interest income of $342,000, or 11.5%, from $2,963,000 in
1997 to $3,305,000 in 1998. Net interest income increased $155,000, or 8.9%,
from $1,705,000 in 1997 to $1,905,000 in 1998. While total interest income for
1998 increased, the Bank's total interest expense also increased $187,000, or
15.4%. The increase in interest expense resulted from a volume increase in
substantially each type of interest-bearing deposit account offered by the Bank.

        Noninterest income increased $55,000 or 21.4% from $257,000 in 1997 to
$312,000 in 1998. The increase primarily resulted from an increase in service
charges on deposit accounts.

        Noninterest expense increased $364,000 or 23.2% from $1,567,000 in 1997
to $1,931,000 in 1998. The increase primarily resulted from increased personnel,
depreciation and data processing expenses. Personnel costs, consisting of
salaries and employee benefits, increased $190,000, or 22.9%, primarily as a
result of the Bank obtaining additional lending personnel and additional
personnel to support the expansion of the Company into new market areas.

        Net income declined $75,000 or 27.2% from $276,000 in 1997 to $201,000
in 1998 as a result of each of the above matters.

        In February 1995, the Bank was informed by the Georgia Banking
Department and the FDIC that its operations were unsatisfactory in certain
respects in that the Bank was experiencing weak credit administration and
lending practices, inadequate allocation for loan losses and high classified
assets coupled with poor earnings. Consequently, on March 10, 1995, the Bank
entered into a Memorandum of Understanding with the Georgia Banking Department
and the FDIC. To correct these problems, the Bank recruited a new Senior Loan
Officer with 25 years of experience to assist in increasing the credit
underwriting

                                      -22-

<PAGE>   24



standards of the Bank and reducing the level of classified assets. In addition,
the Bank currently employs a loan review consultant who aids the Bank in
identifying and monitoring problem loans. While increased underwriting standards
and regular review and monitoring are subject to uncertainties that cannot be
predicted, such expanded efforts have benefitted the Bank significantly.
Moreover, as a result of these and other corrective measures, the level of the
Bank's classified assets has decreased and, on November 19, 1996, the Memorandum
of Understanding with the Georgia Banking Department and the FDIC was
terminated.

1997 Compared to 1996

        For the year ending December 31, 1997, assets increased but earnings
declined. Total assets increased by 6.7% from $38,026,000 in 1996 to $40,561,000
in 1997. The increase in assets is exaggerated as the Bank obtained short-term
public deposit funds near year end 1997. These funds were invested in overnight
federal funds. Average total assets were $37,586,000 for 1997 compared to
$38,958,000 for 1996, a decrease of $1,372,000 or 3.5%. Net loans decreased from
$20,116,000 in 1996 to $18,792,000 in 1997, a change of $1,324,000 or 6.5%. Of
this change, $872,000, or 65.9% was a decrease in term federal funds from 1996
to 1997. The Bank did not own any term federal funds at December 31, 1997. The
allowance for loan losses was $752,000 at December 31, 1997 and was $889,000 at
December 31, 1996. This represents a decrease of $137,000 or 15.4%. The
reduction in the allowance is due to a reduced loan loss provision for 1997 of
$16,000 compared to $56,000 in 1996 and is due to the reduction of classified
assets and improving quality of the Bank's loan portfolio. Net charge-offs for
1997 were $153,000 compared to $322,000 for 1996, a decrease of $169,000 or 53%.
The Bank's ratio of allowance for loan losses to gross loans was 3.81% at
December 31, 1997 compared to 4.2% at December 31, 1996.

        Deposits increased $2,282,000, or 7.4%, from $30,655,000 in 1996 to
$32,937,000 in 1997. The increase was primarily attributable to an increase in
short-term public deposit funds held by the Bank at December 31, 1997. The
Bank's investment portfolio increased $1,175,000 or 9.3% from $12,603,000 in
1996 to $13,778,000 in 1997. The increase resulted from the increase in the
Bank's deposit accounts. Federal funds sold increased $2,330,000 or 164.1% from
$1,420,000 in 1996 to $3,750,000 in 1997, also as a result of the increase in
the Bank's deposit accounts.

        A further softening of loan demand is reflected in the Bank's loan to
deposit ratio of 59.9% for 1997, compared to 68.8% in 1996. This softening of
demand contributed to a decrease in total interest income of $90,000 or 2.9%
from $3,053,000 in 1996 to $2,963,000 in 1997. Net interest income increased
$82,000 or 4.9% from $1,668,000 in 1996 to $1,750,000 in 1997. While total
interest income for 1997 declined, the Bank was able to achieve an increase in
net interest income as a result of a $72,000 or 12.4% decrease in interest
expense. This decrease in interest expense resulted from an increase of $558,000
or 18.0% in non-interest bearing deposits and a decrease of $707,000 or 5.2% in
time deposits, which traditionally pay the highest rate of deposit interest. In
addition, NOW accounts, which traditionally pay less interest than time
deposits, increased $2,228,000 from 1996 to 1997.

        Non-interest income declined $29,000 or 9.9% from $292,000 in 1996 to
$257,000 in 1997. The decrease primarily resulted from a decrease in service
charges on deposit accounts.

        Non-interest expense increased $120,000 or 8.3% from $1,447,000 in 1996
to $1,567,000 in 1997. The increase primarily resulted from increased personnel,
legal and depreciation expenses.


                                      -23-

<PAGE>   25



        Net income declined $49,000 or 15.1% from $325,000 in 1996 to $276,000
in 1997 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
insure that a bank is capable of meeting depositors' demands for funds, a 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. Because such measures may be quite costly, earnings will also suffer if
excess liquidity is maintained. The Bank monitors its liquidity on a monthly
basis and seeks to maintain it at an optimal level.

        As of year-end 1998, the Bank's liquidity ratio was 45.5% compared to
53.5% at year-end 1997. 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 on December 31, 1998 with a market
value of $14.2 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 year-end, the
Bank was liability sensitive through six months, and through one year as well.
As it appears that interest rates may be more likely to rise than to fall, the
Bank's net interest margin could be negatively impacted.


                                      -24-

<PAGE>   26



        The following is an analysis of rate sensitive assets and liabilities as
of December 31, 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                                                             5 years
                                                                    0-3 mos.      3-12 mos.    1-5 years     or more     Total
                                                                   ----------    -----------   ---------     -------     ------
<S>                                                                <C>            <C>          <C>        <C>            <C>
Taxable securities                                                       --            --         4,059       9,180      13,239
Tax-exempt securities                                                    --            --           221         616         837
Federal funds sold                                                    4,740            --            --          --       4,740
Loans                                                                10,606         4,697         7,423         149      22,875
                                                                    -------       -------       -------       -----      ------
              Total rate sensitive assets                            15,346         4,697        11,703       9,945      41,691
                                                                    -------       -------       -------       -----      ------

NOW and money market deposits                                        11,680            --            --          --      11,680
Savings deposits                                                      2,107            --            --          --       2,107
Time deposits                                                         5,054        12,714         1,653          57      19,478
                                                                    -------       -------       -------       -----      ------
              Total rate sensitive liabilities                       18,841        12,714         1,653          57      33,265
                                                                    -------       -------       -------       -----      ------

Excess of rate sensitive assets less rate sensitive liabilities      (3,495)       (8,017)       10,050       9,888       8,426
Ratio of rate sensitive assets to rate sensitive liabilities             82%           37%          708%  17,447.37%        125%
Cumulative gap                                                       (3,495)      (11,512)       (1,462)      8,426      16,852
</TABLE>

CAPITAL RESOURCES

        The equity capital of the Company totaled $7,380,000 at the end of 1998.
As previously described the Company, as holding company of the Bank, was formed
in 1997. In effecting the transaction, as previously described in reports filed
with the Commission, the Company acquired 100% of the issued and outstanding
shares of stock of the Bank and in exchange issued each shareholder a pro rata
number of shares of stock of the Company so as each shareholder's ownership of
the Company was consistent with the previous ownership of the Bank. The
transaction has been accounted for in accordance with generally accepted
accounting principles in a manner similar to a pooling of interests in which all
prior periods presented in the Company's consolidated financial statements have
been restated to give effect to the transaction as if it occurred at the
beginning of the earliest period presented.

        The equity capital of the Bank totaled $7,510,000 at the end of 1998, an
increase of $224,000 or 30.7% from equity capital of $7,286,000 at the end of
1997. The increase in equity capital was attributable to the Bank's net income
of $200,579 and an increase in unrealized gains on available-for-sale securities
of $117,000. Under Statement of Financial Accounting Standard No. 115, the Bank
must recognize unrealized gains or losses in the available-for-sale portion of
the bond portfolio by making adjustments to the equity capital account. Equity
capital was reduced in 1998 by $63,000 from the payment of dividends to
shareholders totaling $0.10 per share and the payment of a $30,000 dividend to
the holding company to cover operating expenses at the holding company level,
for a total dividend of $93,000.


                                      -25-

<PAGE>   27



        Management believes that the Bank's capitalization is adequate to
sustain the growth which is anticipated for 1999. The following table sets forth
the applicable required capital ratios for the Company and the Bank and the
actual capital ratios for the Bank as of December 31, 1998:

<TABLE>
<CAPTION>

                         Leverage Ratio            Tier I Capital         Risk-Based Capital
                      --------------------     ---------------------     ---------------------
                      Regulatory               Regulatory                Regulatory
                       Minimum      Actual      Minimum       Actual       Minimum  Actual
                       -------      ------      -------       ------       -------  ------
<S>                   <C>           <C>        <C>            <C>        <C>        <C>
                          4.0%       16.7%       4.0%         26.1%         8.0%    27.4%
</TABLE>


        At December 31, 1998 the capital ratios for the Company and Bank
consolidated were materially consistent with those presented above.

        There are no commitments of capital resources known to management which
would have a material impact on the Bank's capital position.

YEAR 2000

        A critical issue affecting companies that rely extensively on electronic
data processing systems, such as the Company, is the Year 2000 issue. This issue
deals with the Company's ability to process year-date data accurately beyond the
year 1999. The Year 2000 issue has been a well-publicized, but nevertheless
continually evolving issue. The Company is dependent upon electronic data
processing for nearly all of its major activities. During 1997, the Company
formed an internal task force, chaired by the Executive Vice President, to
address the Year 2000 issue, conduct a comprehensive review of the Company's
systems and ensure that the company takes any necessary measures. The Company
believes that its systems, those of the Bank and its data processing service
provider are currently Year 2000 compliant and does not believe that material
expenditures will be necessary to implement any further modifications. As of
December 31, 1998, the Company had spent approximately $15,000 to upgrade its
software and hardware systems to help ensure that is systems would be Year 2000
compliant. The Company has issued a certification request to its data processing
servicing provider seeking assurance that its systems will be Year 2000
compliant. The service provider has responded that its systems are Year 2000
complaint now.

        The Company also recognizes the importance of determining that is
borrowers are facing the Year 2000 problem in a timely manner to avoid
deterioration of its loan portfolio solely due to this issue. All material
relationships have been identified to assess the inherent risks. The Company
plans to work on a one-on-one basis with any borrower who has been identified as
having high Year 2000 risk exposure.

        The Company's contingency plans relative to Year 2000 issues have not
been finalized. Management will develop and modify a "worst case scenario"
contingency plan which will, among other things, anticipate that the Company's
deposit customers will have increased demands for cash in the latter part of
1999. The plan also provides for copies of documents to be produced in case of
equipment failure, utilization of security personnel in case of security
equipment failure, manual posting of transactions, hiring of temporary
additional personnel and telephone verification of information normally received
by electronic means.


                                      -26-

<PAGE>   28

ITEM 7.       FINANCIAL STATEMENTS.

        The following financial statements are filed with this report:

        Report of Independent Certified Public Accountants

        Consolidated Statements of Financial Condition as of
         December 31, 1998 and 1997

        Consolidated Statements of Income for the years ended
         December 31, 1998, 1997 and 1996

        Consolidated Statements of Comprehensive Income for the years ended
          December 31, 1998, 1997 and 1996

        Consolidated Statements of Shareholders' Equity for
         the years ended December 31, 1998, 1997 and 1996

        Consolidated Statements of Cash Flows for the years ended
         December 31, 1998, 1997 and 1996

        Notes to Consolidated Financial Statements




                                      -27-

<PAGE>   29

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



The Board of Directors
GEORGIA-CAROLINA BANCSHARES, INC.
Thomson, Georgia


We have audited the accompanying consolidated statements of financial condition
of GEORGIA-CAROLINA BANCSHARES, INC. as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia-Carolina
Bancshares, Inc. as of December 31, 1998 and 1997, and the results of its
operations, changes in shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.



Augusta, Georgia
February 3, 1999



                                      -28-
<PAGE>   30

                      GEORGIA-CAROLINA BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           DECEMBER 31, 1998 AND 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                     ASSETS
                                                                                  1998          1997 
                                                                                 -------      --------

<S>                                                                              <C>          <C>
Cash and due from banks                                                          $ 1,130      $ 1,546
Interest-bearing deposits in banks                                                    --          100
Federal funds sold                                                                 4,740        3,750
Securities available-for-sale                                                     14,208       13,778
Loans, net of allowance for loan losses                                           22,040       18,972
Bank premises and fixed assets                                                     2,457        1,446
Accrued interest receivable                                                          379          381
Foreclosed real estate, net of allowance                                             253          306
Deferred tax asset, net                                                              122          182
Other assets                                                                         280          110
                                                                                 -------      -------

              TOTAL ASSETS                                                       $45,609      $40,571
                                                                                 =======      =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Non-interest bearing                                                        $ 4,179      $ 3,654
     Interest-bearing:
         NOW accounts                                                              7,865        7,187
         Savings                                                                   2,107        1,602
         Money market accounts                                                     3,815        2,832
         Time deposits of $100,000, and over                                       4,202        4,700
         Other time deposits                                                      15,568       12,962
                                                                                 -------      -------
              Total deposits                                                      37,736       32,937
Accrued expenses and other liabilities                                               493          356
                                                                                 -------      -------
              Total liabilities                                                   38,229       33,293
                                                                                 -------      -------

Commitments and contingent liabilities

Shareholders' equity:
     Preferred stock, par value $.001; 1,000,000 shares authorized;
      none issued                                                                     --           --
     Common stock, par value $.001; 9,000,000 shares authorized;
      635,380 shares issued and outstanding                                            1            1
     Additional paid-in capital                                                    6,354        6,354
     Retained earnings                                                               893          908
     Accumulated other comprehensive income                                          132           15
                                                                                 -------      -------
              Total shareholders' equity                                           7,380        7,278
                                                                                 -------      -------

              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $45,609      $40,571
                                                                                 =======      =======
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                      -29-
<PAGE>   31

                       GEORGIA-CAROLINA BANCSHARES, INC.

                       CONSOLIDATED STATEMENTS OF INCOME

                YEARS ENDED DECEMBER 31, 1998 AND 1997 AND 1996
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



<TABLE>
<CAPTION>
                                                                             1998          1997        1996  
                                                                           -------       -------     -------

<S>                                                                        <C>           <C>         <C>
INTEREST INCOME
     Interest and fees on loans                                            $ 2,232       $ 2,034     $ 2,178
     Interest on taxable securities                                            846           670         677
     Interest on nontaxable securities                                          51            88          95
     Interest on Federal funds sold                                            169           160          87
     Interest on deposits in other banks                                         7            11          16
                                                                           -------       -------     -------
              TOTAL INTEREST INCOME                                          3,305         2,963       3,053
                                                                           -------       -------     -------

INTEREST EXPENSE
     Interest on time deposits of $100,000, or more                            244           273         310
     Interest on other deposits                                              1,156           938       1,074
     Interest on federal funds purchased                                        --             2           1
                                                                           -------       -------     -------
              TOTAL INTEREST EXPENSE                                         1,400         1,213       1,385
                                                                           -------       -------     -------

              NET INTEREST INCOME                                            1,905         1,750       1,668

PROVISION FOR LOAN LOSSES                                                       --            16          56
                                                                           -------       -------     -------

              NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES            1,905         1,734       1,612
                                                                           -------       -------     -------

NONINTEREST INCOME
     Service charges on deposits                                               260           210         239
     Other income                                                               64            45          52
     Net realized gain (loss), sales of available-for-sale securities          (12)            2           1
                                                                           -------       -------     -------
                                                                               312           257         292
                                                                           -------       -------     -------

NONINTEREST EXPENSE
     Salaries and employee benefits                                          1,021           831         714
     Occupancy expenses                                                        195           167         231
     Securities offering expenses                                              219            --          --
     Other expenses                                                            727           621         502
                                                                           -------       -------     -------
                                                                             2,162         1,619       1,447
                                                                           -------       -------     -------

INCOME BEFORE INCOME TAXES                                                      55           372         457

INCOME TAX EXPENSE                                                               7           138         132
                                                                           -------       -------     -------

              NET INCOME                                                   $    48       $   234     $   325
                                                                           =======       =======     =======

EARNINGS PER SHARE:
     Net income, basic                                                     $   .08       $  0.37     $  0.51
                                                                           =======       =======     =======
     Net income, diluted                                                   $   .07       $  0.35     $  0.50
                                                                           =======       =======     =======
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                      -30-
<PAGE>   32

                       GEORGIA-CAROLINA BANCSHARES, INC.

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                YEARS ENDED DECEMBER 31, 1998 AND 1997 AND 1996
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                1998      1997      1996
                                                               -----     -----     -----

<S>                                                            <C>       <C>       <C>
Net income                                                     $  48     $ 234     $ 325

Unrealized holding gains (losses) arising during period
 less reclassification adjustment for gains included in
 net income, net of tax                                          156       (12)       18
                                                               -----     -----     -----

Comprehensive income                                           $ 204     $ 222     $ 343
                                                               =====     =====     =====
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                      -31-
<PAGE>   33

                       GEORGIA-CAROLINA BANCSHARES, INC.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                YEARS ENDED DECEMBER 31, 1998 AND 1997 AND 1996
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                                   Accumulated
                                               Common Stock              Additional                   Other           Total
                                           -----------------------        Paid-in      Retained   Comprehensive   Shareholders'
                                             Shares      Par Value        Capital      Earnings      Income          Equity
                                           --------      ---------       ----------   ---------   -------------   -------------
<S>                                        <C>           <C>             <C>          <C>         <C>             <C>
BALANCE, DECEMBER 31, 1995                  635,380        $     1        $ 6,354     $   540       $    42         $ 6,937
 
Net income                                       --             --             --         325            --             325

Change in unrealized gain (loss)
 on securities available-for-sale,
 net of deferred taxes                           --             --             --          --          (66)             (66)

Cash dividend of $.10 per
 share                                           --             --             --         (64)          --              (64)
                                            -------        -------        -------     -------      -------          -------

BALANCE, DECEMBER 31, 1996                  635,380              1          6,354         801          (24)           7,132

Net income                                       --             --             --         234           --              234

Change in unrealized gain (loss)
 on securities available-for-sale,
 net of deferred taxes                           --             --             --          --           39               39

Cash dividend of $.20 per
 share                                           --             --             --        (127)          --             (127)
                                            -------        -------        -------     -------      -------          ------- 

BALANCE, DECEMBER 31, 1997                  635,380              1          6,354         908           15            7,278

Net income                                       --             --             --          48           --               48

Change in unrealized gain (loss)
 on securities available-for-sale,
 net of deferred taxes                           --             --             --          --          117              117

Cash dividend of $.10 per
 share                                           --             --             --         (63)          --              (63)
                                            -------        -------        -------     -------      -------          -------

BALANCE, DECEMBER 31, 1998                  635,380        $     1        $ 6,354     $   893      $   132          $ 7,380
                                            =======        =======        =======     =======      =======          =======
</TABLE>


The accompanying notes are an integral part of these financial statements.



                                      -32-
<PAGE>   34

                       GEORGIA-CAROLINA BANCSHARES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                YEARS ENDED DECEMBER 31, 1998 AND 1997 AND 1996
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                          1998         1997          1996
                                                                       ---------     --------      --------

<S>                                                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                        $     48      $    234      $    325
     Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and amortization                                      102            86           151
         Provision for loan losses                                           --            16            56
         Net realized loss on available-for-sale securities                  12            --            --
         Deferred income tax                                                 --            83            60
         Adjustment to foreclosed real estate                                --            --            48
         Other gains and losses, net                                         21            (4)            2
         Net decrease (increase) in accrued interest receivable               2            28           (16)
         Net decrease (increase) in other assets                           (170)          (62)           26
         Net increase in other liabilities                                  137           115            46
                                                                       --------      --------      --------
              NET CASH PROVIDED BY OPERATING ACTIVITIES                     152           496           698
                                                                       --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES
     Net decrease in interest-bearing deposits with banks                   100            --            98
     Net (increase) decrease in federal funds sold                         (990)       (2,330)        4,530
     Net (increase) decrease in loans, net                               (3,068)        1,058          (446)
     Purchases of available-for-sale securities                          (9,895)       (6,166)       (5,360)
     Proceeds from sales of available-for-sale securities                 3,464         2,096           248
     Proceeds from maturities of available-for-sale securities            6,166         2,957         3,382
     Proceeds from sale of foreclosed real estate                            32           284            67
     Net purchases of premises and equipment                             (1,113)          (92)          (40)
                                                                       --------      --------      --------
              NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES        (5,304)       (2,193)        2,479
                                                                       --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase (decrease) in deposits                                  4,799         2,282        (4,665)
     Dividends paid                                                         (63)         (127)          (64)
                                                                       --------      --------      --------
              NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES         4,736         2,155        (4,729)
                                                                       --------      --------      --------

              NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS           (416)          458        (1,552)

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR                              1,546         1,088         2,640
                                                                       --------      --------      --------

CASH AND DUE FROM BANKS AT END OF YEAR                                 $  1,130      $  1,546      $  1,088
                                                                       ========      ========      ========
</TABLE>

The accompanying notes are an integral part of these financial statements.



                                      -33-
<PAGE>   35

                       GEORGIA-CAROLINA BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1997



NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Georgia-Carolina Bancshares, Inc. (the "Company") is a one-bank holding
company. Substantially all of its business is conducted by its wholly-owned
subsidiary First Bank of Georgia (the "Bank"), Thomson, Georgia. Most of the
Bank's loans and loan commitments have been granted to customers in the
Thomson, Georgia and McDuffie County area. Many of the Bank's loan customers
are also depositors of the Bank. The Bank also engages in commercial and
residential real estate development loans in suburban Atlanta, Georgia. These
loans are generated by a third party loan broker.

The Bank is subject to the regulations of Federal and state banking agencies
and is periodically examined by them.

During 1997, the Board of Directors of the Bank formed a holding company to
acquire 100% of the outstanding shares of the Bank's stock. The transaction has
been accounted for in a manner substantially similar to a pooling of interests.
Accordingly, all periods presented in the consolidated financial statements
have been restated to give effect to the transaction as if it occurred at the
beginning of the earliest period presented.

During February 1998, the Company commenced a process for the public offering
of shares of its common stock, ultimately filing for registration of the stock
with the Securities and Exchange Commission. The Company subsequently withdrew
the registration and charged $219,000 of stock issuance costs to current year
expense.

The Company has filed with the Securities and Exchange Commission (SEC) for the
registration and sale of 740,741 shares of the Company's common stock. The
offering will be done on an any and all-best efforts basis. The registration
was declared effective by the SEC subsequent to the Company's current year end.

SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of the Company and its subsidiary Bank. Significant intercompany
transactions and accounts are eliminated in consolidation. The accounting and
reporting policies of the Bank conform to generally accepted accounting
principles and general practices within the banking industry.

ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND DUE FROM BANKS - For purposes of reporting cash flows, cash and due
from banks includes cash on hand and amounts due from banks (including cash
items in process of clearing). The Bank maintains due-from accounts with banks
primarily located in Georgia. Balances generally exceed insured amounts.



                                      -34-
<PAGE>   36

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENT SECURITIES - The Bank's investments in securities are classified and
accounted for as follows:

         Securities available-for-sale - Securities classified as
         available-for-sale are identified when acquired as being
         available-for-sale to meet liquidity needs or other purposes. They are
         carried at fair value with unrealized gains and losses, net of taxes,
         reported at a net amount as a separate component of shareholders'
         equity.

         Securities to be held-to-maturity - Securities classified as
         held-to-maturity are those debt securities the Bank has both the
         intent and ability to hold to maturity regardless of changes in market
         conditions, liquidity needs or changes in general economic conditions.
         These securities are carried at cost adjusted for amortization of
         premium and accretion of discount, computed by the interest method
         over their contractual lives.

The Bank has not classified any securities as trading.

Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method.

LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans are stated at principal amounts
outstanding less unearned income and the allowance for loan losses. Interest
income on loans is credited to income based on the principal amount outstanding
at the respective rate of interest, except for unearned interest on discounted
loans which is recognized as income over the term of the loan using a method
that approximates a level yield.

Accrual of interest income 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. Accrual of interest
on such loans is resumed when, in management's judgment, the collection of
interest and principal becomes probable. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed against
current interest income. Interest income is subsequently recognized only to the
extent cash payments are received.

The accrual of interest on impaired loans is discontinued when, in management's
judgment, the borrower may be unable to meet payments as due. Management
applies this criteria to all loans identified for evaluation except for
smaller-balance homogenous residential mortgage and consumer installment loans
that are collectively evaluated for impairment. A loan is impaired when, based
on current information and events, it is probable that the Bank will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. Management of the Bank evaluates the borrower's ability to pay, the
value of any collateral, and other factors in determining when a loan is
impaired. Management does not consider a loan to be impaired during a period of
delay in payment if it is expected that the Bank will collect all amounts due
including interest accrued at the contractual interest rate for the period of
the delay.

Interest payments on impaired loans are applied to the remaining principal
balance until the balance is fully recovered. Once principal is recovered, cash
payments received are recorded as recoveries to the extent of any principal
previously charged-off, and then as interest income.



                                      -35-
<PAGE>   37

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fees on loans and costs incurred in origination of loans are recognized at the
time the loan is originated. As loan fees are not significant to the Bank, the
results of operations are not materially different than the results which would
be obtained by accounting for loan fees and costs in accordance with generally
accepted accounting principles.

The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans, including impaired loans, are charged against
the allowance for loan losses when management believes that collectibility of
the principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb estimated losses on existing loans that may become
uncollectible, based on evaluation of the collectibility of certain specific
loans and prior loss experience. This evaluation also takes into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrower's ability to pay. While management uses
the best information available to make its evaluation, future adjustments to
the allowance may be necessary if there are significant changes in economic
conditions.

FORECLOSED REAL ESTATE - Foreclosed real estate represents properties acquired
through foreclosure or other proceedings. The property is held for sale and is
recorded at the lower of the recorded amount of the loan or fair value of the
property less estimated costs of disposal. Any write-down to fair value at the
time of foreclosure is charged to the allowance for loan losses. Property is
evaluated regularly to ensure the carrying amount is supported by its current
fair value. Foreclosed real estate is reported net of allowance for losses in
the Bank's financial statements.

BANK PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation, computed by straight-line and declining balance
methods over the estimated useful lives of the assets.

INCOME TAXES - Provisions for income taxes are based on amounts reported in the
statements of income after exclusion of nontaxable income, such as interest on
state and municipal securities, and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred taxes are computed on the liability method.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

EARNINGS PER SHARE - Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. During the year, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". This Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. The Company's outstanding stock options are the primary
cause of the Company's diluted earnings per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions are
used by the Bank in estimating fair values of financial instruments. In cases
where quoted market prices of financial instruments are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Accordingly, the aggregate fair value amounts
presented are not intended to and do not represent the underlying value of the
Bank.



                                      -36-
<PAGE>   38

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Cash and due from banks, Federal funds sold and interest-bearing
         deposits in banks - Due to the short-term nature of these instruments,
         their estimated fair values approximate their carrying amounts.

         Available-for-sale and held-to-maturity securities - Estimated fair
         values are based on quoted market prices when available. Where quoted
         market prices are not available, quoted market prices of comparable
         instruments or discounted cash flow methods are used to estimate fair
         value.

         Loans - Fair values for loans are estimated by discounted cash flows
         using interest rates currently being offered by the Bank for loans
         with similar terms and similar credit quality.

         Deposit liabilities - Due to the short-term nature of demand and
         savings accounts, the estimated fair value of these instruments
         approximates their carrying amounts. Fair values for certificates of
         deposit are estimated by discounted cash flows using interest rates
         currently being offered by the Bank on certificates.

Commitments to extend credit and standby letters of credit are not recorded
until such commitments are funded. The values of these commitments are the fees
charged to enter into such agreements. These commitments do not represent a
significant value to the Bank until such commitments are funded. The Bank has
determined that such instruments do not have a distinguishable fair value and
no fair value has been assigned to these instruments.

NEW ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board (FASB)
has issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This Statement establishes accounting and reporting standards for
derivative instruments and hedging activities and provides for the recognition
and measurement of these at fair value. This Statement will be adopted by the
Company in the first quarter of the Company's year ending December 31, 2000.
Management of the Company is presently evaluating the effects of this Statement
on the Company's financial reporting.



                                      -37-
<PAGE>   39

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 2 - INVESTMENT SECURITIES

The amortized cost and fair values of securities owned as of December 31, are
shown below:

<TABLE>
<CAPTION>
                                                                       1998                        
                                                  -----------------------------------------------
                                                               Gross          Gross
                                                  Amortized  Unrealized     Unrealized    Market
                                                    Cost       Gains          Losses       Value  
                                                  ---------  ----------     ----------    -------
                                                                   In thousands)
<S>                                               <C>        <C>            <C>          <C>
Available-for-sale securities:
  U.S. Government and agency securities            $12,331     $  172        $   (4)      $12,499
  State, county and municipal securities               805         32            --           837
  Mortgage-backed securities                           739          2            (1)          740
  Federal Home Loan Bank stock                         132         --            --           132
                                                   -------     ------        ------       -------

                                                   $14,007     $  206        $   (5)      $14,208
                                                   =======     ======        ======       =======

<CAPTION>
                                                                       1997                       
                                                  -----------------------------------------------
                                                               Gross          Gross
                                                  Amortized  Unrealized     Unrealized    Market
                                                    Cost       Gains          Losses       Value  
                                                  ---------  ----------     ----------    -------
                                                                   In thousands)
<S>                                               <C>          <C>          <C>           <C>
Available-for-sale securities:
  U.S. Government and agency securities            $10,713     $   40        $  (27)      $10,726
  State, county and municipal securities             1,784         41            --         1,825
  Mortgage-backed securities                         1,258          2           (33)        1,227
                                                   -------     ------        ------       -------

                                                   $13,755     $   83        $  (60)      $13,778
                                                   =======     ======        ======       =======
</TABLE>

The amortized cost and fair value of securities as of December 31, 1998, by
contractual maturity, are as follows. Actual maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty, therefore
these securities are not included in the maturity categories in the following
maturity summary.

<TABLE>
<CAPTION>
                                                           Securities
                                                        Available-for-Sale
                                                     ------------------------
                                                     Amortized         Fair
                                                       Cost            Value
                                                     ---------       --------
                                                          (In thousands)
     <S>                                             <C>             <C>
     One year or less                                $    --         $    --
     After one year through five years                 3,515           3,555
     After five years through ten years                9,621           9,781
     After ten years                                     132             132
     Montage-backed securities                           739             740
                                                     -------         -------

                                                     $14,007         $14,208
                                                     =======         =======
</TABLE>



                                      -38-
<PAGE>   40

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

Securities with a carrying amount of approximately $5.8 million and $3.4
million at December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes.

Net realized gains (losses) on sales of securities available-for-sale were: (In
thousands)

<TABLE>
                           <S>               <C>
                           1998              $(12)
                           1997                 2
                           1996                 1
</TABLE>

NOTE 3 - LOANS

The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                  December 31
                                              -------------------
                                                1998        1997 
                                              -------     -------
                                                (In thousands)

     <S>                                      <C>         <C>
     Commercial and industrial                $ 3,969     $ 3,026
     Real estate - construction                 5,614       4,893
     Real estate - mortgage                    10,084       9,137
     Consumer                                   3,212       2,676
                                              -------     -------
                                               22,879      19,732
     Unearned income                               (4)         (8)
                                              -------     -------
                                               22,875      19,724
     Allowance for loan losses                   (835)       (752)
                                              -------     -------

         Loans, net                           $22,040     $18,972
                                              =======     =======
</TABLE>

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                         December 31 
                                                 ----------------------------
                                                  1998      1997        1996 
                                                 ------    ------      ------
                                                        (In thousands)

     <S>                                         <C>       <C>         <C>
     Balance, beginning of year                  $  752    $  889      $1,155
     Provision charged to operations                 --        16          56
     Recoveries                                     120        89         231
     Loans charged off                              (37)     (242)       (553)
                                                 ------    ------      ------

              Balance, end of year               $  835    $  752      $  889
                                                 ======    ======      ======
</TABLE>

Loans for which the accrual of interest had been discontinued or reduced
amounted to approximately $220,000 and $40,000 at December 31, 1998 and 1997,
respectively. There was no significant reduction in interest income associated
with nonaccrual and renegotiated loans. There were no loans identified as
impaired under SFAS 114 at December 31, 1998 or 1997.



                                      -39-
<PAGE>   41

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 3 - LOANS (CONTINUED)

At December 31, 1998, executive officers and directors, and companies in which
they have a beneficial ownership, were indebted to the Bank in the aggregate
amount of $469,000. The interest rates on these loans were substantially the
same as rates prevailing at the time of the transactions, and repayment terms
are customary for the type of loan involved. Following is a summary of
transactions for 1998 and 1997:

<TABLE>
<CAPTION>
                                                1998         1997
                                                ----         ----
                                                 (In thousands)

     <S>                                        <C>          <C>
     Balance, beginning of year                 $563         $408
         Advances                                 10          225
         Repayments                              104           70
                                                ----         ----

     Balance, end of year                       $469         $563
                                                ====         ====
</TABLE>

NOTE 4 - FORECLOSED REAL ESTATE

A summary of foreclosed real estate is as follows:

<TABLE>
<CAPTION>
                                                          December 31
                                                ------------------------------
                                                1998         1997         1996
                                                ----         ----         ----
                                                        (In thousands)

     <S>                                        <C>          <C>          <C>
     Carrying amount of property                $283         $336         $613

     Less, valuation allowance                    30           30           97
                                                ----         ----         ----

                                                $253         $306         $516
                                                ====         ====         ====
</TABLE>

The provision charged to income, net of recoveries and charge offs, amounted to
approximately $13,000, $28,000 and $14,000 at December 31, 1998, 1997 and 1996,
respectively.

NOTE 5 - BANK PREMISES AND EQUIPMENT

Bank premises and equipment consists of the following:

<TABLE>
<CAPTION>
                                                        December 31
                                                   -------------------
                                                     1998        1997
                                                   -------     -------
                                                       (In thousands)

     <S>                                           <C>         <C>
     Land                                          $   873     $   475
     Building and improvements                       1,248       1,248
     Equipment, furniture & fixtures                   915         825
     Construction in progress                          613          --
                                                   -------     -------
              Total cost                             3,649       2,548
     Less accumulated depreciation                  (1,192)     (1,102)
                                                   -------     -------

              Premises and equipment, net          $ 2,457     $ 1,446
                                                   =======     =======
</TABLE>



                                      -40-
<PAGE>   42

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 6 - DEPOSITS

At December 31, 1998, the scheduled maturities of time-deposit liabilities were
as follows:

<TABLE>
<CAPTION>
                                                 (In thousands)
              <S>                                <C>
              1999                                  $18,057
              2000                                    1,272
              2001                                      149
              2002                                      179
              2003 and thereafter                       113
                                                    -------

                                                    $19,770
                                                    =======
</TABLE>

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Bank has a 401(k) salary-deferred plan covering substantially all
employees. At the discretion of the Bank's Board of Directors, the Bank may
match a percentage of the annual amounts deferred by employees. Matching
amounts are funded by the Bank as accrued. Total deferred and matching amounts
are limited to amounts that can be deducted for Federal income tax purposes.
The Bank's matching contribution for the three years ended December 31, 1998,
was approximately $15,000 per year.

NOTE 8 - SHAREHOLDERS' EQUITY AND REGULATORY MATTERS

The primary source of funds available to the Company is the payment of
dividends by the subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid by the Bank without prior approval of regulatory
agencies. Approximately $100,000 is available to be paid as dividends at
December 31, 1998, without prior regulatory approval.

The Bank is subject to various regulatory capital requirements administered by
state and Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes that as of December 31, 1998,
the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 1998, the most recent notification from the regulatory
agencies categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well- capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.



                                      -41-
<PAGE>   43

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (CONTINUED)

The Bank's actual capital amounts and ratios are also presented in the table.

<TABLE>
<CAPTION>
                                                                                 Required
                                                                                 To Be Well-
                                                           Required           Capitalized Under
                                                          For Capital         Prompt Corrective
                                         Actual         Adequacy Purposes     Action Provisions
                                    ---------------     -----------------     ------------------
                                    Amount    Ratio     Amount      Ratio     Amount       Ratio
                                    ------    -----     ------      -----     ------       -----
                                                   (In thousands, except percentages)

<S>                                 <C>       <C>       <C>         <C>       <C>        <C>
As of December 31, 1998:
 Total capital
   (To Risk Weighted Assets)        $7,737    27.4%     $2,263      8.0%       $2,828      10.0%
 Tier I capital
   (To Risk Weighted Assets)         7,378    26.1%      1,131      4.0%        1,697       6.0%
 Tier I capital
   (To Average Assets)               7,378    16.7%      1,765      4.0%        2,206       5.0%
</TABLE>

As of December 31, 1997, the Bank's actual regulatory capital ratios were as
follows:

<TABLE>
                      <S>                                                     <C>
                      Total capital (to Risk Weighted Assets)                 31.3%
                      Tier I capital (to Risk Weighted Assets)                30.0%
                      Tier I capital (to Average Assets)                      18.9%
</TABLE>

At December 31, 1998 and 1997, the capital ratios for the Company and Bank
consolidated were materially consistent with those presented above.

During 1997 the Company adopted the 1997 Stock Option Plan (the "Plan") for
eligible directors, officers and key employees of the Company and subsidiary
bank. Options are granted to purchase common shares at prices not less than the
fair market value of the stock at the date of grant as established by the Board
of Directors. The maximum number of shares which may be reserved and made
available-for-sale under the Plan is 100,000 shares.

The Plan provides for the grant of both incentive and nonqualified stock
options on the Company's common stock. The Board of Directors of the Company
establishes to whom options shall be granted and determines exercise prices,
vesting requirements and the number of shares covered by each option.

As permitted by (SFAS) No. 123, "Accounting for Stock Based Compensation", the
Company has elected to account for the Plan in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".

Pro forma information regarding net income and earnings per share is required
by Statement No. 123, and has been determined as if the Company had accounted
for the Plan under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using an option pricing model
which included the following assumptions:

<TABLE>
              <S>                            <C>
              Dividend yield                  1.0%
              Volatility                     10.0%
              Risk-free rate                  7.5%
</TABLE>



                                      -42-
<PAGE>   44

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 8 - STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (CONTINUED)

In addition, the model assumed that each option was exercised during the first
year of vesting.

For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the option's vesting period. The Company's pro forma
information follows (in thousands except for earnings per share information):

<TABLE>
              <S>                                     <C>
              Pro forma net income                    $ 46
              Pro forma earnings per share            $.07
</TABLE>

Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Changes in the subjective input
assumptions can materially affect the fair value estimate. In management's
opinion, the model does not necessarily provide a reliable single measure of
the fair value of options.

During 1998, all options granted have ten year terms to expiration and vest and
become exercisable based on the following schedule of years of continued
employment:

<TABLE>
<CAPTION>
                      Years of Continued
                           Employment               Vesting
                      ------------------            -------
                      <S>                           <C>
                               3                       40%
                               4                       60%
                               5                       80%
                               6                      100%
</TABLE>

A summary of the Company's stock option activity, and related formation, for
the year ended December 31, 1998 follows:

<TABLE>
<CAPTION>
                                                                    Exercise Price
                                                       Options         Per Share
                                                       -------      --------------

              <S>                                      <C>          <C>
              Outstanding - beginning of year           8,500           $12.10
              Granted                                      --  
                                                        -----

              Outstanding - end of year                 8,500
                                                        =====
</TABLE>

None of the options were exercisable at year end. The estimated fair value per
option of the options outstanding at year end is $1.58.

At December 31, 1998, options to purchase 16,000 shares of the Company's common
stock were outstanding from a plan originated prior to the 1997 Plan. The
options are nontransferrable and have exercise prices between ten and twelve
dollars per share and expire during the years 2000 to 2003. No options were
exercised during the three-year period ended December 31, 1998. No additional
shares are available to be granted under this plan. None of the options
outstanding under this plan are owned by employees or directors of the Company.



                                      -43-
<PAGE>   45

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 9 - INCOME TAXES

The total income taxes in the statements of income for the years end December
31, are as follows:

<TABLE>
<CAPTION>
                                            1998      1997      1996
                                            ----      ----      ----
                                                  (In thousands)

         <S>                                <C>       <C>       <C>
         Current tax                        $100      $ 58      $ 72
         Deferred tax (benefit)              (93)       80        60
                                            ----      ----      ----

                                            $  7      $138      $132
                                            ====      ====      ====
</TABLE>

The Bank's provision for income taxes differs from the amounts computed by
applying the Federal and state income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:

<TABLE>
<CAPTION>
                                                             1998      1997      1996
                                                             ----      ----      ----

         <S>                                                 <C>       <C>       <C>
         Statutory rates                                      38.0%    38.0%     38.0%
              Tax exempt income                              (14.0)    (8.0)     (8.0)
              Nondeductible interest                           1.4      1.0       1.0
              Other, including effect of graduated
               rate brackets                                 (12.2)     5.0      (2.0)
                                                             -----    -----     -----

                                                              13.2     36.0%     29.0%
                                                             =====    =====     =====
</TABLE>

The primary components of deferred income taxes at December 31, are as follows:

<TABLE>
<CAPTION>
                                                                      1998      1997
                                                                      ----      ----
                                                                      (In thousands)

         <S>                                                          <C>       <C>
         Deferred tax assets
              Allowance for loan losses                               $181      $171
              Foreclosed real estate allowance                           9         9
              Other                                                     --        10
                                                                      ----        --
                  Deferred income tax assets                           190       190
                                                                      ----      ----

         Deferred tax liabilities
              Unrealized gain on securities available-for-sale          68         8
                                                                      ----      ----

                  Net deferred income tax asset                       $122      $182
                                                                      ====      ====
</TABLE>

Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences are expected to
be available to reduce taxable income.



                                      -44-
<PAGE>   46

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 10 - COMMITMENTS AND CONTINGENCIES

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. The Bank uses the
same credit policies for these off-balance- sheet financial instruments as it
does for other instruments that are recorded in the financial statements.

Following is an analysis of significant off-balance-sheet financial
instruments:

<TABLE>
<CAPTION>
                                                  1998          1997 
                                                 ------       ------
                                                     (In thousands)

     <S>                                         <C>          <C>
     Commitments to extend credit                $4,670       $5,407
     Standby letters of credit                      119           31
                                                 ------       ------

                                                 $4,789       $5,438
                                                 ======       ======
</TABLE>

Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitment amounts expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in extending
loans to customers. The amount of collateral obtained, if deemed necessary by
the Bank, upon extension of credit, is based on management's credit evaluation
of the customer. Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, inventory, equipment
and personal property.

The nature of the business of the Bank is such that it ordinarily results in a
certain amount of litigation. In the opinion of management, there are no
present matters in which the outcome will have a material adverse effect on the
financial statements.

NOTE 11 - SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                        1998         1997       1996 
                                       ------       ------     ------
                                                 (In thousands)

     <S>                               <C>          <C>        <C>
     Income taxes paid                 $   65       $   68     $   29
     Interest paid                     $1,239       $1,131     $1,369
</TABLE>



                                      -45-
<PAGE>   47

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Bank's financial instruments, for those
instruments for which the Bank's management believes estimated fair value does
not by nature approximate the instruments' carrying amount, are as follows at
December 31, 1998 and 1997 (in millions):

<TABLE>
<CAPTION>
                                             1998                       1997     
                                      -------------------       -------------------
                                      Carrying      Fair        Carrying      Fair
                                       Amount       Value        Amount       Value 

     <S>                              <C>           <C>         <C>           <C>
     Loans                             $22.0        $22.1        $19.0        $18.9
                                       =====        =====        =====        =====

     Certificates of deposit           $19.8        $19.8        $17.7        $17.8
                                       =====        =====        =====        =====
</TABLE>

Estimated fair value information of investment securities is presented in Note
2 of the financial statements.

NOTE 13 - OTHER EXPENSES

Other noninterest expenses are as follows:

<TABLE>
<CAPTION>
                                              December 31,
                                     -----------------------------
                                     1998         1997        1996
                                     ----         ----        ----
                                            (In thousands)

     <S>                             <C>          <C>         <C>
     Data processing                 $129         $ 97        $104
     FDIC assessment                    4            9          10
     Legal and accounting              75          157          57
     Printing and supplies             58           31          37
     Other                            461          327         294
                                     ----         ----        ----

                                     $727         $621        $502
                                     ====         ====        ====
</TABLE>

NOTE 14 - YEAR 2000 READINESS (UNAUDITED)

Many existing computer systems and applications, and other control devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming changes in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. The Bank relies on its systems,
applications and devices in operating and monitoring all major aspects of its
business, including financial systems, customer services, infrastructure,
embedded computer chips, networks, and telecommunications equipment and end
products. The Bank also relies, directly and indirectly, on external systems of
other companies and organizations such as suppliers, creditors, financial
services organizations and governmental entities for accurate exchange of data.
The Bank's current estimate is that the costs associated with the year 2000
issue will not have a material adverse effect on the results of operations or
financial position of the Bank in any given year. However, despite the Bank's
efforts to address the year 2000 impact on its internal systems, the Bank has
not fully identified such impact or whether it can resolve it without
disruption of its business and without incurring significant expense. In
addition, even if the internal systems of the Bank are not materially affected
by the year 2000 issue, the Bank could be affected through disruption in the
operation of the enterprises with which the Bank interacts.



                                      -46-
<PAGE>   48

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 15 - CONDENSED FINANCIAL INFORMATION ON GEORGIA-CAROLINA BANCSHARES, INC.
          (PARENT COMPANY ONLY)


                            CONDENSED BALANCE SHEET
                               DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
     <S>                                                                <C>
     ASSETS
         Cash                                                           $    1
         Investment in subsidiary                                        7,510
         Other assets                                                       80
         Deferred tax benefit                                                9
                                                                        ------

              TOTAL ASSETS                                              $7,600
                                                                        ======
     LIABILITIES
         Accrued expenses and other liabilities                         $  220

     SHAREHOLDERS' EQUITY                                                7,380
                                                                        ------

              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $7,600
                                                                        ======
</TABLE>


                         CONDENSED STATEMENT OF INCOME
                               DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
     <S>                                                                <C>
     INCOME, DIVIDENDS FROM SUBSIDIARY                                  $    93

     EXPENSES
         Offering expenses                                                  219
         Other                                                               12
                                                                        -------
              LOSS BEFORE INCOME TAX BENEFITS AND EQUITY IN
               UNDISTRIBUTED EARNINGS OF SUBSIDIARY                        (138)

     INCOME TAX BENEFITS                                                     79
                                                                        -------

              LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
               SUBSIDIARY                                                   (59)

              EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY                107
                                                                        -------

              NET INCOME                                                $    48
                                                                        =======
</TABLE>



                                      -47-
<PAGE>   49

                       GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1998 AND 1997



NOTE 15 - CONDENSED FINANCIAL INFORMATION ON GEORGIA-CAROLINA BANCSHARES, INC.
          (PARENT COMPANY ONLY) (CONTINUED)


                       CONDENSED STATEMENT OF CASH FLOWS
                               DECEMBER 31, 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
     <S>                                                                <C>
     CASH FLOWS FROM OPERATING ACTIVITIES
         Net income                                                     $    48
         Adjustments to reconcile net income to net cash provided
          by operating activities
              Equity in undistributed earnings of subsidiary               (107)
              Other assets                                                  (80)
              Other liabilities                                             219
              Deferred income tax                                             1
                                                                        -------
                  Total adjustments                                          33
                                                                        -------

                  NET CASH PROVIDED FROM OPERATING ACTIVITIES                81
                                                                        -------

     CASH FLOWS FROM FINANCING ACTIVITIES
         Net increase (decrease) in notes payable                           (18)
         Dividends paid                                                     (63)
                                                                        -------

                  NET CASH USED IN FINANCING ACTIVITIES                     (81)
                                                                        -------

     NET CHANGE IN CASH                                                      --

     CASH AT BEGINNING OF YEAR                                                1
                                                                        -------

     CASH AT END OF YEAR                                                $     1
                                                                        =======
</TABLE>



                                      -48-
<PAGE>   50


ITEM 8.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
               AND FINANCIAL DISCLOSURE.

        There has been no occurrence requiring a response to this item.

                                    PART III

        Certain information required by Part III of this Form 10-KSB is,
pursuant to General Instruction E(3) of Form 10-KSB, incorporated by reference
from the Company's definitive proxy statement (the "Proxy Statement") to be
filed pursuant to Regulation 14A for the Company's Annual Meeting of
Shareholders to be held on May 12, 1999. The Company will, within 120 days of
the end of its fiscal year, file with the Securities and Exchange Commission a
definitive proxy statement pursuant to Regulation 14A.

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 section entitled "Election of Directors" contained in the Proxy
Statement.

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

        The information responsive to this item is incorporated by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" 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 "Certain Transactions" contained in the Proxy
Statement.

ITEM 13.       EXHIBITS, LIST AND REPORTS ON FORM 8-K

        (A)    EXHIBITS.

               The following exhibits are filed with this report:



                                      -49-

<PAGE>   51



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>


Exhibit
Number                                       Description of Exhibit                           
------                                       ----------------------                           
<S>                  <C>                                                                             
 3.1        -        Amended and Restated 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. 333-41547, previously filed
                     with the Commission).

 3.2        -        Amended and Restated 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. 333-41547)).

 4.1        -        Specimen Common Stock Certificate (incorporated by reference to the
                     exhibit of the same number in the Company's Registration Statement on
                     Form 8-A, under the Securities Exchange Act of 1934, as amended,
                     previously filed with the Commission).

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).

10.2        -        Agreement dated October 6, 1997 among Ray Brown, RDB Limited
                     Partnership, Arthur J.  Gay, Jr., J.  Randal Hall, George H. Inman, John W.
                     Lee, A. Montague Miller and Julian W. Osbon as the Augusta Group and
                     Pinnacle Bancshares, Inc.  (incorporated herein by reference to the exhibit
                     of the same number in the Company's Quarterly Report on Form 10-QSB for
</TABLE>

                                      -50-

<PAGE>   52


<TABLE>
<CAPTION>

<S>                  <C>                                                                             
                     the quarter ended September 30, 1997, previously filed with the
                     Commission).

10.2.1      -        Amended and Restated Agreement among Ray Brown, RDB Limited
                     Partnership, Arthur J. Gay, Jr., J. Randal Hall, George H. Inman, John W.
                     Lee, A. Montague Miller and Julian W. Osbon as the Augusta Group and the
                     Company, 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).

10.2.2               Amendment No. 1 to Amended and Restated Agreement among Ray Brown,
                     RDB Limited Partnership, Arthur J. Gay, Jr., J. Randal Hall, George H.
                     Inman, John W. Lee, A. Montague Miller and Julian W. Osbon as the
                     Augusta Group and the Company, 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).

10.3        -        Employment Agreement dated July 17, 1996, between McDuffie Bank &
                     Trust and Heyward Horton, Jr. (incorporated herein by reference to Exhibit
                     10.1 in McDuffie Bank & Trust's Annual Report on Form 10-KSB for the
                     year ended December 31, 1996, previously filed with the Commission).

10.3.       -        Amendment No. 1 to Employment Agreement dated July 17, 1997 between McDuffie Bank
                     & Trust and Heyward Horton, Jr., dated March 26, 1997 (incorporated herein by
                     reference to Exhibit 10.1.1 in McDuffie Bank & Trust's Annual Report on Form
                     10-KSB for the year ended December 31, 1996, previously filed with the
                     Commission).

10.3.2               Amendment No. 2 to Employment Agreement dated July 17, 1997 between McDuffie Bank
                     & Trust and Heyward Horton, Jr., dated May 13, 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).

10.4        -        Severance Agreement dated March 27, 1997 between the Company,
                     McDuffie Bank & Trust and J. Harold Ward, Jr. (incorporated herein by
                     reference to Exhibit 10.2 in McDuffie Bank & Trust's Annual Report on
                     Form 10-KSB for the year ended December 31, 1996, previously filed with
                     the Commission).

10.5        -        Severance Agreement dated July 7, 1997 between the Company, McDuffie
                     Bank & Trust and Joseph E. Gore (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).
</TABLE>

                                      -51-

<PAGE>   53




23.1        -        Consent of Cherry, Bekaert & Holland, L.L.P.

27.1        -        Financial Data Schedule (for SEC use only)



B)          REPORTS ON FORM 8-K

            No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.

                                      -52-

<PAGE>   54

                                   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.


                              By: /s/ Patrick G. Blanchard           
                                  ----------------------------------------------
Date:  March 30, 1999             Patrick G. Blanchard
                                  President and Chief Executive Officer
                                  (principal executive officer)


                              By: /s/ J. Harold Ward, Jr.            
                                 -----------------------------------------------
Date:  March 30, 1999            J. Harold Ward, Jr.
                                 Sr. Vice President and Chief Financial Officer
                                 (principal financial and accounting officer)

        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.

<TABLE>
<CAPTION>

DIRECTORS                             DATE                         DIRECTORS                            DATE

<S>                                                                <C>           
/s/ Patrick G. Blanchard              March 30, 1999               /s/ Hugh L. Hamilton, Jr.            March 30, 1999
------------------------------------- --------------               ------------------------------------ --------------
Patrick G. Blanchard                                               Hugh L. Hamilton, Jr.


                                                     
------------------------------------- --------------               ------------------------------------ --------------
Larry DeMeyers                                                     William G. Hatcher


/s/ Philip G. Farr                    March 30, 1999               /s/ George O. Hughes                 March 30, 1999
------------------------------------- --------------               ------------------------------------ --------------
Philip G. Farr                                                     George O. Hughes


/s/ Samuel A. Fowler                  March 30, 1999               /s/ George H. Inman                  March 30, 1999
------------------------------------- --------------               ------------------------------------ --------------
Samuel A. Fowler                                                   George H. Inman


/s/ Arthur J. Gay, Jr.                March 30, 1999               /s/ David W. Joesbury                March 30, 1999
------------------------------------- --------------               ------------------------------------ --------------
Arthur J. Gay, Jr.                                                 David W. Joesbury



------------------------------------- --------------               ------------------------------------ --------------
Joseph D. Greene                                                   Julian W. Osbon


/s/ J. Randall Hall                   March 30, 1999               /s/ James L. Lemley, M.D.            March 30, 1999
------------------------------------- --------------               ------------------------------------ --------------
J. Randall Hall                                                    James L. Lemley, M.D.



------------------------------------- --------------               ------------------------------------ --------------
John W. Lee                                                        Bennye M. Young
                                                                                                                      
                                                                                                                      
/s/ Robert N. Wilson, Jr.             March 30, 1999                                                                                
------------------------------------- --------------                                                          
Robert N. Wilson, Jr.                                                                                                 

</TABLE>

<PAGE>   55

                        GEORGIA-CAROLINA BANCSHARES, INC.

                                  EXHIBIT INDEX

Exhibit
Number                  Description of Exhibit
------                  ----------------------

   23.1        -        Consent of Cherry, Bekaert & Holland, L.L.P.

   27.1        -        Financial Data Schedule (for SEC use only)