##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB   Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2003   Commission File No. 0-22891 GEORGIA-CAROLINA BANCSHARES, INC. Incorporated under the laws of the State of Georgia (I.R.S. Employer Identification No. 58-2326075) 2805 Wrightsboro Road
Augusta, Georgia 30909 Telephone: (706) 736-2100   Securities registered under Section 12(b) of the Securities Exchange Act: None Securities registered under Section 12(g) of the Securities Exchange Act:
Common Stock, $0.001 Par Value   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [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. [   ] Revenue for the fiscal year ended December 31, 2003: $30,698,146. The aggregate market value of the registrants common stock held by
nonaffiliates of the registrant (1,778,560 shares), on March 18, 2004 was
$41,173,664 based on the closing price of the registrants common stock as
reported on the Over-the-Counter Bulletin Board on March 18, 2004. For
purposes of this response, officers, directors and holders of 5% or more of the
registrants common stock are considered affiliates of the registrant at that
date. As of March 18, 2004, 2,640,974 shares of the registrants common stock were
outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of registrants definitive proxy statement to be delivered to
shareholders in connection with the 2004 Annual Meeting of Shareholders
scheduled to be held on May 25, 2004 are incorporated by reference in response
to Part III of this Report. Transitional Small Business Disclosure Format (check one)




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TABLE OF CONTENTS  PART IItem 1. Description of Business.Item 2. Description of Property.Item 3. Legal Proceedings.Item 4. Submission of Matters to a Vote of Security Holders.PART IIItem 5. Market for Common Equity and Related Stockholder Matters.Item 6. Managements Discussion and Analysis.Item 7. Financial Statements and Supplementary Data.Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Item 8A. Controls and Procedures.PART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act.Item 10. Executive Compensation.Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Item 12. Certain Relationships and Related Transactions.Item 13. Exhibits and Reports on Form 8-K.Item 14. Principal Accountant Fees and Services.SIGNATURESEX-21.1 SUBSIDIARIES OF THE COMPANYEX-23.1 CONSENT OF CHERRY, BEKAERT & HOLLAND LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFOEX-99.1 FINANCIAL STATEMENTS    Table of Contents  
 PART I Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Certain statements in this Annual Report on Form 10-KSB contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as may, will, expect,
estimate, anticipate, believe, target, plan, project, or continue
or the negatives thereof or other variations thereon or similar terminology,
and are made on the basis of managements plans and current analyses of the
Company, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, the Companys financial performance
and could cause actual results for fiscal 2004 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 pursuant to 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), an independent,
locally owned state-chartered commercial bank. The Bank operates two offices
in Augusta, Georgia, two offices in Martinez, Georgia and one office in
Thomson, Georgia. The Bank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 that enables
its customers to use the automated teller machines of other financial
institutions. In addition, the Bank offers commercial and business credit
services, as well as various consumer credit services, including home mortgage
loans, automobile loans, lines of credit, home equity loans and home
improvement loans. The 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. The reorganization,
in which the Bank became a wholly owned subsidiary of the Company, was
completed on June 6, 1997. The following table sets forth the location of each of the Banks branch
offices and the date each branch opened for business: Branch
    
    Date OpenedThomson Office, Thomson, Georgia
    
    January 1989Daniel Village Office, Augusta, Georgia
    
    March 1999West Town Office, Martinez, Georgia
    
    October 1999Medical Center Office, Augusta, Georgia
    
    January 2001Furys Ferry Road Office, Martinez, Georgia
    
    April 2002
 In September 1999, the Bank established a mortgage division which operates as
First Bank Mortgage (the Mortgage Division). The Mortgage Division
originates mortgage loans and offers a variety of other mortgage products. As
of December 31, 2003, First Bank Mortgage had locations in the Augusta and 2




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Savannah, Georgia markets as well as the Jacksonville and Orlando, Florida
markets. In addition, in January 2004, First Bank Mortgage opened an
additional location in Pooler, Georgia. In December 2003, the Bank established a financial services division which
operates as FB Financial Services. FB Financial Services offers financial
planning and investment services through its relationship with Linsco/Private
Ledger (Member NASD/SIPC), one of the nations leading independent brokerage
firms. A joint office of FB Financial Services and Linsco/Private Ledger is
located in the Banks Furys Ferry location. Market Area and Competition The primary service area (the PSA) of the Bank includes the counties of
McDuffie, Richmond, and Columbia, Georgia, and the communities of Thomson and
Augusta, Georgia which are approximately 30 miles apart. 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 service companies which attract
customers that have traditionally been served by banks. The extent to which other types of financial service companies compete with
commercial banks has increased significantly over the past several years as a
result of federal and state legislation which has permitted these organizations
to compete for customers and offer products that have historically been offered
by banks. The impact of this legislation and other subsequent legislation on
the financial services industry cannot be predicted. See  - Supervision and
Regulation. Distribution of Assets, Liabilities and Shareholders Equity; Interest Rates
and Interest Differential The following table presents the average balance sheet of the Bank for the
years ended December 31, 2003, 2002 and 2001. Also presented is the Banks
actual interest income and expense from each asset and liability, the average
yield of each interest-earning asset and the average cost of each
interest-bearing liability. This table includes all major categories of
interest-earning assets and interest-bearing liabilities: 3




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##### Table of Contents



AVERAGE BALANCE SHEETS
(Dollar amounts in thousands) Year Ended December 31,2003
    
    2002
    
    2001Interest
    
    Average
    
    
    
    
    
    Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Income/
    
    Yield /
    
    Average
    
    Income/
    
    Yield /
    
    Average
    
    Income/
    
    Yield /Balance
    
    Expense
    
    Rate
    
    Balance
    
    Expense
    
    Rate
    
    Balance
    
    Expense
    
    RateASSETSINTEREST-EARNING ASSETSLoans, net of unearned income
    
    $
    227,242
    
    
    $
    13,956
    
    
    
    6.14
    %
    
    $
    175,022
    
    
    $
    12,063
    
    
    
    6.89
    %
    
    $
    130,153
    
    
    $
    10,464
    
    
    
    8.04
    %Investment securities
    
    
    31,407
    
    
    
    1,199
    
    
    
    3.82
    %
    
    
    23,320
    
    
    
    1,296
    
    
    
    5.56
    %
    
    
    17,939
    
    
    
    1,106
    
    
    
    6.17
    %Federal funds sold
    
    
    393
    
    
    
    4
    
    
    
    1.02
    %
    
    
    576
    
    
    
    9
    
    
    
    1.56
    %
    
    
    453
    
    
    
    18
    
    
    
    3.97
    %Total interest-earning assets
    
    
    259,042
    
    
    
    15,159
    
    
    
    5.85
    %
    
    
    198,918
    
    
    
    13,368
    
    
    
    6.72
    %
    
    
    148,545
    
    
    
    11,588
    
    
    
    7.80
    %NON-INTEREST-EARNING ASSETSCash and due from banks
    
    
    7,071
    
    
    
    
    
    
    
    
    
    
    
    5,001
    
    
    
    
    
    
    
    
    
    
    
    3,417Bank premises and fixed assets
    
    
    7,200
    
    
    
    
    
    
    
    
    
    
    
    7,477
    
    
    
    
    
    
    
    
    
    
    
    6,106Accrued interest receivable
    
    
    1,139
    
    
    
    
    
    
    
    
    
    
    
    1,043
    
    
    
    
    
    
    
    
    
    
    
    757Other assets
    
    
    3,154
    
    
    
    
    
    
    
    
    
    
    
    2,831
    
    
    
    
    
    
    
    
    
    
    
    1,252Allowance for loan losses
    
    
    (2,840
    )
    
    
    
    
    
    
    
    
    
    
    (2,392
    )
    
    
    
    
    
    
    
    
    
    
    (1,491
    )Total assets
    
    $
    274,766
    
    
    
    
    
    
    
    
    
    
    $
    212,878
    
    
    
    
    
    
    
    
    
    
    $
    158,586LIABILITIES AND SHAREHOLDERS
EQUITYINTEREST-BEARING DEPOSITSNOW accounts
    
    $
    30,871
    
    
    $
    386
    
    
    
    1.25
    %
    
    $
    16,077
    
    
    $
    261
    
    
    
    1.62
    %
    
    $
    9,379
    
    
    $
    173
    
    
    
    1.85
    %Savings accounts
    
    
    53,616
    
    
    
    878
    
    
    
    1.64
    %
    
    
    20,898
    
    
    
    490
    
    
    
    2.34
    %
    
    
    7,593
    
    
    
    251
    
    
    
    3.31
    %Money market accounts
    
    
    11,072
    
    
    
    174
    
    
    
    1.57
    %
    
    
    12,496
    
    
    
    254
    
    
    
    2.03
    %
    
    
    9,821
    
    
    
    305
    
    
    
    3.11
    %Time accounts
    
    
    99,709
    
    
    
    2,941
    
    
    
    2.95
    %
    
    
    103,504
    
    
    
    3,735
    
    
    
    3.61
    %
    
    
    75,225
    
    
    
    4,550
    
    
    
    6.05
    %Total interest-bearing deposits
    
    
    195,268
    
    
    
    4,379
    
    
    
    2.24
    %
    
    
    152,975
    
    
    
    4,740
    
    
    
    3.10
    %
    
    
    102,018
    
    
    
    5,279
    
    
    
    5.18
    %OTHER INTEREST-BEARING
LIABILITIESFunds purchased
    
    
    27,434
    
    
    
    532
    
    
    
    1.94
    %
    
    
    20,327
    
    
    
    432
    
    
    
    2.13
    %
    
    
    25,786
    
    
    
    986
    
    
    
    3.82
    %Total interest-bearing
liabilities
    
    
    222,702
    
    
    
    4,911
    
    
    
    2.21
    %
    
    
    173,302
    
    
    
    5,172
    
    
    
    2.98
    %
    
    
    127,804
    
    
    
    6,265
    
    
    
    4.90
    %NON-INTEREST-BEARING
LIABILITIES
AND SHAREHOLDERS EQUITYDemand deposits
    
    
    28,619
    
    
    
    
    
    
    
    
    
    
    
    22,243
    
    
    
    
    
    
    
    
    
    
    
    15,770Other liabilities
    
    
    1,794
    
    
    
    
    
    
    
    
    
    
    
    2,285
    
    
    
    
    
    
    
    
    
    
    
    2,903Shareholders equity
    
    
    21,651
    
    
    
    
    
    
    
    
    
    
    
    15,048
    
    
    
    
    
    
    
    
    
    
    
    12,109Total liabilities and
shareholders equity
    
    $
    274,766
    
    
    
    
    
    
    
    
    
    
    $
    212,878
    
    
    
    
    
    
    
    
    
    
    $
    158,586Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.64
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Net interest income
    
    
    
    
    
    $
    10,248
    
    
    
    
    
    
    
    
    
    
    $
    8,196
    
    
    
    
    
    
    
    
    
    
    $
    5,323Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.96
    %
    
    
    
    
    
    
    
    
    
    
    4.12
    %
    
    
    
    
    
    
    
    
    
    
    3.58
    %Average interest-earning
assets to average total assets
    
    
    
    
    
    
    
    
    
    
    94.28
    %
    
    
    
    
    
    
    
    
    
    
    93.44
    %
    
    
    
    
    
    
    
    
    
    
    93.67
    %Average loans to average
deposits
    
    
    
    
    
    
    
    
    
    
    101.50
    %
    
    
    
    
    
    
    
    
    
    
    99.89
    %
    
    
    
    
    
    
    
    
    
    
    110.50
    %
 4




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##### Table of Contents



Rate/Volume Analysis of Net Interest Income The following table sets forth information regarding changes in net interest
income attributable to changes in average balances and changes in rates for the
periods indicated. The effect of a change in average balance has been
determined by applying the average rate in the earlier period to the change in
average balance in the later period, as compared with the earlier period. The
balance of the change in interest income or expense and net interest income has
been attributed to a change in average rate. Non-accruing loans have been
included in the category Net loans and loans held for sale. Year Ended December 31, 2003Compared withYear Ended December 31, 2002(In thousands)Increase (Decrease) Due toVolume
    
    Rate
    
    TotalInterest earned on:Tax-exempt securities
    
    $
    49
    
    
    $
    (1
    )
    
    $
    48Taxable securities
    
    
    383
    
    
    
    (528
    )
    
    
    (145
    )Federal funds sold
    
    
    (3
    )
    
    
    (2
    )
    
    
    (5
    )Net loans and loans held for sale
    
    
    3,598
    
    
    
    (1,705
    )
    
    
    1,893Total interest income
    
    $
    4,027
    
    
    $
    (2,236
    )
    
    $
    1,791Interest paid on:NOW deposits
    
    
    240
    
    
    
    (115
    )
    
    
    125Money market deposits
    
    
    (29
    )
    
    
    (51
    )
    
    
    (80
    )Savings deposits
    
    
    766
    
    
    
    (378
    )
    
    
    388Time deposits
    
    
    (137
    )
    
    
    (657
    )
    
    
    (794
    )Borrowed funds
    
    
    151
    
    
    
    (51
    )
    
    
    100Total interest expense
    
    
    991
    
    
    
    (1,252
    )
    
    
    (261
    )Increase (decrease) in net interest income
    
    $
    3,036
    
    
    $
    (984
    )
    
    $
    2,052
 5




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##### Table of Contents



Year Ended December 31, 2002Compared withYear Ended December 31, 2001(In thousands)Increase (Decrease) Due toVolume
    
    Rate
    
    TotalInterest earned on:Tax-exempt securities
    
    $
    7
    
    
    $
    
    
    
    $
    7Taxable securities
    
    
    327
    
    
    
    (144
    )
    
    
    183Federal funds sold
    
    
    5
    
    
    
    (14
    )
    
    
    (9
    )Net loans and loans held for sale
    
    
    3,612
    
    
    
    (2,013
    )
    
    
    1,599Total interest income
    
    $
    3,951
    
    
    $
    (2,171
    )
    
    $
    1,780Interest paid on:NOW deposits
    
    
    125
    
    
    
    (37
    )
    
    
    88Money market deposits
    
    
    84
    
    
    
    (135
    )
    
    
    (51
    )Savings deposits
    
    
    442
    
    
    
    (203
    )
    
    
    239Time deposits
    
    
    1,710
    
    
    
    (2,525
    )
    
    
    (815
    )Borrowed funds
    
    
    (210
    )
    
    
    (344
    )
    
    
    (554
    )Total interest expense
    
    
    2,151
    
    
    
    (3,244
    )
    
    
    (1,093
    )Increase (decrease) in net interest income
    
    $
    1,800
    
    
    $
    1,073
    
    
    $
    2,873
 Deposits The Bank offers a wide range of commercial and consumer interest bearing and
non-interest bearing deposit accounts, including checking accounts, money
market accounts, negotiable order of withdrawal (NOW) accounts, individual
retirement accounts, certificates of deposit and regular savings accounts. The
sources of deposits are residents, businesses and employees of businesses
within the Banks market area, obtained through the personal solicitation of
the Banks officers and directors, direct mail solicitation and advertisements
published in the local media. The Bank pays competitive interest rates on time
and savings deposits. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the Banks market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and similar items. 6




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The following table details, for the periods indicated, the average amount of
and average rate paid on each of the following deposit categories (dollar
amounts in thousands): Year Ended December 31, 2003
    
    Year Ended December 31, 2002
    
    Year Ended December 31, 2001Average Amount
    
    Average Rate Paid
    
    Average Amount
    
    Average Rate Paid
    
    Average Amount
    
    Average Rate PaidDeposit CategoryNon-interest
bearing demand
deposits
    
    $
    28,619
    
    
    
    
    
    
    $
    22,243
    
    
    
    
    
    
    $
    15,770
    
    
    
    NOW and money
market deposits
    
    
    41,943
    
    
    
    1.33
    %
    
    
    28,573
    
    
    
    1.80
    %
    
    
    19,200
    
    
    
    2.90
    %Savings deposits
    
    
    53,616
    
    
    
    1.64
    %
    
    
    20,898
    
    
    
    2.34
    %
    
    
    7,593
    
    
    
    3.31
    %Time deposits
    
    
    99,709
    
    
    
    2.95
    %
    
    
    103,504
    
    
    
    3.61
    %
    
    
    75,225
    
    
    
    6.05
    %
 The maturities of certificates of deposit and individual retirement accounts of
$100,000 or more as of December 31, 2003 were as follows (in thousands): Three months or less
    
    $
    8,863Over three months through six months.
    
    
    3,471Over six months through twelve months
    
    
    5,680Over twelve months
    
    
    21,972Total
    
    $
    39,986
 Borrowed funds consist of short-term borrowings, including federal funds
purchased, retail and other repurchase agreements and lines of credit with the
Federal Home Loan Bank. The average balance of borrowed funds was
approximately $27.4 million for the year ended December 31, 2003, compared to
$20.3 million for the year ended December 31, 2002. The most significant borrowed funds categories for the Bank are two lines of
credit from the Federal Home Loan Bank, a warehouse line of credit and a 1-4
family line of credit. At December 31, 2003, the outstanding balance on the warehouse line of
credit was $10,000,000 with an interest rate of 1.65%. At December 31, 2002,
the outstanding balance on the warehouse line of credit was $33,520,791 with an
interest rate of 1.80%. The average balance outstanding on the warehouse line
of credit was $19,555,620 for 2003 with a weighted average interest rate of
2.00%. The average balance outstanding on the warehouse line of credit was
$14,998,000 for 2002 with a weighted average interest rate of 2.26%. The
maximum amount outstanding on the warehouse line of credit at any month end
during 2003 was $50,104,841, and was $42,952,000 at any month end during 2002.
The warehouse line of credit is secured by the mortgage loans held for sale
originated with the borrowed funds. The interest rate on the warehouse line of
credit for 2003 and 2002 was the Federal Home Loan Banks Daily Rate Credit
Program rate plus 50 basis points. At December 31, 2003, the outstanding balance on the 1-4 family line of credit
was $8,600,000 with an interest rate of 1.15%. The average balance outstanding
on the 1-4 family line of credit was $3,231,507 for 2003 with a weighted
average interest rate of 1.20%. The maximum amount outstanding on the 1-4
family line of credit at any month end during 2003 was $8,600,000. This line of
credit was established in May 2003 and is secured by the Banks portfolio of
1-4 family first mortgage loans, excluding those loans that are held for sale.
The interest rate on the 1-4 family line of credit for 2003 was the Federal
Home Loan Banks Daily Rate Credit Program rate. Loan Portfolio The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. As of December 31,
2003, the Banks loan portfolio consisted of 56.2% real estate mortgage loans,
21.1% real estate construction loans, 13.9% commercial loans and 8.8%
consumer/installment loans. 7




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##### Table of Contents



Commercial lending is directed principally towards businesses whose demands for
funds fall within the Banks legal lending limits and which are potential
deposit customers of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. These loans include short-term lines of credit, short- to
medium-term plant and equipment loans, loans for general working capital and
letters of credit. The Banks consumer loans consist primarily of installment loans to individuals
for personal, family or household purposes, including automobile loans to
individuals and pre-approved lines of credit. The Banks real estate mortgage loans include commercial mortgage lending and
residential mortgage lending. The Banks commercial mortgage loans are
generally secured by office buildings, retail establishments and other types of
property. The Banks residential mortgage loans are primarily single-family
residence loans secured by the residential property. The Banks real estate construction loans consist of residential and commercial
construction loans as well as land development loans. These loans are
primarily construction and development loans to builders in the Augusta and
Savannah, Georgia areas and the Jacksonville, Florida area. While risk of loss in the Banks loan portfolio is primarily tied to the credit
quality of the various borrowers, risk of loss may also increase due to factors
beyond the Banks control, such as local, regional and/or national economic
downturns. General conditions in the real estate market may also impact the
relative risk in the Banks real estate portfolio. The Bank may originate loans and participate the loan with other banks with
respect to loans which exceed the Banks lending limits or established credit
criteria. In addition, the Bank may participate in loans originated by other
banks. Management of the Bank does not believe that loan purchase
participations will necessarily pose any greater risk of loss than loans which
the Bank originates. The following table presents the categories of loans contained in the Banks
loan portfolio as of the end of the five most recent fiscal years and the total
amount of all loans for such periods: December 31,Type of Loan
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999(In thousands)Commercial, financial and
agricultural
    
    $
    24,552
    
    
    $
    24,105
    
    
    $
    26,863
    
    
    $
    24,582
    
    
    $
    10,468Real estate  construction
    
    
    37,201
    
    
    
    26,117
    
    
    
    20,312
    
    
    
    17,648
    
    
    
    5,458Real estate  mortgage
    
    
    99,179
    
    
    
    79,374
    
    
    
    53,730
    
    
    
    21,850
    
    
    
    16,033Installment and consumer
    
    
    15,500
    
    
    
    15,832
    
    
    
    14,435
    
    
    
    9,247
    
    
    
    4,159Subtotal
    
    $
    176,432
    
    
    $
    145,428
    
    
    $
    115,340
    
    
    $
    73,327
    
    
    $
    36,118Less:Unearned income and deferred loan
fees
    
    
    (65
    )
    
    
    (58
    )
    
    
    (114
    )
    
    
    (146
    )
    
    
    (25
    )Allowance for possible loan
losses
    
    
    (3,164
    )
    
    
    (2,436
    )
    
    
    (2,187
    )
    
    
    (1,194
    )
    
    
    (1,000
    )Total (net of allowance)
    
    $
    173,203
    
    
    $
    142,934
    
    
    $
    113,039
    
    
    $
    71,987
    
    
    $
    35,093
 In addition to the above, at December 31, 2003, the Bank also had $32.4 million
of single family residential mortgage loans held for sale that were originated
by the Banks Mortgage Division. 8




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##### Table of Contents



The table below presents an analysis of maturities of certain categories of
loans as of December 31, 2003: Due in 1 Year or
    
    Due in 1 to
    
    Due AfterType of Loan
    
    Less
    
    5 Years
    
    5 Years
    
    Total(In thousands)Commercial, financial
and agricultural
    
    $
    16,488
    
    
    $
    7,738
    
    
    $
    326
    
    
    $
    24,552Real estate-construction
    
    
    36,403
    
    
    
    328
    
    
    
    470
    
    
    
    37,201Total
    
    $
    52,891
    
    
    $
    8,066
    
    
    $
    796
    
    
    $
    61,753
 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, 2003 (in thousands): Loans due after 1 year with predetermined interest rates
    
    $
    652Loans due after 1 year with floating interest rates
    
    $
    8,210
 The following table presents information regarding non-accrual and past due
loans at the dates indicated: December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(Dollars in thousands)Loans accounted for on
a non-accrual basisNumber
    
    
    58
    
    
    
    43
    
    
    
    24
    
    
    
    10
    
    
    
    9Amount
    
    $
    1,057
    
    
    $
    597
    
    
    $
    302
    
    
    $
    161
    
    
    $
    1,140Accruing loans which
are contractually past
due 90 days or more as
to principal and
interest paymentsNumber
    
    
    13
    
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    1Amount
    
    $
    496
    
    
    $
    91
    
    
    $
    160
    
    
    $
    98
    
    
    $
    5
 The Bank does not have any loans which are troubled debt restructurings as
defined in SFAS No. 15. Accrual of interest is discontinued when a loan becomes 90 days past due as to
principal and interest or, when in managements judgment, the interest will not
be collectible in the normal course of business. Additional interest income of
$85,000 in 2003 would have been recorded if all loans accounted for on a
nonaccrual basis had been current in accordance with their original terms. No
interest income has been recognized in 2003 on loans that have been accounted
for on a nonaccrual basis. At December 31, 2003, there were no loans classified for regulatory purposes as
doubtful, substandard or special mention that have not been disclosed above
which (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources, or (ii) represent material credits about which management
is aware of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms. 9




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##### Table of Contents



Summary of Loan Loss Experience An analysis of the Banks loss experience is furnished in the following table
for the periods indicated. Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(Dollar amounts in thousands)Allowance, beginning of year
    
    $
    2,436
    
    
    $
    2,187
    
    
    $
    1,194
    
    
    $
    1,000
    
    
    $
    835Charge-offs:Commercial, financial and
agricultural
    
    
    55
    
    
    
    11
    
    
    
    13
    
    
    
    195
    
    
    
    Installment and consumer
    
    
    141
    
    
    
    195
    
    
    
    103
    
    
    
    26
    
    
    
    15Credit cards
    
    
    10
    
    
    
    7
    
    
    
    8
    
    
    
    
    
    
    
    6206
    
    
    
    213
    
    
    
    124
    
    
    
    221
    
    
    
    21Recoveries:Commercial, financial and
agricultural
    
    
    0
    
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    2Installment and consumer
    
    
    53
    
    
    
    6
    
    
    
    6
    
    
    
    52
    
    
    
    68Credit cards
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    154
    
    
    
    11
    
    
    
    11
    
    
    
    54
    
    
    
    71Net (charge-offs) recoveries
    
    
    (152
    )
    
    
    (202
    )
    
    
    (113
    )
    
    
    (167
    )
    
    
    50Provision charged to operations
    
    
    880
    
    
    
    451
    
    
    
    1,106
    
    
    
    361
    
    
    
    115Allowance, end of year
    
    $
    3,164
    
    
    $
    2,436
    
    
    $
    2,187
    
    
    $
    1,194
    
    
    $
    1,000Ratio of net (charge-offs)
recoveries during the period
to average loans outstanding
during the period
    
    
    (.07
    %)
    
    
    (.11
    %)
    
    
    (.08
    %)
    
    
    (.25
    %)
    
    
    .16
    %
 Loan Loss Allowance In the normal course of business, the Bank has recognized and will continue to
recognize losses resulting from the inability of certain borrowers to repay
loans and the insufficient realizable value of collateral securing such loans. Accordingly, management has established an allowance for loan losses, which
totaled approximately $3,164,000 at December 31, 2003, which is allocated
according to the following table, along with the percentage of loans in each
category to total loans: 10




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##### Table of Contents



2003
    
    2002
    
    2001
    
    2000
    
    1999Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    Percent(Dollar amounts in thousands)Commercial,
financial and
agricultural
    
    $
    410
    
    
    
    13.9
    %
    
    $
    330
    
    
    
    16.6
    %
    
    $
    320
    
    
    
    23.3
    %
    
    $
    181
    
    
    
    33.5
    %
    
    $
    99
    
    
    
    29.0
    %Real estate -
construction
    
    
    1,100
    
    
    
    21.1
    %
    
    
    704
    
    
    
    17.9
    %
    
    
    589
    
    
    
    17.6
    %
    
    
    356
    
    
    
    24.1
    %
    
    
    44
    
    
    
    15.1
    %Real estate -
mortgage
..
    
    
    1,385
    
    
    
    56.2
    %
    
    
    920
    
    
    
    54.6
    %
    
    
    782
    
    
    
    46.6
    %
    
    
    368
    
    
    
    29.8
    %
    
    
    522
    
    
    
    44.4
    %Consumer and
installment
    
    
    249
    
    
    
    8.8
    %
    
    
    387
    
    
    
    10.9
    %
    
    
    180
    
    
    
    12.5
    %
    
    
    75
    
    
    
    12.6
    %
    
    
    85
    
    
    
    11.5
    %Unallocated
    
    
    20
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    316
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    250
    
    
    
    Total
    
    $
    3,164
    
    
    
    
    
    
    $
    2,436
    
    
    
    
    
    
    $
    2,187
    
    
    
    
    
    
    $
    1,194
    
    
    
    
    
    
    $
    1,000
 In evaluating the Banks allowance for loan losses, management has taken
into consideration concentrations within the loan portfolio, past loan loss
experience, growth of the portfolio, current economic conditions and the
appraised value of collateral securing loans. Although management believes the
allowance for loan losses is adequate, their evaluation is dependent upon
future events. Managements evaluation of losses is a continuing process which
may necessitate adjustments to the allowance in future periods. Real estate mortgage loans constituted approximately 56.2% of outstanding loans
at December 31, 2003. These loans include both commercial and residential
mortgage loans. Management believes the risk of loss for commercial real estate
loans is generally higher than residential loans. Management continuously
monitors the performance of the commercial real estate portfolio and collateral
values. Residential mortgages are generally secured by the underlying
residence. Management of the Bank believes that these loans are adequately
secured. Real estate construction loans represented approximately 21.1% of the Banks
outstanding loans at December 31, 2003. This category of the loan portfolio
consists of commercial and residential construction and development loans
located in the Banks market areas in Georgia and Florida. Management of the
Bank closely monitors the performance of these loans and periodically inspects
properties and development progress. Management considers these factors in
estimating and evaluating the allowance for loan losses. Commercial loans represented approximately 13.9% of outstanding loans at
December 31, 2003. Commercial loans are generally considered by management as
having greater risk than other categories of loans in the Banks loan
portfolio. However, the Bank generally originates commercial loans on a
secured basis, and at December 31, 2003, over 90% of the Banks commercial
loans were secured. Management believes that the secured status of a
substantial portion of the commercial loan portfolio greatly reduces the risk
of loss inherently present in commercial loans. Consumer and installment loans represented approximately 8.8% of outstanding
loans at December 31, 2003 and is also well secured. At December 31, 2003, the
majority of the Banks consumer loans were secured by collateral primarily
consisting of automobiles, boats and other personal property. Management
believes that these loans inherently possess less risk than other categories of
loans. Loans held for sale consist of single family residential mortgage loans
originated by the Banks Mortgage Division. These loans are originated with an
investor purchase commitment and are sold shortly after origination by the
Bank. The Banks management and Board of Directors monitor the loan portfolio monthly
to evaluate the adequacy of the allowance for loan losses. Ratings on
classified loans are also reviewed and performance is evaluated in determining
the allowance. The provision for loan losses charged to operations is based on
this analysis. In addition, management and the Board consider such factors as
delinquent loans, collateral values and economic conditions in their evaluation
of the adequacy of the allowance for loan losses. 11




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##### Table of Contents



Investments As of December 31, 2003, investment securities comprised approximately 13.0% of
the Banks assets. The Bank invests primarily in obligations of the United
States or agencies of the United States, mortgage-backed securities and
obligations, other taxable securities and in certain obligations of states and
municipalities. The Bank also enters into federal funds transactions with its
principal correspondent banks. The Bank may act as a net seller or net
purchaser of such funds. The following table presents, for the dates indicated, the estimated fair
market value of the Banks investment securities available for sale. The Bank
has classified all investment securities as available for sale. December 31,2003
    
    2002
    
    2001(In thousands)Obligations of the U.S. Treasury and other
U.S government agencies
    
    $
    17,450
    
    
    $
    13,427
    
    
    $
    8,376Mortgage-backed securities
    
    
    12,415
    
    
    
    10,756
    
    
    
    9,014Obligations of States and political subdivisions
    
    
    2,494
    
    
    
    990
    
    
    
    Corporate obligations
    
    
    2,152
    
    
    
    2,173
    
    
    
    2,119Total investment securities
    
    $
    34,511
    
    
    $
    27,346
    
    
    $
    19,509Federal Home Loan Bank stock
    
    
    1,083
    
    
    
    1,570
    
    
    
    1,606Total investment securities and FHLB stock
    
    $
    35,594
    
    
    $
    28,916
    
    
    $
    21,115
 12




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##### Table of Contents



The following tables present the contractual maturities and weighted average
yields of the Banks investments as of December 31, 2003: Maturities of Investment SecuritiesAfter One
    
    After FiveWithin
    
    Through
    
    Through
    
    AfterOne Year
    
    Five Years
    
    Ten Years
    
    Ten Years(In thousands)Obligations of the U.S. Treasury and
other U.S. government agencies
    
    $
    503
    
    
    $
    8,185
    
    
    $
    8,762
    
    
    $
    Mortgage-backed securities
    
    
    
    
    
    
    7,028
    
    
    
    2,056
    
    
    
    3,331Obligations of States and political subdivisions
    
    
    
    
    
    
    
    
    
    
    1,062
    
    
    
    1,432Corporate obligations
    
    
    513
    
    
    
    1,639Total
    
    $
    1,016
    
    
    $
    16,852
    
    
    $
    11,880
    
    
    $
    4,763
 Weighted Average YieldsAfter One
    
    After FiveWithin
    
    Through
    
    Through
    
    AfterOne Year
    
    Five Years
    
    Ten Years
    
    Ten YearsObligations of the U.S. Treasury and
other U.S. government agencies
    
    
    3.36
    %
    
    
    7.79
    %
    
    
    4.29
    %
    
    
    Mortgage-backed securities
    
    
    
    
    
    
    2.64
    %
    
    
    3.15
    %
    
    
    4.80
    %Obligations of States and political subdivisions
    
    
    
    
    
    
    
    
    
    
    2.68
    %
    
    
    5.61
    %Corporate obligations
    
    
    6.05
    %
    
    
    6.14
    %
    
    
    
    
    
    
    Total weighted average yield
    
    
    4.72
    %
    
    
    5.48
    %
    
    
    3.95
    %
    
    
    5.04
    %
 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 Companys shareholders equity. Return on Equity and Assets The following table presents certain profitability, return and capital ratios
for the Company as of the end of the past three fiscal years. December 31,2003
    
    2002
    
    2001Return on Assets
    
    
    1.92
    %
    
    
    1.44
    %
    
    
    1.06
    %Return on Equity
    
    
    25.97
    %
    
    
    22.14
    %
    
    
    13.83
    %Dividend Payout.
    
    
    
    
    
    
    
    
    
    
    Equity to Assets
    
    
    7.88
    %
    
    
    7.07
    %
    
    
    7.64
    %
 Asset/Liability Management It is the objective of the Bank to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan investment, borrowing and capital policies. An
investment committee is responsible for monitoring policies and procedures that
are designed to ensure acceptable composition of the asset/liability mix,
stability and leverage of all sources of funds while adhering to prudent
banking practices. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits, which include deposits of all
categories made by individuals, partnerships and corporations. Management of
the Bank seeks to invest the largest portion of the Banks assets in
commercial, consumer and real estate loans. 13




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##### Table of Contents



The Banks asset/liability mix is monitored on a daily basis and further
evaluated with a monthly report that reflects interest-sensitive assets and
interest-sensitive liabilities. This report is 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 Companys earnings. Correspondent Banking Correspondent banking involves the delivery of services by one bank to another
bank which cannot provide that service for itself from an economic or practical
standpoint. The Bank purchases correspondent services offered by larger banks,
including check collections, purchase of federal funds, security safekeeping,
investment services, coin and currency supplies, over line and liquidity loan
participations and sales of loans to or participations with correspondent
banks. The Bank sells loan participations to correspondent banks. The Bank has
established correspondent relationships with The Bankers Bank, the Federal Home
Loan Bank of Atlanta and SunTrust Bank. As compensation for services provided
by a correspondent, the Bank maintains certain balances with such correspondent
in both non-interest bearing and interest bearing accounts. Data Processing The Bank has entered into a data processing servicing agreement with The
Intercept Group, Inc. under which the Bank receives a full range of data
processing services, including an automated general ledger, deposit accounting,
commercial, real estate and installment lending data processing, central
information file and ATM processing. Employees At December 31, 2003, the Bank employed 148 persons on a full-time or part-time
basis, including 35 officers. Monetary Policies The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments
of monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve Board, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank. Supervision and Regulation The following discussion is only intended to provide brief summaries of
significant statutes and regulations that affect the banking industry and
therefore is not complete. Changes in applicable laws or regulations, and in
the policies of regulators, may have a material effect on the Companys
business and prospects. Management cannot accurately predict the nature or
extent of the effects on the Companys business and earnings that fiscal or
monetary policies, or new federal or state laws, may have in the future. The Company General. As a bank holding company, the Company is subject to the Bank Holding
Company Act of 1956, which places the Company under the supervision of the
Board of Governors of the Federal Reserve. The Company must file annual
reports with the Federal Reserve and must provide it with such additional
information as it may require. In addition, the Federal Reserve periodically
examines the Company and the Bank. 14




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##### Table of Contents



Bank Holding Company Regulation.In general, the Bank Holding Company Act
limits bank holding company business to owning or controlling banks and
engaging in other banking-related activities. Bank holding companies must
obtain the Federal Reserve Boards approval before they:  
    
    acquire direct or indirect ownership or control of any voting shares of any bank that results in total ownership or control,
directly or indirectly, of more than 5% of the voting shares of such
bank;  
    
    merge or consolidate with another bank holding company; or  
    
    acquire substantially all of the assets of any additional banks. Subject to certain state laws, a bank holding company that is adequately
capitalized and adequately managed may acquire the assets of both in-state and
out-of-state banks. Under the Gramm-Leach-Bliley Act of 1999, a bank holding
company meeting certain qualifications may apply to the Federal Reserve Board
to become a financial holding company, and thereby engage (directly or through
a subsidiary) in certain activities deemed financial in nature, such as
securities brokerage and insurance underwriting. With certain exceptions, the Bank Holding Company Act prohibits bank holding
companies from acquiring direct or indirect ownership or control of voting
shares in any company that is not a bank or a bank holding company unless the
Federal Reserve Board determines such activities are incidental or closely
related to the business of banking. The Change in Bank Control Act of 1978 requires a person (or group of persons
acting in concert) acquiring control of a bank holding company to provide the
Federal Reserve Board with 60 days prior written notice of the proposed
acquisition. Following receipt of this notice, the Federal Reserve Board has
60 days (or up to 90 days if extended) within which to issue a notice
disapproving the proposed acquisition. In addition, any company must obtain
the Federal Reserve Boards approval before acquiring 25% (5% if the company
is a bank holding company) or more of the outstanding shares or otherwise
obtaining control over the Company. Financial Services Modernization. The laws and regulations that affect banks
and bank holding companies underwent significant changes as a result of the
Financial Services Modernization Act of 1999, also known as the
Gramm-Leach-Bliley Act. Generally, the act (i) repealed the historical
restrictions on preventing banks from affiliating with securities firms, (ii)
provided a uniform framework for the activities of banks, savings institutions
and their holding companies, (iii) broadened the activities that may be
conducted by national banks and banking subsidiaries of bank holding companies,
(iv) provided an enhanced framework for protecting the privacy of consumers
information and (v) addressed a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions. Bank holding companies may now engage in a wider variety of financial
activities than permitted under previous law, particularly insurance and
securities activities. In addition, in a change from previous law, a bank
holding company may be owned, controlled or acquired by any company engaged in
financially related activities, so long as such company meets certain
regulatory requirements. The act also permits national banks (and certain state
banks), either directly or through operating subsidiaries, to engage in certain
non-banking financial activities. Transactions with Affiliates.The Company and the Bank are deemed affiliates
within the meaning of the Federal Reserve Act, and transactions between
affiliates are subject to certain restrictions. Generally, the Federal Reserve
Act limits the extent to which a financial institution or its subsidiaries may
engage in covered transactions with an affiliate. It also requires all
transactions with an affiliate, whether or not covered transactions, to be on
terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term covered
transaction includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions. Tie-In Arrangements.The Company and the Bank cannot engage in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither the Company nor the Bank may condition an extension of credit on either
a requirement that the customer obtain additional services provided by either
of the Company or the Bank, or an agreement by the customer to refrain from
obtaining other services from a competitor. The Federal Reserve Board has 15




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##### Table of Contents



adopted exceptions to its anti-tying rules that allow banks greater flexibility
to package products with their affiliates. These exceptions were designed to
enhance competition in banking and non-banking products and to allow banks and
their affiliates to provide more efficient, lower cost service to their
customers. The Bank General. The Bank, as a Georgia state-chartered bank, is subject to regulation
and examination by the State of Georgia Department of Banking and Finance, as
well as the Federal Deposit Insurance Corporation. Georgia state laws
regulate, among other things, the scope of the Banks business, its
investments, its payment of dividends to the Company, its required legal
reserves and the nature, lending limit, maximum interest charged and amount of
and collateral for loans. The laws and regulations governing the Bank
generally have been promulgated by Georgia to protect depositors and not to
protect shareholders of the Company or the Bank. Community Reinvestment Act.The Community Reinvestment Act requires that, in
connection with examinations of financial institutions within their
jurisdiction, the Federal Deposit Insurance Corporation evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those banks. These factors are also considered
in evaluating mergers, acquisitions, and applications to open a branch or
facility. Insider Credit Transactions. Banks are also subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to executive
officers, directors, principal shareholders, or any related interests of such
persons. Extensions of credit must be made on substantially the same terms,
including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees. Also, such extensions of credit must not involve more than the
normal risk of repayment or present other unfavorable features. Federal Deposit Insurance Corporation Improvement Act. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991, each federal banking
agency has prescribed, by regulation, noncapital safety and soundness standards
for institutions under its authority. These standards cover internal controls,
information systems, and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, such other operational and managerial standards as the agency
determines to be appropriate, and standards for asset quality, earnings and
stock valuation. Management believes that the Bank meets all such standards. Interstate Banking and Branching.The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 permits nationwide interstate banking and
branching under certain circumstances. This legislation generally authorizes
interstate branching and relaxes federal law restrictions on interstate
banking. Currently, bank holding companies may purchase banks in any state,
and states may not prohibit such purchases. Additionally, banks are permitted
to merge with banks in other states as long as the home state of neither
merging bank has opted out. The Interstate Act requires regulators to
consult with community organizations before permitting an interstate
institution to close a branch in a low-income area. Under recent Federal
Deposit Insurance Corporation regulations, banks are prohibited from using
their interstate branches primarily for deposit production. The Federal
Deposit Insurance Corporation has accordingly implemented a loan-to-deposit
ratio screen to ensure compliance with this prohibition. Georgia has opted in to the Interstate Act and allows in-state banks to merge
with out-of-state banks subject to certain requirements. Georgia law generally
authorizes the acquisition of an in-state bank by an out-of-state bank by
merger with a Georgia financial institution that has been in existence for at
least 3 years prior to the acquisition. With regard to interstate bank
branching, out-of-state banks that do not already operate a branch in Georgia
may not establish de novo branches in Georgia. Deposit Insurance.The deposits of the Bank are currently insured to a maximum
of $100,000 per depositor through a fund administered by the Federal Deposit
Insurance Corporation. All insured banks are required to pay semi-annual
deposit insurance premium assessments to the Federal Deposit Insurance
Corporation. 16




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##### Table of Contents



Capital Adequacy Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital
falls below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities. The FDIC and Federal Reserve use risk-based capital guidelines for banks and
bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items
are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the Federal Reserve has noted that bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimum. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of
which at least 4% must be Tier 1 capital. Tier 1 capital for bank holding
companies includes common shareholders equity, certain qualifying perpetual
preferred stock and minority interests in equity accounts of consolidated
subsidiaries, less intangibles except as described above. The FDIC and Federal Reserve also employ a leverage ratio, which is Tier 1
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company or
bank may leverage its equity capital base. A minimum leverage ratio of 3% is
required for the most highly rated bank holding companies and banks. Other
bank holding companies, banks and bank holding companies seeking to expand,
however, are required to maintain minimum leverage ratios of at least 4% to 5%. The Federal Deposit Insurance Corporation Improvement Act created a statutory
framework of supervisory actions indexed to the capital level of the individual
institution. Under regulations adopted by the Federal Deposit Insurance
Corporation and the Federal Reserve, an institution is assigned to one of five
capital categories depending on its total risk-based capital ratio, Tier 1
risk-based capital ratio, and leverage ratio, together with certain subjective
factors. Institutions which are deemed to be undercapitalized depending on
the category to which they are assigned are subject to certain mandatory
supervisory corrective actions. Recent Significant Changes in Banking Laws and Regulations International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001.On October 26, 2001, the USA PATRIOT Act was enacted. It includes the
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001 and strong measures to prevent, detect and prosecute terrorism and
international money laundering. As required by the IMLAFA, the federal banking
agencies, in cooperation with the U.S. Treasury Department, established rules
that generally apply to insured depository institutions and U.S. branches and
agencies of foreign banks. Among other things, the new rules require that financial institutions implement
reasonable procedures to (1) verify the identity of any person opening an
account; (2) maintain records of the information used to verify the persons
identity; and (3) determine whether the person appears on any list of known or
suspected terrorists or terrorist organizations. The rules also prohibit banks
from establishing correspondent accounts with foreign shell banks with no
physical presence and encourage cooperation among financial institutions, their
regulators and law enforcement to share information regarding individuals,
entities and organizations engaged in terrorist acts or money laundering
activities. The rules also limit a financial institutions liability for
submitting a report of suspicious activity and for voluntarily disclosing a
possible violation of law to law enforcement. Sarbanes-Oxley Act of 2002. On July 30, 2002, the Sarbanes-Oxley Act of 2002
was enacted to address corporate and accounting fraud. It established a new
accounting oversight board that enforces auditing standards and restricts the
scope of services that accounting firms may provide to their public company
audit clients. Among other things, it also (i) requires chief executive
officers and chief financial officers to certify to the accuracy of periodic
reports filed with the Securities and Exchange Commission (the SEC); (ii)
imposes new disclosure requirements regarding internal controls,
off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii)
accelerates the time frame for reporting of insider transactions and periodic 17




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##### Table of Contents



disclosures by certain public companies; and (iv) requires companies to
disclose whether or not they have adopted a code of ethics for senior financial
officers and whether the audit committee includes at least one audit committee
financial expert. The Sarbanes-Oxley Act requires the SEC, based on certain enumerated factors,
to regularly and systematically review corporate filings. To deter wrongdoing,
it (i) subjects bonuses issued to top executives to disgorgement if a
restatement of a companys financial statements was due to corporate
misconduct; (ii) prohibits an officer or director from misleading or coercing
an auditor; (iii) prohibits insider trades during pension fund blackout
periods; (iv) imposes new criminal penalties for fraud and other wrongful
acts; and (v) extends the period during which certain securities fraud lawsuits
can be brought against a company or its officers. 
 Item 2. Description of Property. The Companys main office is located at 2805 Wrightsboro Road at Daniel Village
in Augusta, Georgia, which also serves as one of the Banks banking offices. The Bank operates two banking offices in Augusta, Georgia, two banking offices
in Martinez, Georgia and one banking office in Thomson, Georgia. The following
table sets forth the location of each of the Banks branch offices and the date
each branch opened for business: Branch
    
    Date OpenedThomson Office, Thomson, Georgia
    
    January 1989Daniel Village Office, Augusta, Georgia
    
    March 1999West Town Office, Martinez, Georgia
    
    October 1999Medical Center Office, Augusta, Georgia
    
    January 2001Furys Ferry Road Office, Martinez, Georgia
    
    April 2002
 In November 2001, the Bank purchased a site located on Wheeler Road in Augusta
for a purchase price of $706,000. In January 2002, the Bank purchased a site
located in Evans, Georgia for a purchase price of $401,000. The Bank has
purchased these sites in anticipation of building full service banking
facilities in the next few years. The Bank also leases office space at one location in Augusta to house the
Mortgage Division and its financial and accounting operations and another
location in Augusta to house its human resources and loan operations. The
Mortgage Division also operates offices in Savannah and Pooler, Georgia and
Jacksonville and Orlando, Florida out of leased office space. 
 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, 2003 to a
vote of security holders of the Company. 18




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##### Table of Contents



PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters. A. Market Information  The Companys common stock trades on the Over-The-Counter Bulletin Board
under the symbol GECR. The market for the Companys common stock must
be characterized as a limited market due to its relatively low trading
volume and analyst coverage. The following table sets forth for the
periods indicated the quarterly high and low bid quotation per share as
reported by the Over-The-Counter Bulletin Board. These quotations also
reflect inter-dealer prices without retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions. The
share prices below reflect the 15% stock dividend effected on December
16, 2002 and the 2-for-1 stock split effected on January 30, 2004. High
    
    LowFiscal year ended December 31, 2003First Quarter
    
    $
    11.63
    
    
    $
    8.13Second Quarter
    
    $
    12.50
    
    
    $
    10.78Third Quarter
    
    $
    15.00
    
    
    $
    11.50Fourth Quarter
    
    $
    21.40
    
    
    $
    13.50Fiscal year ended December 31, 2002First Quarter
    
    $
    5.13
    
    
    $
    5.11Second Quarter
    
    $
    6.63
    
    
    $
    5.13Third Quarter
    
    $
    7.93
    
    
    $
    6.95Fourth Quarter
    
    $
    8.48
    
    
    $
    8.00
 B. Holders of Common Stock  As of March 18, 2004, the number of holders of record of the Companys
common stock was 627. C. Dividends  No cash dividends were paid by the Company during the years ended
December 31, 2003 or 2002. On December 16, 2002, the Company paid a 15%
stock dividend to shareholders of record as of December 2, 2002. On
January 30, 2004, the Company paid a 2-for-1 split effected as a 100%
stock dividend to shareholders of record as of January 5, 2004.Future dividends will be determined by the Board of Directors of the
Company in light of circumstances existing from time to time, including
the Companys growth, financial condition and results of operations, the
continued existence of the restrictions described below on the Banks
ability to pay dividends and other factors that the Board of Directors of
the Company considers relevant. In addition, the Board of Directors of
the Company may determine, from time to time, that it is prudent to pay
special nonrecurring cash dividends in addition to or in lieu of regular
cash dividends. Such special dividends will depend upon the financial
performance of the Company and will take into account its capital
position. No special dividend is presently contemplated.Because the Companys principal operations are conducted through the
Bank, the Company generates cash to pay dividends primarily through
dividends paid to it by the Bank. Accordingly, any dividends paid by the
Company will depend on the Banks earnings, capital requirements,
financial condition and other factors. Under Georgia law, the Bank may
pay dividends only when and if the Bank is not insolvent. In addition,
dividends may not be declared or paid at any time when the Bank does not
have combined paid-in capital and appropriated retained earnings equal to
at least 20% of the Banks capital stock. Moreover, dividends may not be
paid by the Bank without the prior approval of the Georgia Banking
Department, if the dividends are in excess of specified amounts fixed by
the Georgia Banking Department. D. Recent Sales of Unregistered Securities  On December 12, 2003, the Company issued 2,000 shares of its common stock
as a result of the 19




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exercise of certain non-qualified options by The Prime Group, Inc. The
Company received $24,000 in consideration of this issuance. On January
2, 2004, the Company issued 750 shares of its common stock to certain of
its advisory directors. The issuances of the common stock were made in
reliance upon the exception from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, as transactions by an issuer not
involving a public offering and Rule 506 promulgated thereunder. All of
the securities were acquired by the recipients thereof for investment and
with no view toward the resale or distribution thereof. The purchasers
have a preexisting relationship with the Company, the offers and sales
were made without any public solicitation, and the stock certificates
bear a restrictive legend. No underwriter was involved in the
transactions and no commissions were paid. 
 Item 6. Managements Discussion and Analysis. The following discussion provides information about the major components of the
results of operations and financial condition, liquidity and capital resources
of the Company and Bank and should be read in conjunction with the Business
and Financial Statements sections included elsewhere in this Report. Critical Accounting Policies The accounting and reporting policies of the Company and Bank are in accordance
with accounting principles generally accepted in the United States and conform
to general practices within the banking industry. Application of these
principles requires management to make estimates or judgments that affect the
amounts reported in the financial statements and the accompanying notes. These
estimates are based on information available as of the date of the financial
statements; accordingly, as this information changes, the financial statements
could reflect different estimates or judgments. Certain policies inherently
have a greater reliance on the use of estimates, and as such have a greater
possibility of producing results that could be materially different than
originally reported. Estimates or judgments are necessary when assets and liabilities are required
to be recorded at fair value, when a decline in the value of an asset not
carried on the financial statements at fair value warrants an impairment
write-down or valuation reserve to be established, or when an asset or
liability needs to be recorded contingent upon a future event. Carrying assets
and liabilities at fair value inherently results in more financial statement
volatility. The fair values and the information used to record the valuation
adjustments for certain assets and liabilities are based either on quoted
market prices or are provided by other third-party sources, when available.
When third-party information is not available, valuation adjustments are
estimated in good faith by management primarily through the use of internal
cash flow modeling techniques. The most significant accounting policies for the Company and Bank are
presented in Note 1 to the consolidated financial statements. These policies,
along with the disclosures presented in the other financial statement notes
provide information on how significant assets and liabilities are valued in the
financial statements and how those values are determined. Management views
critical accounting policies to be those that are highly dependent on
subjective or complex judgments, estimates and assumptions, and where changes
in those estimates and assumptions could have a significant impact on the
financial statements. Management currently views the determination of the
allowance for loan losses to be the only critical accounting policy. The allowance for loan losses represents managements estimate of probable
credit losses inherent in the loan portfolio. Estimating the amount of the
allowance for loan losses requires significant judgment and the use of
estimates related to the amount and timing of expected future cash flows on
impaired loans, estimated losses on non-impaired loans based on historical loss
experience, and consideration of current economic trends and conditions, all of
which may be susceptible to significant change. The loan portfolio also
represents the largest asset type on the consolidated balance sheet. Loan
losses are charged off against the allowance, while recoveries of amounts
previously charged off are credited to the allowance. A provision for loan
losses is charged to operations based on managements periodic evaluation of
the factors previously mentioned, as well as other pertinent factors. The allowance for loan losses consists of an allocated component and an
unallocated component. The components of the allowance for loan losses
represent an estimation done pursuant to either Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies,or SFAS 114,
Accounting by 20




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##### Table of Contents



Creditors for Impairment of a Loan.The allocated component of the allowance
for loan losses reflects expected losses resulting from analyses developed
through specific credit allocations for individual loans and historical loss
experience for each loan category. The specific credit allocations are based on
regular analyses of all loans over a fixed-dollar amount where the internal
credit rating is at or below a predetermined classification. These analyses
involve a high degree of judgment in estimating the amount of loss associated
with specific loans, including estimating the amount and timing of future cash
flows and collateral values. The historical loss element is determined using
the average of actual losses incurred over prior years for each type of loan.
The historical loss experience is adjusted for known changes in economic
conditions and credit quality trends such as changes in the amount of past due
and nonperforming loans. The resulting loss allocation factors are applied to
the balance of each type of loan after removing the balance of impaired loans
from each category. There are many factors affecting the allowance for loan losses; some are
quantitative while others require qualitative judgment. Although management
believes its process for determining the allowance adequately considers all the
potential factors that could potentially result in credit losses, the process
includes subjective elements and may be susceptible to significant change. To
the extent actual outcomes differ from management estimates, additional
provision for loan losses could be required that could adversely affect
earnings or financial position in future periods. Additional information on the Banks loan portfolio and allowance for loan
losses can be found in the Managements Discussion and Analysis and in Item 1,
Loan Portfolio. Note 1 to the consolidated financial statements includes
additional information on the Banks accounting policies related to the
allowance for loan losses. Consolidated Financial Information Certain financial information for the Company and Bank consolidated, and solely
the Bank as of and for the years ended December 31, 2003 and 2002 is presented
below: 2003
    
    2002Total Assets
    
    Net Income
    
    Total Assets
    
    Net Income(Dollar amounts in thousands)Consolidated
    
    $
    266,025
    
    
    $
    5,032
    
    
    $
    257,362
    
    
    $
    3,331Bank only
    
    $
    265,899
    
    
    $
    5,220
    
    
    $
    257,251
    
    
    $
    3,494
 During 2003, the Company funded operational costs through internally generated
funds. The Company incurred approximately $315,000 in operational costs for
the year ended December 31, 2003. The Company recorded an income tax benefit
of $127,000, resulting in a net loss of $188,000 for 2003. The Company
received no revenue in the form of dividends from the Bank in 2003. During 2001, the Company entered into an agreement with The Bankers Bank that
provides the Company with a line of credit of up to $3 million, which bears
interest at the prime rate minus 50 basis points and matures in 2014. As of
December 31, 2003 and 2002, the outstanding balance under the line of credit
was $1 million. The arrangement requires the Company and the Bank to comply
with certain financial and other covenants. At December 31, 2003, the Company
and the Bank were in compliance with all applicable covenants. The $1 million
drawn by the Company was invested in the Bank during 2001 as additional paid in
capital. The Bank Results of Operations For the year ended December 31, 2003, the Bank experienced an increase in both
total assets and net income. Total assets increased 3.4% to $265,899,000 at
December 31, 2003 from $257,251,000 at December 31, 2002. Net income increased
49.4% to $5,220,000 from $3,494,000 for the year ended December 31, 2002.
Average total assets were $274,766,000 for 2003 and were $212,878,000 for 2002,
an increase of $61,888,000 or 29.1%. This increase in average assets is
primarily the result of an increase in loans outstanding, which increased
$52,220,000, or 29.8%, from $175,022,000 for 2002 to $227,242,000 for 2003.
This increase in 21




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loans is a direct result of the Banks expansion to new market areas through
the opening of an additional full service banking location during 2002 and the
continued growth of the Mortgage Division. Net loans held for investment
increased from $142,934,000 at December 31, 2002 to $173,203,000 at December
31, 2003, a change of $30,269,000, or 21.2%. Commercial loans increased
$455,000, or 1.9%, from 2002. Real estate mortgage loans increased
$19,804,000, or 25.0%, from 2002, and real estate construction loans increased
$11,084,000, or 42.4%, from 2002. Installment and consumer loans decreased
$340,000, or 2.1%, from 2002. The decrease in installment and consumer loans
is primarily the result of a softening in the demand for this type of loan.
The increases in each of the other loan categories are the result of the Banks
continuing efforts to obtain these types of lending opportunities, and the
opening of additional office locations of the Bank. Loans held for sale by the
Bank decreased from $67,927,000 in 2002 to $32,419,000 in 2003. The allowance for loan losses was $3,164,000 at December 31, 2003 and was
$2,436,000 at December 31, 2002. This represents an increase of $727,000 or
29.8%. The increase in the allowance is based upon managements rating and
assessment of the loan portfolio and the credit risk inherent in the portfolio,
and reflects the growth in the Banks loan portfolio. The Banks ratio of
allowance for loan losses to gross loans was 1.51% at December 31, 2003 and was
1.14% at December 31, 2002. Substantially all loans held for sale originated
by the Bank consist of well-secured single family residence mortgage loans and
are originated with a sales commitment and are sold in the secondary market
shortly after origination, thus greatly reducing the Banks credit risk. The
Banks ratio of allowance for loan losses to gross loans, excluding loans held
for sale, was 1.79% at December 31, 2003, compared to 1.68% at December 31,
2002. The asset growth of the Bank during 2003 was funded through deposit account
growth resulting from the Banks expansion to new market areas, through
short-term borrowings from correspondent banks, and from lines-of-credit
established with the Federal Home Loan Bank. Total deposit accounts at
December 31, 2003 were $221,656,000, an increase of $20,037,000, or 9.9%, from
$201,619,000 at December 31, 2002. Total other borrowings by the Bank were
$19,993,000 at December 31, 2003, a decrease of $15,752,000, or 44.1%, from the
balance of $35,745,000 at December 31, 2002. The Banks loan to deposit ratio was 94.2% at December 31, 2003 and 105.8% at
December 31, 2002. Interest income was $15,159,000 for the year ended 2003, compared to
$13,368,000 for 2002. This represents an increase of $1,791,000, or 13.4%.
This increase was primarily attributable to an increase in interest income from
loans of $1,893,000 in 2003. The volume increase was a result of the Banks
increases in loans due to the expansion of the Banks market area through the
opening of an additional location, loan growth in existing locations, and
continued growth of the Banks Mortgage Division. Growth in the Banks
Mortgage Division was also due to a declining interest rate environment for
residential mortgage loans resulting in a greater number of refinancing
transactions. Interest expense decreased $261,000, or 5.0%, from $5,172,000
for 2002 to $4,911,000 for 2003. This decrease resulted primarily from
declining rates for all types of deposits, but was partially offset by
increases in volume for NOW and savings deposit accounts, and in funds
purchased. The increase in deposit accounts was a result of the expansion of
the Banks market area through the opening of an additional location and growth
in exiting locations. The Bank focuses on obtaining growth in deposit accounts
to effectively fund the Banks loan growth. Non-interest bearing deposits
increased $3,814,000 from 2002 to 2003. Net interest income for the year ended
December 31, 2003 was $10,248,000, representing an increase of $2,052,000, or
25.0%, from $8,196,000 for the year ended December 31, 2002. Non-interest income increased from $10,397,000 in 2002 to $15,540,000 in 2003,
an increase of $5,143,000 or 49.5%. This increase is primarily due to the
increase in the gain on sale of mortgage loans for 2003. This increase is a
direct result of the Banks continued development of the Mortgage Division
during 2003, and increased loan fees from purchase and refinancing
transactions. Non-interest expense increased from $12,713,000 in 2002 to $16,188,000 in 2003,
an increase of $3,475,000 or 27.3%. The increase resulted from increased
personnel, occupancy and general and administrative costs resulting from the
opening of an additional branch location and the continued favorable
environment for growth of the Mortgage Division in 2003. Net income increased $1,726,000, or 49.4%, from $3,494,000 in 2002 to
$5,220,000 in 2003 as a result of each of the above matters. 22




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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, the Bank must
maintain adequate liquidity. Liquid assets consisting primarily of cash and
deposits due from other banks, federal funds sold and investment securities
maturing within one year provide the source of such funds. Insufficient
liquidity may force a bank to engage in emergency measures to secure necessary
funding. 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 December 31, 2003, the Banks liquidity ratio was 25.4% as compared to
39.6% at December 31, 2002. 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, 2003
with a market value of $34.5 million in its available-for-sale portfolio which
would provide an additional source of liquidity. Gap management is a conservative asset/liability strategy designed to maximize
earnings over a complete interest rate cycle while reducing or minimizing the
Banks exposure to interest rate risk. Various assets and liabilities are
termed to be rate sensitive when the interest rate can be replaced. By
definition, the gap is the difference between rate sensitive assets and rate
sensitive liabilities in a given time horizon. At December 31, 2003, the Bank
was liability sensitive through 12 months and asset sensitive thereafter. The following is an analysis of rate sensitive assets and liabilities as of
December 31, 2003 (in thousands): 5 years0- 3 mos.
    
    3  12 mos.
    
    1  5 years
    
    or more
    
    TotalTaxable securities
    
    $
    503
    
    
    $
    513
    
    
    $
    16,852
    
    
    $
    14,149
    
    
    $
    32,017Tax-exempt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,494
    
    
    
    2,494Federal funds sold
    
    
    8,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,470Loans
    
    
    131,456
    
    
    
    13,876
    
    
    
    57,126
    
    
    
    6,327
    
    
    
    208,785Total rate sensitive assets
    
    
    140,429
    
    
    
    14,389
    
    
    
    73,978
    
    
    
    22,970
    
    
    
    251,766NOW and money market deposits
    
    
    40,669
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,669Savings deposits
    
    
    64,001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,001Time deposits
    
    
    17,254
    
    
    
    30,704
    
    
    
    42,702
    
    
    
    
    
    
    
    90,660Total rate sensitive deposits
    
    
    121,924
    
    
    
    30,704
    
    
    
    42,702
    
    
    
    
    
    
    
    195,330Borrowed funds
    
    
    19,984
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    19,993Total rate sensitive liabilities
    
    
    141,908
    
    
    
    30,713
    
    
    
    42,702
    
    
    
    
    
    
    
    215,323Excess of rate sensitive assets less rate
sensitive liabilities
    
    
    (1,479
    )
    
    
    (16,324
    )
    
    
    31,276
    
    
    
    22,970
    
    
    
    36,443Cumulative ratio of rate sensitive assets
to liabilities
    
    
    99
    %
    
    
    90
    %
    
    
    106
    %
    
    
    117
    %Cumulative gap
    
    
    (1,479
    )
    
    
    (17,803
    )
    
    
    13,473
    
    
    
    36,443
 23




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##### Table of Contents



Capital Resources The equity capital of the Bank totaled $22,751,000 at December 31, 2003, an
increase of $4,990,000 or 28.1% from equity capital of $17,761,000 at December
31, 2002. The increase in equity capital was attributable to the Banks net
income of $5.22 million, and a decrease of $.23 million in the Banks after-tax
unrealized gain on available-for-sale securities, which under Statement of
Financial Accounting Standard No. 115, is recognized in the available-for-sale
portion of the bond portfolio by making adjustments to the equity capital
account. The equity capital of the Company totaled $21,864,000 at December 31, 2003. Management believes that the capitalization of the Company and the Bank is
adequate to sustain the growth experienced in 2003. 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, 2003: MinimumBank
    
    December 31, 2003
    
    Regulatory RequirementTier 1 Capital ratio
    
    
    10.72
    %
    
    
    4.0
    %Total risk-based capital ratio
    
    
    11.98
    %
    
    
    8.0
    %Leverage ratio
    
    
    8.68
    %
    
    
    4.0
    %Company  ConsolidatedTier 1 Capital ratio
    
    
    10.38
    %
    
    
    4.0
    %Total risk-based capital ratio
    
    
    11.89
    %
    
    
    8.0
    %Leverage ratio
    
    
    8.48
    %
    
    
    4.0
    %
 The above ratios indicate that the capital position of the Company and the Bank
are sound and that the Company is well positioned for future growth. There are no commitments of capital resources known to management which would
have a material impact on the Banks capital position. Off-Balance Sheet Arrangements In the ordinary course of business, the Bank may enter into off-balance sheet
financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when funds are disbursed or the instruments become payable. Following is an analysis of significant off-balance sheet financial instruments
at December 31, 2003 and 2002. At
    
    AtDecember 31, 2003
    
    December 31, 2002(In thousands)Commitments to extend credit
    
    $
    48,485
    
    
    $
    34,748Standby letters of credit
    
    
    223
    
    
    
    141$
    48,708
    
    
    $
    34,889
 24




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##### Table of Contents



Item 7. Financial Statements and Supplementary Data. The following financial statements are filed as Exhibit 99.1 to this Report and
incorporated herein by reference: Report of Independent Certified Public AccountantsConsolidated Statements of Financial Condition as ofDecember 31, 2003 and 2002Consolidated Statements of Income for the years endedDecember 31, 2003, 2002 and 2001Consolidated Statements of Comprehensive Income (Loss)for the years ended December 31, 2003, 2002 and 2001Consolidated Statements of Shareholders Equity forthe years ended December 31, 2003, 2002 and 2001Consolidated Statements of Cash Flows for the years endedDecember 31, 2003, 2002 and 2001Notes to Consolidated Financial Statements
 
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There has been no occurrence requiring a response to this item. 
 Item 8A. Controls and Procedures. The Companys Chief Executive Officer and Chief Financial Officer have
evaluated the Companys disclosure controls and procedures as of the end of the
fiscal year covered by this Report on Form 10-KSB and have concluded that the
Companys disclosure controls and procedures are effective. During the fourth
quarter of 2003, there were no changes in the Companys internal control over
financial reporting that have materially affected, or that are reasonably
likely to materially affect, the Companys internal control over financial
reporting. 
 PART III Certain information required by Part III of this Form 10-KSB is 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 25, 2004. 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
sections entitled Corporate Governance and Board Matters, Election of
Directors and Executive Officers 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. 25




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##### Table of Contents



Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information responsive to this item is incorporated by reference from the
section entitled Ownership of Common Stock contained in the Proxy Statement. 
 Item 12. Certain Relationships and Related Transactions. The information responsive to this item is incorporated by reference from the
section entitled Related Party Transactions contained in the Proxy Statement. 
 Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed with this report: ExhibitNumber
    
    
    
    Description of Exhibit3.1
    
    -
    
    Articles of Incorporation of the Company (incorporated herein by reference to the exhibit of the same number
in the Companys Registration Statement on Form SB-2 under the Securities Act of 1933, as amended,
Registration No. 333-69763, previously filed with the Commission).3.1.1
    
    -
    
    Articles of Amendment to the Articles of Incorporation of the Company (incorporated herein by reference to the
exhibit of the same number in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2000,
previously filed with the Commission).3.2
    
    -
    
    By-Laws of the Company (incorporated herein by reference to the exhibit of the same number in the Companys
Registration Statement on Form SB-2 under the Securities Act of 1933, as amended (Registration No.
333-69763)).10.1
    
    -
    
    Employment Agreement dated October 6, 1997 between the Company and Patrick G. Blanchard (incorporated herein
by reference to the exhibit of the same number in the Companys Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1997, previously filed with the Commission).10.1.1
    
    -
    
    Amendment No. 1 to Employment Agreement dated October 6, 1997 between First Bank of Georgia, the Company and
Patrick G. Blanchard, dated September 30, 1998 (incorporated herein by reference to the exhibit of the same
number in the Companys Registration Statement on Form SB-2, as amended, Registration No. 333-69763,
previously filed with the Commission).10.1.2
    
    -
    
    Amendment No. 2 to Employment Agreement dated October 6, 1997 between First Bank of Georgia, the Company and
Patrick G. Blanchard, dated December 23, 1998 (incorporated herein by reference to the exhibit of the same
number in the Companys Registration Statement on Form SB-2, as amended, Registration No. 333-69763,
previously filed with the Commission).
 26




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit10.2
    
    -
    
    1997 Stock Option Plan (incorporated herein by reference to the exhibit of the same number in the Companys
Annual Report on Form 10-KSB for the year ended December 31, 2001, previously filed with the Commission).10.3
    
    -
    
    Directors Stock Purchase Plan (incorporated herein by reference to the exhibit of the same number in the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2001, previously filed with the
Commission).14.1
    
    -
    
    Code of Ethics (incorporated herein by reference from Exhibit 99.2 contained in the Companys Annual Report on
Form 10-KSB for the year ended December 31, 2002, previously filed with the Commission).21.1
    
    -
    
    Subsidiaries of the Registrant.23.1
    
    -
    
    Consent of Cherry, Bekaert & Holland, L.L.P.31.1
    
    -
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.31.2
    
    -
    
    Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 200232.1
    
    -
    
    Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.99.1
    
    -
    
    Financial Statements
 (b) Reports on Form 8-K The Company furnished a Current Report on Form 8-K on October 24, 2003
with respect to its financial results for the quarter ended September 30, 2003. 
 Item 14. Principal Accountant Fees and Services. The information responsive to this item is incorporated by reference from the
section entitled Independent Public Accountants contained in the Proxy
Statement. 27




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized. GEORGIA-CAROLINA BANCSHARES, INC.By:
    
    /s/ Patrick G. BlanchardDate: March 26, 2004
    
    
    
    Patrick G. BlanchardPresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ James M. ThomasDate: March 26, 2004
    
    
    
    James M. ThomasChief Financial Officer(principal financial and accounting officer)
 28




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##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. DIRECTORS
    
    DATE
    
    DIRECTORS
    
    DATE/s/ Patrick G. Blanchard
    
    March 23, 2004
    
    /s/ Hugh L. Hamilton, Jr.March 23, 2004Patrick G. Blanchard
    
    
    
    Hugh L. Hamilton, Jr./s/ Larry DeMeyers
    
    March 23, 2004
    
    /s/ William G. HatcherMarch 27, 2004Larry DeMeyers
    
    
    
    William G. Hatcher/s/ Philip G. Farr
    
    March 23, 2004
    
    /s/ George O. HughesMarch 23, 2004Philip G. Farr
    
    
    
    George O. Hughes/s/ Samuel A. Fowler, Jr.
    
    March 23, 2004
    
    /s/ George H. InmanMarch 23, 2004Samuel A. Fowler, Jr.
    
    
    
    George H. Inman/s/ Arthur J. Gay, Jr.
    
    March 23, 2004
    
    /s/ David W. JoesburyMarch 23, 2004Arthur J. Gay, Jr.
    
    
    
    David W. Joesbury/s/ Joseph D. Greene
    
    March 23, 2004
    
    /s/ James L. Lemley, M.D.March 23, 2004Joseph D. Greene
    
    
    
    James L. Lemley, M.D./s/ J. Randall Hall
    
    March 27, 2004
    
    /s/ Julian W. OsbonMarch 27 2004J. Randall Hall
    
    
    
    Julian W. Osbon/s/ John W. Lee
    
    March 23, 2004
    
    /s/ Bennye M. YoungMarch 23, 2004John W. Lee
    
    
    
    Bennye M. Young/s/ Robert N. Wilson, Jr.
    
    March 23, 2004
    
    /s/ A. Montague MillerMarch 23, 2004Robert N. Wilson, Jr.
    
    
    
    A. Montague Miller
 29




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF EXHIBIT21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Cherry, Bekaert & Holland, L.L.P.31.1
    
    Certification of President and Chief Executive Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302
of Sarbanes-Oxley Act of 200232.1
    
    Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.99.1
    
    Financial Statements