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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-KSB



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Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934For the Fiscal Year Ended December 31, 2002






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



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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



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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, 2002: $23,765,000.

The aggregate market value of the registrants common stock held by
nonaffiliates of the registrant (889,019 shares), on March 10, 2003 was
$19,113,908 based on the closing price of the registrants common stock as
reported on the Over-the-Counter Bulletin Board on March 10, 2003. 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 10, 2003, 1,308,394 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 2003 Annual Meeting of Shareholders
scheduled to be held on May 21, 2003 are incorporated by reference in response
to Part III of this Report.

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





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TABLE OF CONTENTS



|                                                                                                                        |                                                                                                          |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                                                 
|                                                                                                                        | Item 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 II                                                                                                                
|                                                                                                                        | Item 5. Market for Common Equity and Related Stockholder Matters                                        
|                                                                                                                        | Item 6. Managements Discussion and Analysis or Plan of Operation                                       
|                                                                                                                        | Item 7. Financial Statements and Supplementary Data                                                     
|                                                                                                                        | Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            
|PART III                                                                                                               
|Item 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. Controls and Procedures                                                                        
|SIGNATURES                                                                                                             
|EX-21.1 Subsidiaries of the Registrant                                                                                 
|EX-23.1 Consent of Cherry, Bekaert & Holland, LLP                                                                      
|EX-99.1 Section 906 Certifications of CEO and CFO                                                                      
|EX-99.2 Code of Business Conduct & Ethics                                                                              



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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 2003 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), a state-chartered
commercial bank that operates four offices in Augusta, Georgia and one office
in Thomson, Georgia. The Bank opened the Daniel Village Office in Augusta in
March 1999 and opened the West Town Office in Martinez, Georgia in October
1999. In January 2001 the Bank opened the Medical Center Office on Walton Way
in Augusta and opened the Furys Ferry Road Office in Columbia County in April
2002.

The Bank began operations in January 1989 as an independent, locally owned
commercial bank conducting business in McDuffie County, Georgia. The Banks
deposits are insured by the Federal Deposit Insurance Corporation (the FDIC).
The Bank operates as a locally-owned bank that targets the banking needs of
individuals and small to medium-sized businesses by emphasizing personal
service.

The Bank offers a full range of deposit and lending services and is a member of
an electronic banking network, which enables its customers to use the automated
teller machines of other financial institutions. In addition, the Bank offers
commercial and business credit services, as well as various consumer credit
services, including home mortgage loans, automobile loans, lines of credit,
home equity loans 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. On April 28, 1997,
the shareholders of the Bank approved and authorized the reorganization,
pursuant to which the Bank would become a wholly owned subsidiary of the
Company. After final regulatory approvals, the reorganization was completed on
June 6, 1997.

In September 1999, the Bank established a mortgage division of the Bank which
operates as First Bank Mortgage (the Mortgage Division). This division
originates mortgage loans and offers a variety of other mortgage products. In
2000, the Bank significantly expanded the Mortgage Division by acquiring
certain mortgage banking offices from another financial institution. The
acquisition of these offices consisted of the hiring of executives and staff
employees, the assumption of leases, the purchase of fixed assets for
approximately $200,000, and the purchase of an approximately $15,000,000 loan
portfolio. As of December 31, 2002, First Bank Mortgage had locations in
Augusta and Savannah, Georgia as well as Jacksonville, Florida.

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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, 2002, 2001 and 2000. 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:

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AVERAGE BALANCE SHEETS

(Dollar amounts in thousands)


|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |   | 
|--------------------------------------------------------- | ------------------------------ | ------------ | ------- | ------- | ------- | ------- | ------ | ------------ |  | ------- | ------ | ------- | - | ------- | ------- | -------- | ------- | ------- | ------ | ------- |  |  | ------ | -------- | - | ------- | ------ | ------ | ------ | - | ----- | ----- |  |  | ----- | ---- | - | 
|                                                          |                                |              |         |         |         |         |        | December 31, |  |         |        |        
|                                                          |                                |              |         |        
|                                                          |                                |              |         | 2002    |         | 2001    |        | 2000        
|                                                          |                                |              |         |         |         |         |        |             
|                                                          |                                |              |         |         |         |         |        | Interest     |  | Average |        |         |   |         |         | Interest |         | Average |        |         |  |  |        | Interest |   | Average
|                                                          |                                |              |         | Average |         | Income/ |        | Yield /      |  | Average |        | Income/ |   | Yield / |         | Average  |         | Income/ |        | Yield /
|                                                          |                                |              |         | Balance |         | Expense |        | Rate         |  | Balance |        | Expense |   | Rate    |         | Balance  |         | Expense |        | Rate   
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |        
|ASSETS                                                    |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|INTEREST-EARNING ASSETS                                   |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|                                                          | Loans, net of unearned income  |              | $       | 175,022 |         |         | $      | 12,063       |  |         |        | 6.89    | % |         | $       | 130,153  |         |         | $      | 10,464  |  |  |        | 8.04     | % |         | $      | 68,102 |        |   | $     | 6,203 |  |  |       | 9.11 | %
|                                                          | Investment securities          |              |         | 23,320  |         |         |        | 1,296        |  |         |        | 5.56    | % |         |         | 17,939   |         |         |        | 1,106   |  |  |        | 6.17     | % |         |        | 12,720 |        |   |       | 842   |  |  |       | 6.62 | %
|                                                          | Federal funds sold             |              |         | 576     |         |         |        | 9            |  |         |        | 1.56    | % |         |         | 453      |         |         |        | 18      |  |  |        | 3.97     | % |         |        | 2,817  |        |   |       | 167   |  |  |       | 5.93 | %
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|Total interest-earning assets                             |                                |              | 198,918 |         |         |         | 13,368 |              |  |         | 6.72   | %       |   |         | 148,545 |          |         |         | 11,588 |         |  |  | 7.80   | %        |   |         | 83,639 |        |        |   | 7,212 |       |  |  | 8.62  | %   
|NON-INTEREST-EARNING ASSETS                               |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|                                                          | Cash and due from banks        |              |         | 5,001   |         |         |        |              |  |         |        |         |   |         |         | 3,417    |         |         |        |         |  |  |        |          |   |         |        | 2,893  |        |   |       |       |  |  |       |      |  
|                                                          | Bank premises and fixed assets |              |         | 7,477   |         |         |        |              |  |         |        |         |   |         |         | 6,106    |         |         |        |         |  |  |        |          |   |         |        | 4,794  |        |   |       |       |  |  |       |      |  
|                                                          | Accrued interest receivable    |              |         | 1,043   |         |         |        |              |  |         |        |         |   |         |         | 757      |         |         |        |         |  |  |        |          |   |         |        | 617    |        |   |       |       |  |  |       |      |  
|                                                          | Other assets                   |              |         | 2,831   |         |         |        |              |  |         |        |         |   |         |         | 1,252    |         |         |        |         |  |  |        |          |   |         |        | 1,187  |        |   |       |       |  |  |       |      |  
|                                                          | Allowance for loan losses      |              |         | (2,392  | )       |         |        |              |  |         |        |         |   |         |         | (1,491   | )       |         |        |         |  |  |        |          |   |         |        | (1,144 | )      |   |       |       |  |  |       |      |  
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|                                                          |                                | Total assets |         | $       | 212,878 |         |        |              |  |         |        |         |   |         |         | $        | 158,586 |         |        |         |  |  |        |          |   |         |        | $      | 91,986 |   |       |       |  |  |       |      |   | 
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|LIABILITIES AND SHAREHOLDERS
EQUITY                      |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|INTEREST-BEARING DEPOSITS                                 |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|                                                          | NOW accounts                   |              | $       | 16,077  |         |         | $      | 261          |  |         |        | 1.62    | % |         | $       | 9,379    |         |         | $      | 173     |  |  |        | 1.85     | % |         | $      | 8,232  |        |   | $     | 166   |  |  |       | 2.02 | %
|                                                          | Savings accounts               |              |         | 20,898  |         |         |        | 490          |  |         |        | 2.34    | % |         |         | 7,593    |         |         |        | 251     |  |  |        | 3.31     | % |         |        | 4,223  |        |   |       | 148   |  |  |       | 3.50 | %
|                                                          | Money market accounts          |              |         | 12,496  |         |         |        | 254          |  |         |        | 2.03    | % |         |         | 9,821    |         |         |        | 305     |  |  |        | 3.11     | % |         |        | 9,189  |        |   |       | 378   |  |  |       | 4.11 | %
|                                                          | Time accounts                  |              |         | 103,504 |         |         |        | 3,735        |  |         |        | 3.61    | % |         |         | 75,225   |         |         |        | 4,550   |  |  |        | 6.05     | % |         |        | 38,291 |        |   |       | 2,370 |  |  |       | 6.19 | %
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|Total interest-bearing deposits                           |                                |              | 152,975 |         |         |         | 4,740  |              |  |         | 3.10   | %       |   |         | 102,018 |          |         |         | 5,279  |         |  |  | 5.18   | %        |   |         | 59,935 |        |        |   | 3,062 |       |  |  | 5.11  | %   
|OTHER INTEREST-BEARING
LIABILITIES                        |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|Funds purchased                                           |                                |              | 20,327  |         |         |         | 432    |              |  |         | 2.13   | %       |   |         | 25,786  |          |         |         | 986    |         |  |  | 3.82   | %        |   |         | 11,515 |        |        |   | 603   |       |  |  | 5.24  | %   
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|Total interest-bearing
liabilities                        |                                |              | 173,302 |         |         |         | 5,172  |              |  |         | 2.98   | %       |   |         | 127,804 |          |         |         | 6,265  |         |  |  | 4.90   | %        |   |         | 71,450 |        |        |   | 3,665 |       |  |  | 5.13  | %   
|NON-INTEREST-BEARING
LIABILITIES
AND SHAREHOLDERS EQUITY |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |     
|                                                          | Demand deposits                |              |         | 22,243  |         |         |        |              |  |         |        |         |   |         |         | 15,770   |         |         |        |         |  |  |        |          |   |         |        | 8,538  |        |   |       |       |  |  |       |      |  
|                                                          | Other liabilities              |              |         | 2,285   |         |         |        |              |  |         |        |         |   |         |         | 2,903    |         |         |        |         |  |  |        |          |   |         |        | 1,307  |        |   |       |       |  |  |       |      |  
|                                                          | Shareholders equity           |              |         | 15,048  |         |         |        |              |  |         |        |         |   |         |         | 12,109   |         |         |        |         |  |  |        |          |   |         |        | 10,691 |        |   |       |       |  |  |       |      |  
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|Total liabilities and
shareholders equity                |                                | $            | 212,878 |         |         |         |        |              |  |         |        |         |   | $       | 158,586 |          |         |         |        |         |  |  |        |          |   | $       | 91,986 |        |        |   |       |       |  |  |       |     
|                                                          |                                |              |         |         |         |         |        |              |  |         |        |         |   |         |         |          |         |         |        |         |  |  |        |          |   |         |        |        |        |   |       |       |  |  |       |      |  
|Interest rate spread                                      |                                |              |         |         |         |         |        |              |  |         | 3.74   | %       |   |         |         |          |         |         |        |         |  |  | 2.90   | %        |   |         |        |        |        |   |       |       |  |  | 3.49  | %   
|Net interest income                                       |                                |              |         |         |         | $       | 8,196  |              |  |         |        |         |   |         |         |          |         | $       | 5,323  |         |  |  |        |          |   |         |        |        |        | $ | 3,547 |       |  |  |       |     
|Net interest margin                                       |                                |              |         |         |         |         |        |              |  |         | 4.12   | %       |   |         |         |          |         |         |        |         |  |  | 3.58   | %        |   |         |        |        |        |   |       |       |  |  | 4.24  | %   
|Average interest-earning
assets to average total assets   |                                |              |         |         |         |         |        |              |  |         | 93.44  | %       |   |         |         |          |         |         |        |         |  |  | 93.67  | %        |   |         |        |        |        |   |       |       |  |  | 90.93 | %   
|Average loans to average
deposits                         |                                |              |         |         |         |         |        |              |  |         | 114.41 | %       |   |         |         |          |         |         |        |         |  |  | 110.50 | %        |   |         |        |        |        |   |       |       |  |  | 99.46 | %   

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Rate/Volume Analysis of Net Interest Income

The effect on interest income, interest expense and net interest income in the
periods indicated, of changes in average balance and rate from the
corresponding prior period is shown below. The effect of a change in average
balance has been determined by applying the average rate in the earlier period
to the change in average balance in the later period, as compared with the
earlier period. Changes resulting from average balance/rate variances are
included in changes resulting from rate. The balance of the change in interest
income or expense and net interest income has been attributed to a change in
average rate. Nonaccruing loans have been included in the category Net loans
and loans held for sale.

|                                           |                                   |   |                              |       |      |   |               |        |   |   |        |       |  
|------------------------------------------ | --------------------------------- | - | ---------------------------- | ----- | ---- | - | ------------- | ------ | - | - | ------ | ----- | -
|                                           |                                   |   | Year Ended December 31, 2002
|                                           |                                   |   |                              |       |      |   | Compared with |        |   |   |       
|                                           |                                   |   | Year Ended December 31, 2001
|                                           |                                   |   | (In thousands)              
|                                           |                                   |   |                             
|                                           |                                   |   | Increase (Decrease) Due to  
|                                           |                                   |   |                             
|                                           |                                   |   | Volume                       |       | Rate |   | Total        
|                                           |                                   |   |                              |       |      |   |              
|Interest earned on:                        |                                   |   |                              |       |      |   |               |        |   |   |        |      
|                                           | Tax-exempt securities             |   | $                            | 7     |      |   | $             |       |   |   | $      | 7     |  
|                                           | Taxable securities                |   |                              | 327   |      |   |               | (144   | ) |   |        | 183   |  
|                                           | Federal funds sold                |   |                              | 5     |      |   |               | (14    | ) |   |        | (9    | )
|                                           | Net loans and loans held for sale |   |                              | 3,612 |      |   |               | (2,013 | ) |   |        | 1,599 |  
|                                           |                                   |   |                              |       |      |   |               |        |   |   |        |       |  
|Total interest income                      |                                   | $ | 3,951                        |       |      |   | (2,171        | )      |   | $ | 1,780  |      
|                                           |                                   |   |                              |       |      |   |               |        |   |   |        |       |  
|Interest paid on:                          |                                   |   |                              |       |      |   |               |        |   |   |        |      
|                                           | NOW deposits                      |   |                              | 125   |      |   |               | (37    | ) |   |        | 88    |  
|                                           | Money market deposits             |   |                              | 84    |      |   |               | (135   | ) |   |        | (51   | )
|                                           | Savings deposits                  |   |                              | 442   |      |   |               | (203   | ) |   |        | 239   |  
|                                           | Time 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  |      
|                                           |                                   |   |                              |       |      |   |               |        |   |   |        |       |  

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|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  
|------------------------------------------ | --------------------------------- | - | ---------------------------- | ----- | ---- | - | ------------- | ------ | - | - | ----- | ----- | -
|                                           |                                   |   | Year Ended December 31, 2001
|                                           |                                   |   |                              |       |      |   | Compared with |        |   |   |      
|                                           |                                   |   | Year Ended December 31, 2000
|                                           |                                   |   | (In thousands)              
|                                           |                                   |   |                             
|                                           |                                   |   | Increase (Decrease) Due to  
|                                           |                                   |   |                             
|                                           |                                   |   | Volume                       |       | Rate |   | Total        
|                                           |                                   |   |                              |       |      |   |              
|Interest earned on:                        |                                   |   |                              |       |      |   |               |        |   |   |       |      
|                                           | Tax-exempt securities             |   | $                            | (24   | )    |   | $             | (1     | ) |   | $     | (25   | )
|                                           | Taxable securities                |   |                              | 360   |      |   |               | (71    | ) |   |       | 289   |  
|                                           | Federal funds sold                |   |                              | (150  | )    |   |               | 1      |   |   |       | (149  | )
|                                           | Net loans and loans held for sale |   |                              | 5,653 |      |   |               | (1,392 | ) |   |       | 4,261 |  
|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  
|Total interest income                      |                                   |   | 5,839                        |       |      |   | (1,463        | )      |   |   | 4,376 |      
|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  
|Interest paid on:                          |                                   |   |                              |       |      |   |               |        |   |   |       |      
|                                           | NOW deposits                      |   |                              | 24    |      |   |               | (17    | ) |   |       | 7     |  
|                                           | Money market deposits             |   |                              | 25    |      |   |               | (98    | ) |   |       | (73   | )
|                                           | Savings deposits                  |   |                              | 117   |      |   |               | (14    | ) |   |       | 103   |  
|                                           | Time deposits                     |   |                              | 2,345 |      |   |               | (165   | ) |   |       | 2,180 |  
|                                           | Borrowed funds                    |   |                              | 748   |      |   |               | (365   | ) |   |       | 383   |  
|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  
|Total interest expense                     |                                   |   | 3,259                        |       |      |   | (659          | )      |   |   | 2,600 |      
|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  
|Increase (decrease) in net interest income |                                   | $ | 2,580                        |       |      | $ | (804          | )      |   | $ | 1,776 |      
|                                           |                                   |   |                              |       |      |   |               |        |   |   |       |       |  

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.

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The following table details, for the periods indicated, the average amount of
and average rate paid on each of the following deposit categories (dollar
amounts in thousands):

|                                     |  |                   |         |                   |  |                   |      |         |  |         |        |         |  |  |      |   |  |   |        |  |  |  |      |  
|------------------------------------ |  | ----------------- | ------- | ----------------- |  | ----------------- | ---- | ------- |  | ------- | ------ | ------- |  |  | ---- | - |  | - | ------ |  |  |  | ---- | -
|                                     |  | Year Ended        |         | Year Ended        |  | Year Ended       
|                                     |  | December 31, 2002 |         | December 31, 2001 |  | December 31, 2000
|                                     |  |                   |         |                   |  |                  
|                                     |  |                   |         | Average           |  |                   |      | Average |  |         |        | Average
|                                     |  | Average           |         | Rate              |  | Average           |      | Rate    |  | Average |        | Rate   
|                                     |  | Amount            |         | Paid              |  | Amount            |      | Paid    |  | Amount  |        | Paid   
|                                     |  |                   |         |                   |  |                   |      |         |  |         |        |        
|Deposit Category                     |  |                   |         |                   |  |                   |      |         |  |         |        |         |  |  |      |   |  |   |        |  |  |  |      |  
|Non-interest
bearing demand
deposits |  | $                 | 22,243  |                   |  |                   |     |         |  | $       | 15,770 |         |  |  |     |   |  | $ | 8,538  |  |  |  |     |  
|NOW and money
market deposits        |  |                   | 28,573  |                   |  |                   | 1.80 | %       |  |         | 19,200 |         |  |  | 2.90 | % |  |   | 17,421 |  |  |  | 3.12 | %
|Savings deposits                     |  |                   | 20,898  |                   |  |                   | 2.34 | %       |  |         | 7,593  |         |  |  | 3.31 | % |  |   | 4,223  |  |  |  | 3.50 | %
|Time deposits                        |  |                   | 103,504 |                   |  |                   | 3.61 | %       |  |         | 75,225 |         |  |  | 6.05 | % |  |   | 38,291 |  |  |  | 6.19 | %

The maturities of certificates of deposit and individual retirement accounts of
$100,000 or more as of December 31, 2002 were as follows (in thousands):

|                                      |       |   |        |        | 
|------------------------------------- | ----- | - | ------ | ------ | 
|Three months or less                  |       | $ | 13,803 |       
|Over three months through six months  |       |   | 12,385 |       
|Over six months through twelve months |       |   | 15,134 |       
|Over twelve months                    |       |   | 7,387  |       
|                                      |       |   |        |       
|                                      | Total |   | $      | 48,709 | 
|                                      |       |   |        |       

Borrowed funds consist of short-term borrowings, including federal funds
purchased, retail and other repurchase agreements and a line of credit with the
Federal Home Loan Bank. The average balance of borrowed funds was
approximately $20.3 million for the year ended December 31, 2002, compared to
$25.8 million for the year ended December 31, 2001.

The most significant borrowed funds category for the Bank is the warehouse line
of credit from the Federal Home Loan Bank. At December 31, 2002, the
outstanding balance on the warehouse line of credit was $33,521,000 at a
weighted average interest rate of 1.8%. At December 31, 2001, the outstanding
balance on the line of credit was $33,555,000 at a weighted average interest
rate of 2.07%. The average balance outstanding on the warehouse line of credit
was $14,998,000 for the year ended December 31, 2002 with a weighted average
interest rate of 2.26%. The average balance outstanding on the warehouse line
of credit was $19,316,000 for the year ended December 31, 2001 with a weighted
average interest rate of 3.66%. The maximum amount outstanding on the
warehouse line of credit at any month end during 2002 was $42,952,000, and was
$33,555,000 at any month end during 2001. 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 2002 and 2001 was the
Federal Home Loan Bank daily overnight rate plus 50 and 25 basis points,
respectively.

Loan Portfolio

The Bank engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans. As of December 31,
2002, the Banks loan portfolio consisted of 16.6% commercial loans, 17.9% real
estate construction loans, 54.6% real estate mortgage loans and 10.9%
consumer/installment loans.

Commercial lending is directed principally towards businesses whose demands for
funds fall within the Banks legal lending limits and which are potential
deposit customers of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. 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.

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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.

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 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,  
|                                       |          |   | 2002           |         | 2001 |   | 2000    |         | 1999 |   | 1998  
|                                       |          |   |                |         |      |   |         |         |      |   |       
|                                       |          |   | (In thousands)
|Type of
Loan                           |          |   |                |         |      |   |         |         |      |   |        |        |  |   |        |        |  |   |        |       
|Commercial, financial and
agricultural |          | $ | 24,105         |         |      | $ | 26,863  |         |      | $ | 24,582 |        |  | $ | 10,468 |        |  | $ | 3,969  |       
|Real estate  construction             |          |   | 26,117         |         |      |   | 20,312  |         |      |   | 17,648 |        |  |   | 5,458  |        |  |   | 5,614  |       
|Real estate  mortgage                 |          |   | 79,374         |         |      |   | 53,730  |         |      |   | 21,850 |        |  |   | 16,033 |        |  |   | 10,084 |       
|Installment and consumer               |          |   | 15,832         |         |      |   | 14,435  |         |      |   | 9,247  |        |  |   | 4,159  |        |  |   | 3,212  |       
|                                       |          |   |                |         |      |   |         |         |      |   |        |        |  |   |        |        |  |   |        |       
|                                       | Subtotal |   | $              | 145,428 |      |   | $       | 115,340 |      |   | $      | 73,327 |  |   | $      | 36,118 |  |   | $      | 22,879 | 
|Less:                                  |          |   |                |         |      |   |         |         |      |   |        |        |  |   |        |        |  |   |        |       
|Unearned income and deferred loan
fees |          |   | (58            | )       |      |   | (114    | )       |      |   | (146   | )      |  |   | (25    | )      |  |   | (4     | )     
|Allowance for possible loan
losses     |          |   | (2,436         | )       |      |   | (2,187  | )       |      |   | (1,194 | )      |  |   | (1,000 | )      |  |   | (835   | )     
|                                       |          |   |                |         |      |   |         |         |      |   |        |        |  |   |        |        |  |   |        |       
|Total (net of allowance)               |          | $ | 142,934        |         |      | $ | 113,039 |         |      | $ | 71,987 |        |  | $ | 35,093 |        |  | $ | 22,040 |       
|                                       |          |   |                |         |      |   |         |         |      |   |        |        |  |   |        |        |  |   |        |       

In addition to the above, at December 31, 2002, the Bank also had $67,927,000
of single family residential mortgage loans held-for-sale that were originated
by the Banks Mortgage Division.

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The table below presents an analysis of maturities of certain categories of
loans as of December 31, 2002:

|                                       |       |      |                |         |             |         |           |        |  |   |     |     |  |   |        |        | 
|-------------------------------------- | ----- | ---- | -------------- | ------- | ----------- | ------- | --------- | ------ |  | - | --- | --- |  | - | ------ | ------ | 
|                                       |       |      | Due in 1       |         |             |         |           |        |  |   |     |     |  |   |       
|                                       |       |      | Year or        |         | Due in 1 to |         | Due After |        |  |   |    
|Type of Loan                           |       | Less |                | 5 Years |             | 5 Years |           | Total 
|                                       |       |      |                |         |             |         |           |       
|                                       |       |      | (In thousands)
|Commercial, financial
and agricultural |       | $    | 11,707         |         |             | $       | 11,586    |        |  | $ | 812 |     |  | $ | 24,105 |       
|Real estate-construction               |       |      | 25,518         |         |             |         | 599       |        |  |   |    |     |  |   | 26,117 |       
|                                       |       |      |                |         |             |         |           |        |  |   |     |     |  |   |        |       
|                                       | Total |      | $              | 37,225  |             |         | $         | 12,185 |  |   | $   | 812 |  |   | $      | 50,222 | 
|                                       |       |      |                |         |             |         |           |        |  |   |     |     |  |   |        |       

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, 2002 (in thousands):



| | Loans due after 1 year with predetermined
interest ratesLoans due after 1 year with floating interest rates |  | $8,313$4,684
| | ----------------------------------------------------------------------------------------------------------- |  | ------------

The following table presents information regarding non-accrual, and past due
loans at the dates indicated:

|                                                                                                      |        |  |              |         |      |  |      |         |      |  |      |         |  |  |   |           |  |  |   |         | 
|----------------------------------------------------------------------------------------------------- | ------ |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- |  |  | - | ------- | 
|                                                                                                      |        |  | December 31,
|                                                                                                      |        |  |             
|                                                                                                      |        |  | 2002         |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                                                      |        |  |              |         |      |  |      |         |      |  |     
|Loans accounted for on a
non-accrual basis                                                            |        |  |              |         |      |  |      |         |      |  |      |         |  |  |   |           |  |  |   |        
|                                                                                                      | Number |  |              | 43      |      |  |      | 24      |      |  |      | 10      |  |  |   | 9         |  |  |   | 3       | 
|                                                                                                      | Amount |  | $            | 597,000 |      |  | $    | 302,000 |      |  | $    | 161,000 |  |  | $ | 1,140,000 |  |  | $ | 220,000 | 
|Accruing loans which are
contractually past due 90 days
or more as to principal and
interest payments |        |  |              |         |      |  |      |         |      |  |      |         |  |  |   |           |  |  |   |        
|                                                                                                      | Number |  |              | 3       |      |  |      | 3       |      |  |      | 10      |  |  |   | 1         |  |  |   | 2       | 
|                                                                                                      | Amount |  | $            | 91,000  |      |  | $    | 160,000 |      |  | $    | 98,000  |  |  | $ | 5,000     |  |  | $ | 1,000   | 

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
$9,800 in 2002 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 2002 on loans that have been accounted
for on a nonaccrual basis.

At December 31, 2002, 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.

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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,     
|                                                                                                       |                                        |   |                              
|                                                                                                       |                                        |   | 2002                          |     | 2001 |   | 2000  |     | 1999 |   | 1998 
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |      
|                                                                                                       |                                        |   | (Dollar amounts in thousands)
|Allowance, beginning of year                                                                           |                                        | $ | 2,187                         |     |      | $ | 1,194 |     |      | $ | 1,000 |     |  | $ | 835   |    |  | $ | 752 |   
|Charge-offs:                                                                                           |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|                                                                                                       | Commercial, financial and
agricultural |   |                               | 11  |      |   |       | 13  |      |   |       | 195 |  |   |       |   |  |   |     |   | 
|                                                                                                       | Installment and consumer               |   |                               | 195 |      |   |       | 103 |      |   |       | 26  |  |   |       | 15 |  |   |     | 34 | 
|                                                                                                       | Credit Cards                           |   |                               | 7   |      |   |       | 8   |      |   |       |    |  |   |       | 6  |  |   |     | 3  | 
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|                                                                                                       |                                        |   | 213                           |     |      |   | 124   |     |      |   | 221   |     |  |   | 21    |    |  |   | 37  |   
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|Recoveries:                                                                                            |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|                                                                                                       | Commercial, financial and
agricultural |   |                               | 1   |      |   |       | 4   |      |   |       | 1   |  |   |       | 2  |  |   |     | 22 | 
|                                                                                                       | Installment and consumer               |   |                               | 6   |      |   |       | 6   |      |   |       | 52  |  |   |       | 68 |  |   |     | 98 | 
|                                                                                                       | Credit Cards                           |   |                               | 4   |      |   |       | 1   |      |   |       | 1   |  |   |       | 1  |  |   |     |   | 
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|                                                                                                       |                                        |   | 11                            |     |      |   | 11    |     |      |   | 54    |     |  |   | 71    |    |  |   | 120 |   
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|Net (charge-offs) recoveries                                                                           |                                        |   | (202                          | )   |      |   | (113  | )   |      |   | (167  | )   |  |   | 50    |    |  |   | 83  |   
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|Provision charged to operations                                                                        |                                        |   | 451                           |     |      |   | 1,106 |     |      |   | 361   |     |  |   | 115   |    |  |   |    |   
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|Allowance, end of year                                                                                 |                                        | $ | 2,436                         |     |      | $ | 2,187 |     |      | $ | 1,194 |     |  | $ | 1,000 |    |  | $ | 835 |   
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   
|Ratio
of net (charge-offs) recoveries
during the period
to average loans outstanding
during the period |                                        |   | (.11                          | )%  |      |   | (.08  | )%  |      |   | (.25  | %)  |  |   | .16   | %  |  |   | .39 | % 
|                                                                                                       |                                        |   |                               |     |      |   |       |     |      |   |       |     |  |   |       |    |  |   |     |   

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 $2.4 million at December 31, 2002, which is allocated
according to the following table, along with the percentage of loans in each
category to total loans:

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|                                       |  |   |                               |  |         |  |        |   |         |   |        |  |         |  |        |   |         |   |        |  |         |  |      |   |  |   |       |  |  |  |      |   |  |   |     |  |  |  |      |   | 
|-------------------------------------- |  | - | ----------------------------- |  | ------- |  | ------ | - | ------- | - | ------ |  | ------- |  | ------ | - | ------- | - | ------ |  | ------- |  | ---- | - |  | - | ----- |  |  |  | ---- | - |  | - | --- |  |  |  | ---- | - | 
|                                       |  |   | 2002                          |  | 2001    |  | 2000   |   | 1999    |   | 1998  
|                                       |  |   |                               |  |         |  |        |   |         |   |       
|                                       |  |   | Amount                        |  | Percent |  | Amount |   | Percent |   | Amount |  | Percent |  | Amount |   | Percent |   | Amount |  | Percent
|                                       |  |   |                               |  |         |  |        |   |         |   |        |  |         |  |        |   |         |   |        |  |        
|                                       |  |   | (Dollar amounts in thousands)
|Commercial,
financial and agricultural |  | $ | 330                           |  |         |  | 16.6   | % |         | $ | 320    |  |         |  | 23.3   | % |         | $ | 181    |  |         |  | 33.5 | % |  | $ | 99    |  |  |  | 29.0 | % |  | $ | 194 |  |  |  | 17.4 | %
|Real estate -
construction             |  |   | 704                           |  |         |  | 17.9   | % |         |   | 589    |  |         |  | 17.6   | % |         |   | 356    |  |         |  | 24.1 | % |  |   | 44    |  |  |  | 15.1 | % |  |   | 90  |  |  |  | 24.5 | %
|Real estate -
mortgage                 |  |   | 920                           |  |         |  | 54.6   | % |         |   | 782    |  |         |  | 46.6   | % |         |   | 368    |  |         |  | 29.8 | % |  |   | 522   |  |  |  | 44.4 | % |  |   | 239 |  |  |  | 44.1 | %
|Consumer and
installment               |  |   | 387                           |  |         |  | 10.9   | % |         |   | 180    |  |         |  | 12.5   | % |         |   | 75     |  |         |  | 12.6 | % |  |   | 85    |  |  |  | 11.5 | % |  |   | 106 |  |  |  | 14.0 | %
|Unallocated                            |  |   | 95                            |  |         |  |       |   |         |   | 316    |  |         |  |       |   |         |   | 214    |  |         |  |     |   |  |   | 250   |  |  |  |     |   |  |   | 206 |  |  |  |     |  
|                                       |  |   |                               |  |         |  |        |   |         |   |        |  |         |  |        |   |         |   |        |  |         |  |      |   |  |   |       |  |  |  |      |   |  |   |     |  |  |  |      |  
|Total                                  |  | $ | 2,436                         |  |         |  |        |   |         | $ | 2,187  |  |         |  |        |   |         | $ | 1,194  |  |         |  |      |   |  | $ | 1,000 |  |  |  |      |   |  | $ | 835 |  |  |  |      |  
|                                       |  |   |                               |  |         |  |        |   |         |   |        |  |         |  |        |   |         |   |        |  |         |  |      |   |  |   |       |  |  |  |      |   |  |   |     |  |  |  |      |  

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.

The Banks commercial loans represent approximately 16.6% of outstanding loans.
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,
2002, 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.

The Banks consumer and installment loan portfolio is also well secured. At
December 31, 2002 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.

Real estate mortgage loans constitute approximately 54.6% of outstanding loans.
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 represent approximately 17.9% of the Banks
outstanding loans at December 31, 2002. This category of the loan portfolio
consists of construction and development loans for real estate located in the
Banks market areas in Georgia and commercial and residential construction and
development loans. 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.

The Banks loans held for sale consist of single family residential mortgage
loans originated by the Banks Mortgage Division. These loans are generally
originated with an investor purchase
commitment and are sold shortly after origination by the Bank. As such, the
Bank does not provide for an allowance for loan losses on loans held for sale.

The Banks Board of Directors monitors the loan portfolio monthly to enable the
Board to evaluate the adequacy of the allowance for loan losses. The Board
reviews the loans as rated for performance classification and the resulting
allowance resulting from the classifications. The provision for loan losses
charged to operations is based on this determined allowance. In addition, the
Board considers 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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Investments

As of December 31, 2002, investment securities comprised approximately 10.6% 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,  
|                                                                   |  |               
|                                                                   |  | 2002           |        | 2001 |  | 2000
|                                                                   |  |                |        |      |  |     
|                                                                   |  | (In thousands)
|Obligations of the U.S. Treasury and other
U.S government agencies |  | $              | 13,427 |      |  | $    | 8,376  |  |  | $ | 11,150 | 
|Mortgage-backed securities                                         |  |                | 10,756 |      |  |      | 9,014  |  |  |   | 2,616  | 
|Obligations of States and political subdivisions                   |  |                | 990    |      |  |      |       |  |  |   |       | 
|Corporate Obligations                                              |  |                | 2,173  |      |  |      | 2,119  |  |  |   |       | 
|                                                                   |  |                |        |      |  |      |        |  |  |   |        | 
|Total Investment Securities                                        |  | $              | 27,346 |      |  | $    | 19,509 |  |  | $ | 13,766 | 
|                                                                   |  |                |        |      |  |      |        |  |  |   |        | 
|Federal Home Loan Bank stock                                       |  |                | 1,570  |      |  |      | 1,606  |  |  |   | 554    | 
|Total Investment Securities and FHLB Stock                         |  | $              | 28,916 |      |  | $    | 21,115 |  |  | $ | 14,320 | 
|                                                                   |  |                |        |      |  |      |        |  |  |   |        | 

12



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The following tables present the contractual maturities and weighted average
yields of the Banks investments as of December 31, 2002:

|                                                                    |       |   |                                     |     |            |   |           |        |            |   |       |        |  |   |       |       | 
|------------------------------------------------------------------- | ----- | - | ----------------------------------- | --- | ---------- | - | --------- | ------ | ---------- | - | ----- | ------ |  | - | ----- | ----- | 
|                                                                    |       |   | Maturities of Investment Securities
|                                                                    |       |   |                                     |     |            |   | After One |        | After Five |   |       |        | 
|                                                                    |       |   | Within                              |     | Through    |   | Through   |        | After     
|                                                                    |       |   | One Year                            |     | Five Years |   | Ten Years |        | Ten Years 
|                                                                    |       |   |                                     |     |            |   |           |        |           
|                                                                    |       |   | (In thousands)                     
|Obligations of the U.S. Treasury and
other U.S. government agencies |       | $ | 768                                 |     |            | $ | 3,277     |        |            | $ | 9,379 |        |  | $ | 3     |      
|Mortgage-backed securities                                          |       |   | 50                                  |     |            |   | 4,580     |        |            |   | 2,088 |        |  |   | 4,038 |      
|Obligations of States and political subdivisions                    |       |   |                                    |     |            |   |          |        |            |   |      |        |  |   | 990   |      
|Corporate Obligations                                               |       | $ |                                    |     |            | $ | 2,173     |        |            |   |      |        |  |   |      |      
|                                                                    |       |   |                                     |     |            |   |           |        |            |   |       |        |  |   |       |      
|                                                                    | Total |   | $                                   | 818 |            |   | $         | 10,030 |            |   | $     | 11,467 |  |   | $     | 5,031 | 
|                                                                    |       |   |                                     |     |            |   |           |        |            |   |       |        |  |   |       |      

|                                                                    |                              |  |                         |      |            |  |           |      |            |  |      |      |   |  |      |      |  
|------------------------------------------------------------------- | ---------------------------- |  | ----------------------- | ---- | ---------- |  | --------- | ---- | ---------- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                                    |                              |  | Weighted Average Yields
|                                                                    |                              |  |                         |      |            |  | After One |      | After Five |  |      |      |  
|                                                                    |                              |  | Within                  |      | Through    |  | Through   |      | After     
|                                                                    |                              |  | One Year                |      | Five Years |  | Ten Years |      | Ten Years 
|                                                                    |                              |  |                         |      |            |  |           |      |           
|Obligations of the U.S. Treasury and
other U.S. government agencies |                              |  | 5.95                    | %    |            |  | 3.66      | %    |            |  | 6.76 | %    |   |  | 6.01 | %   
|Mortgage-backed securities                                          |                              |  | 6.00                    | %    |            |  | 5.38      | %    |            |  | 5.78 | %    |   |  | 6.03 | %   
|Obligations of States and political subdivisions                    |                              |  |                        |      |            |  |          |      |            |  |     |      |   |  | 4.03 | %   
|Corporate Obligations                                               |                              |  |                        |      |            |  | 7.18      | %    |            |  |     |      |   |  |     |     
|                                                                    |                              |  |                         |      |            |  |           |      |            |  |      |      |   |  |      |     
|                                                                    | Total weighted average yield |  |                         | 5.95 | %          |  |           | 5.22 | %          |  |      | 6.58 | % |  |      | 5.63 | %
|                                                                    |                              |  |                         |      |            |  |           |      |            |  |      |      |   |  |      |     

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

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,
|                 |  |             
|                 |  | 2002         |       | 2001 |  | 2000
|                 |  |              |       |      |  |     
|Return on Assets |  |              | 1.44  | %    |  |      | 1.06  | % |  |  | 0.14  | %
|Return on Equity |  |              | 22.14 | %    |  |      | 13.83 | % |  |  | 1.19  | %
|Dividend Payout  |  |              |      |      |  |      |      |   |  |  |      |  
|Equity to Assets |  |              | 7.07  | %    |  |      | 7.64  | % |  |  | 11.60 | %

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 asset
and liability management committee is responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which
include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of
the Banks assets in commercial, consumer and real estate loans.

13



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The Banks asset/liability mix is monitored on a daily basis with a monthly
report reflecting interest-sensitive assets and interest-sensitive liabilities
being prepared and presented to the Banks Board of Directors. The objective
of this policy is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on the Banks
earnings.

Correspondent Banking

Correspondent banking involves the 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. Management of 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 non-interest bearing accounts.

Data Processing

The Bank has entered into a data processing servicing agreement with The
Intercept Group, Inc. This servicing agreement provides for the Bank to
receive a full range of data processing services, including an automated
general ledger, deposit accounting, commercial, real estate and installment
lending data processing, central information file and ATM processing.

Facilities

The Companys main office is located at 2805 Wrightsboro Road at Daniel Village
in Augusta, Georgia, which also serves as a banking office. The Bank operates
four banking offices in Augusta, Georgia and one banking office in Thomson,
Georgia. The Banks original office is located at 110 East Hill Street in
Thomson, Georgia.

In addition to the Banks original office in Thomson, Georgia and the main
office in Augusta, in October 1999, the Bank opened the West Town Office at
3820 Washington Road in the business district of Martinez, Georgia, which is
located in Columbia County. In January 2001, the Bank opened the Medical
Center Office on Walton Way in Augusta and opened the Furys Ferry Road office
in 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 two 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, Georgia and Jacksonville,
Florida out of leased office space.

Employees

At December 31, 2002, the Bank employed 137 persons on a full-time or part-time
basis, including 34 officers. The Bank will hire additional persons as needed
on a full-time or part-time basis, including additional tellers and customer
service representatives.

Monetary Policies

The results of operations of the Bank are affected by credit policies of
monetary authorities, particularly the Federal Reserve Board. The instruments
of monetary policy employed by the Federal Reserve Board include open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, changes in reserve requirements against member bank
deposits and limitations on interest rates which member banks may pay on time
and savings deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of action by monetary and
fiscal authorities, including the Federal Reserve Board, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Bank.

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##### Table of Contents



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.

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, 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 recently underwent significant changes as a result
of the Financial Services Modernization Act of 1999, also known as the
Gramm-Leach-Bliley Act of 1999. 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

15



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##### Table of Contents



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
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.

State Law Restrictions.As a Georgia business corporation, the Company may be
subject to certain limitations and restrictions under applicable Georgia
corporate law.

The Bank

General. The Bank, as a Georgia state-chartered bank, is subject to regulation
and examination by the State of Georgia Department of Banking and Finance, as
well as the 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

16



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##### Table of Contents



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.

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 Federal Deposit Insurance Corporation 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 Federal Reserve also employs 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 may leverage its
equity capital base. The Federal Reserve requires a minimum leverage ratio of
3%. However, for all but the most highly rated bank holding companies and for
bank holding companies seeking to expand, the Federal Reserve expects an
additional cushion of at least 1% to 2%.

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, 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

Sarbanes-Oxley Act of 2002. On July 30, 2002, the Sarbanes-Oxley Act of 2002
(the Act) was enacted to address corporate and accounting fraud. The Act establishes a
new accounting oversight board that will enforce auditing standards

17



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##### Table of Contents



and
restricts the scope of services that accounting firms may provide to their
public company audit clients. Among other things, it also (i) requires chief
executive officers and chief financial officers to certify to the accuracy of
periodic reports filed with the Securities and Exchange Commission (the SEC);
(ii) imposes new disclosure requirements regarding internal controls,
off-balance-sheet transactions, and pro forma (non-GAAP) disclosures; (iii)
accelerates the time frame for reporting of insider transactions and periodic
disclosures by certain public companies; and (iv) requires companies to
disclose whether or not they have adopted a code of ethics for senior financial
officers and whether the audit committee includes at least one audit committee
financial expert.

The Act requires the SEC, based on certain enumerated factors, to regularly and
systematically review corporate filings. To deter wrongdoing, the Act, (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 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 a banking office. The Bank operates four banking offices in Augusta,
Georgia and one banking office in Thomson, Georgia. All of these properties
are owned by the Bank. The Mortgage Division operates one office in Augusta,
Georgia, one office in Savannah, Georgia and one office in Jacksonville,
Florida.

The Bank leases office property in Augusta, Georgia to house the Mortgage
Division, its financial and accounting operations, human resources and loan
operations. In addition, the Mortgage Division also leases office property in
Savannah, Georgia and Jacksonville, Florida for its operations.

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 purchased
these two sites in anticipation of building full service banking facilities in
the next few years.




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, 2002 to a
vote of security holders of the Company.




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 payment of a 15% stock dividend on
December 16, 2002 and a 20% stock dividend on December 1, 2001.

18



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##### Table of Contents



|                                    |                |  |      |       |     |  |   |       | 
|----------------------------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                    |                |  | High |       | Low
|                                    |                |  |      |       |    
|Fiscal year ended December 31, 2002 |               
|                                    | First Quarter  |  | $    | 10.26 |     |  | $ | 10.22 | 
|                                    | Second Quarter |  | $    | 13.26 |     |  | $ | 10.26 | 
|                                    | Third Quarter  |  | $    | 15.87 |     |  | $ | 13.91 | 
|                                    | Fourth Quarter |  | $    | 16.96 |     |  | $ | 16.00 | 
|Fiscal year ended December 31, 2001 |                |  |      |       |     |  |   |      
|                                    | First Quarter  |  | $    | 8.29  |     |  | $ | 7.47  | 
|                                    | Second Quarter |  | $    | 9.42  |     |  | $ | 7.03  | 
|                                    | Third Quarter  |  | $    | 10.14 |     |  | $ | 7.94  | 
|                                    | Fourth Quarter |  | $    | 10.14 |     |  | $ | 7.85  | 

B.   Holders of Common Stock



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | As of March 10, 2003, the number of holders of record of the Companys
common stock was 625.

C.   Dividends



| |                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | No cash dividends were paid by the Company during the years ended
December 31, 2002 or 2001. On December 16, 2002, the Company paid a 15%
stock dividend to shareholders of record as of December 2, 2002 and the
Company paid a 20% stock dividend on December 1, 2001 to shareholders of
record as of November 15, 2001.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. Pursuant to the Georgia code, the
Bank may pay dividends only when and if the Bank is not insolvent. In
addition, dividends may not be declared or paid at any time when the Bank
does not have combined paid-in capital and appropriated retained earnings
equal to at least 20% of the Banks capital stock. Moreover, dividends
may not be paid by the Bank without the prior approval of the Georgia
Banking Department, if the dividends are in excess of specified amounts
fixed by the Georgia Banking Department.

D.   Recent Sales of Unregistered Securities



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 1, 2002, the Company issued 4,000 shares of its common stock
as a result of the exercise of certain non-qualified options by The Prime
Group, Inc. The Company
received $44,000 in consideration of this issuance. The issuance of the
common stock was 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. All of the
securities were acquired by the recipient thereof for investment and with
no view toward the resale or distribution thereof. The purchaser had a
preexisting relationship with the Company, the offer and sale was made
without any public solicitation, and the stock certificate bears a
restrictive legend. No underwriter was involved in the transaction and
no commissions were paid.

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Item 6. Managements Discussion and Analysis or Plan of Operation.

The following discussion provides information about the major components of the
results of operations and financial condition, liquidity and capital resources
of the Company and Bank and should be read in conjunction with the Business
and Financial Statements sections included elsewhere in this Report.

The Company

Certain financial information for the Company and Bank consolidated, and solely
the Bank as of and for the years ended December 31, 2002, 2001 and 2000 is
presented below:

|             |  |                               |         |            |  |              |       |            |  |              |            |  |  |   |       |  |  |   |         |  |  |   |     | 
|------------ |  | ----------------------------- | ------- | ---------- |  | ------------ | ----- | ---------- |  | ------------ | ---------- |  |  | - | ----- |  |  | - | ------- |  |  | - | --- | 
|             |  | 2002                          |         | 2001       |  | 2000        
|             |  |                               |         |            |  |             
|             |  | Total Assets                  |         | Net Income |  | Total Assets |       | Net Income |  | Total Assets | Net Income
|             |  |                               |         |            |  |              |       |            |  |              |           
|             |  | (Dollar amounts in thousands)
|Consolidated |  | $                             | 257,362 |            |  | $            | 3,331 |            |  | $            | 205,865    |  |  | $ | 1,675 |  |  | $ | 116,509 |  |  | $ | 127 | 
|Bank only    |  | $                             | 257,251 |            |  | $            | 3,494 |            |  | $            | 205,797    |  |  | $ | 1,748 |  |  | $ | 116,485 |  |  | $ | 157 | 

During 2002, the Company funded operational costs through internally generated
funds. The Company incurred approximately $261,000 in operational costs for
the year ended December 31, 2002. The Company recorded an income tax benefit
of $98,000, resulting in a net loss of $68,000 for 2002. The Company received
revenue in the form of dividends from the Bank in 2002 in the amount of
$95,000.

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 January 2014.
As of December 31, 2002 and 2001, the outstanding balance under the line of
credit was $1 million. The $1 million drawn by the Company was invested in the
Bank as additional paid in capital during 2001. The arrangement requires the
Company and the Bank to comply with certain financial and other covenants. At
December 31, 2002 the Company and the Bank were in compliance with all
applicable covenants.

The Bank

Financial Condition and Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

For the year ended December 31, 2002, the Bank experienced an increase in both
total assets and net income. Total assets increased 25.0% to $257,251,000 at
December 31, 2002 from $205,797,000 at December 31, 2001. Net income increased
99.9% to $3,494,000 from $1,748,000 for the year ended December 31, 2001.
Average total assets were $212,878,000 for 2002 compared to $158,586,000 for
2001, an increase of $54,292,000, or 34.2%. This increase in average assets is
primarily the result of an increase in loans outstanding, which increased
$44,869,000 or 34.5%, from $130,153,000 for 2001 to $175,022,000 for 2002.
This increase in 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, growth in existing locations and the continued growth of the Mortgage
Division. Net loans held for investment increased from $113,039,000 at December
31, 2001 to $142,934,000 at December 31, 2002, a change of $29,895,000, or
26.4%. Commercial loans decreased $2,758,000, or 10.3%, from 2001. Real
estate mortgage loans increased $25,644,000, or 47.7%, from 2001, and real
estate construction loans
increased $5,805,000, or 28.6%, from 2001. Installment and consumer loans
increased $1,397,000, or 9.7%, from 2001. The decrease in the commercial loans
is primarily the result of a softening in the demand for commercial loans. 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 increased from $58,736,000 in 2001 to $67,927,000 in 2002.

The allowance for loan losses was $2,436,000 at December 31, 2002 and was
$2,187,000 at December 31, 2001. This represents an increase of $249,000, or
11.4%. The increase in the allowance is based on managements rating and

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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 1.14% at December 31, 2002 and was
1.26% at December 31, 2001. 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 1.68% at December 31, 2002, compared to 1.90% at December 31,
2001.

The asset growth of the Bank during 2002 was funded through deposit account
growth resulting from the Banks expansion to new market areas, through growth
in existing locations, through short-term borrowings from correspondent banks,
and from a line of credit established with the Federal Home Loan Bank. Total
deposit accounts at December 31, 2002 were $201,619,000, an increase of
$51,996,000, or 34.8%, from $149,623,000 at December 31, 2001. Total other
borrowings by the Bank were $35,745,000 at December 31, 2002, a decrease of
$2,629,000, or 6.9%, from the balance of $38,374,000 at December 31, 2001.

The Banks loan to deposit ratio was 105.8% at December 31, 2002 and 116.3% at
December 31, 2001.

Interest income was $13,368,000 for the year ended December 31, 2002, compared
to $11,588,000 for 2001. This represents an increase of $1,780,000, or 15.4%.
This increase was primarily attributable to an increase in interest income from
loans of $1,599,000 in 2002 which resulted from the Banks continued increases
in the loan portfolio. 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 $1,093,000, or 17.5%, from $6,265,000
for 2001 to $5,172,000 for 2002. This decrease resulted primarily from the
declining rates for time deposits, but was partially offset by increases in all
types of 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 existing locations. The Bank
focuses on obtaining growth in deposit accounts to effectively fund the Banks
loan growth. Non-interest bearing deposits increased $539,000 from 2001 to
2002. Net interest income for the year ended December 31, 2002 was $8,196,000,
representing an increase of $2,873,000, or 54.0%, from $5,323,000 for the year
ended December 31, 2001.

Noninterest income increased from $9,120,000 in 2001 to $10,397,000 in 2002, an
increase of $1,277,000 or 14.0%. This increase is primarily due to the
increase in the gain on sale of mortgage loans for 2002. This increase is a
direct result of the Banks continued growth of the Mortgage Division during
2002, and increased loan fees from refinancing transactions.

Noninterest expense increased from $10,678,000 in 2001 to $12,662,000 in 2002,
an increase of $1,984,000, or 19.3%. The increase primarily resulted from
increased personnel and occupancy costs
resulting from the opening of an additional branch location and the significant
expansion of the Mortgage Division in 2002.

Net income increased $1,746,000, or 99.9%, from $1,748,000 in 2001 to
$3,494,000 in 2002 as a result of each of the above matters.

2001 Compared to 2000

For the year ended December 31, 2001, the Bank experienced an increase in both
total assets and net income. Total assets increased 76.7% to $205,797,000 at
December 31, 2001 from $116,485,000 at December 31, 2000. Net income increased
1,013.4% to $1,748,000 from $157,000 for the year ended December 31, 2000.
Average total assets were $158,586,000 for 2001 compared to $91,986,000 for
2000, an increase of $66,600,000 or 72.4%. This increase in average assets is
primarily the result of an increase in loans outstanding, which increased
$62,051,000, or 91.1%, from $68,102,000 for 2000 to $130,153,000 for 2001.
This increase in 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
2001 and the continued growth of the Mortgage Division. Net loans held for
investment increased from $71,987,000 at December 31, 2000 to $113,039,000 at
December 31, 2001, a change of $41,052,000, or 57.0%. Commercial loans
increased $2,281,000, or 9.3%, from 2000. Real estate mortgage loans increased
$31,880,000, or 145.9%, from 2000, and real estate construction loans increased
$2,644,000, or 15.1%, from 2000. Installment and consumer loans increased
$5,188,000, or 56.1%, from 2000. These increases in each loan category are the
result of the Banks continuing efforts to obtain

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these types of lending
opportunities, and the opening of additional office locations of the Bank.
Loans held for sale by the Bank increased from $17,610,000 in 2000 to
$58,736,000 in 2001.

The allowance for loan losses was $2,187,000 at December 31, 2001 and was
$1,194,000 at December 31, 2000. This represents an increase of $993,000 or
83.2%. The increase in the allowance is based on managements rating and
assessment of the loan portfolio and the credit risk inherent in the portfolio,
and reflects the growth in the Banks loan portfolio. The Banks ratio of
allowance for loan losses to gross loans was 1.26% at December 31, 2001 and was
1.32% at December 31, 2000. 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 1.90% at December 31, 2001, compared to 1.63% at December 31,
2000.

The asset growth of the Bank during 2001 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 a line of credit
established with the Federal Home Loan Bank. Total deposit accounts at
December 31, 2001 were $149,623,000, an increase of $64,135,000, or 75.0%, from
$85,488,000 at December 31, 2000. Total other borrowings by the Bank were
$38,374,000 at December 31, 2001, an increase of $18,580,000, or 93.9%, from
the balance of $19,794,000 at December 31, 2000. This significant increase in
borrowed funds is a result of the Banks loan growth in new market areas and
the Banks utilization of borrowed funds to fund loans held-for-sale and
construction lending by the Mortgage Division.

The Banks loan to deposit ratio was 116.3% at December 31, 2001 and 106.2% at
December 31, 2000.

Interest income was $11,588,000 for the year ended December 31, 2001, compared
to $7,212,000 for 2000. This represents an increase of $4,376,000, or 60.7%.
This increase was primarily attributable to an increase in interest income from
loans of $5,653,000 in 2001. The volume increase was a result of the Banks
increase 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 increased $2,600,000, or 70.9%, from $3,665,000 for 2000 to $6,265,000
for 2001. This increase resulted primarily from the effects of increases in
all types of deposit accounts, and in funds purchased. In addition, the
increase in volume was partially offset by a decrease in rates paid for time
deposits. 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 existing locations. The Bank focuses on obtaining growth in deposit
accounts to effectively fund the Banks loan growth. The increase in funds
purchased by the Bank reflects this growth in the Banks loan portfolio.
Non-interest bearing deposits increased $5,704,000 from 2000 to 2001. Net
interest income for the year ended December 31, 2001 was $5,323,000,
representing an increase of $1,776,000, or 50.0%, from $3,547,000 for the year
ended December 31, 2000.

Noninterest income increased from $2,456,000 in 2000 to $9,120,000 in 2001, an
increase of $6,664,000 or 271.3%. This increase is primarily due to the
increase in the gain on sale of mortgage loans for 2001. This increase is a
direct result of the Banks continued development and expansion of the Mortgage
Division during 2001, and increased loan fees from refinancing transactions.

Noninterest expense increased from $5,428,000 in 2000 to $10,678,000 in 2001,
an increase of $5,250,000 or 96.7%. The increase primarily resulted from
increased personnel and occupancy costs resulting from the opening of an
additional location and the significant expansion of the Mortgage Division in
2001.

Net income increased $1,591,000, or 1,013.4%, from $157,000 in 2000 to
$1,748,000 in 2001 as a result of each of the above matters.

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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, 2002, the Banks liquidity ratio was 39.6% as compared to
22.8% at December 31, 2001. 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, 2002
with a market value of $27.3 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, 2002, the Bank
was asset sensitive through three months, and liability sensitive through one
year.

23



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The following is an analysis of rate sensitive assets and liabilities as of
December 31, 2002 (in thousands):

|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   |         |        |  |   |         |         | 
|--------------------------------------------------------------- | -------------------------------- | - | --------- | ------- | ----------- | - | ----------- | ------ | ------- | - | ------ | ------ |  | - | ------- | ------ |  | - | ------- | ------- | 
|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   | 5 years |        |  |   |        
|                                                                |                                  |   | 0- 3 mos. |         | 3  12 mos. |   | 1  5 years |        | or more |   | Total 
|                                                                |                                  |   |           |         |             |   |             |        |         |   |       
|Taxable securities                                              |                                  | $ |          |         |             | $ | 818         |        |         | $ | 10,030 |        |  | $ | 15,508  |        |  | $ | 26,356  |        
|Tax-exempt securities                                           |                                  |   |          |         |             |   |            |        |         |   |       |        |  |   | 990     |        |  |   | 990     |        
|Federal funds sold                                              |                                  |   | 507       |         |             |   |            |        |         |   |       |        |  |   |        |        |  |   | 507     |        
|Loans                                                           |                                  |   | 131,134   |         |             |   | 8,394       |        |         |   | 62,617 |        |  |   | 11,152  |        |  |   | 213,297 |        
|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   |         |        |  |   |         |        
|                                                                | Total rate sensitive assets      |   |           | 131,641 |             |   |             | 9,212  |         |   |        | 72,647 |  |   |         | 27,650 |  |   |         | 241,150 | 
|NOW and money market deposits                                   |                                  |   | 34,368    |         |             |   |            |        |         |   |       |        |  |   |        |        |  |   | 34,368  |        
|Savings deposits                                                |                                  |   | 30,763    |         |             |   |            |        |         |   |       |        |  |   |        |        |  |   | 30,763  |        
|Time deposits                                                   |                                  |   | 20,826    |         |             |   | 73,120      |        |         |   | 18,356 |        |  |   | 1,674   |        |  |   | 113,976 |        
|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   |         |        |  |   |         |        
|                                                                | Total rate sensitive deposits    |   |           | 85,957  |             |   |             | 73,120 |         |   |        | 18,356 |  |   |         | 1,674  |  |   |         | 179,107 | 
|Borrowed funds                                                  |                                  |   | 35,725    |         |             |   |            |        |         |   | 20     |        |  |   |        |        |  |   | 35,745  |        
|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   |         |        |  |   |         |        
|                                                                | Total rate sensitive liabilities |   |           | 121,682 |             |   |             | 73,120 |         |   |        | 18,376 |  |   |         | 1,674  |  |   |         | 214,852 | 
|                                                                |                                  |   |           |         |             |   |             |        |         |   |        |        |  |   |         |        |  |   |         |        
|Excess of rate sensitive assets less rate
sensitive liabilities |                                  |   | 9,959     |         |             |   | (63,908     | )      |         |   | 54,271 |        |  |   | 25,976  |        |  |   | 26,298  |        
|Cumulative ratio of rate sensitive assets
to liabilities        |                                  |   | 108       | %       |             |   | 72          | %      |         |   | 100    | %      |  |   | 112     | %      |  |   |         |        
|Cumulative gap                                                  |                                  |   | 9,959     |         |             |   | (53,949     | )      |         |   | 322    |        |  |   | 26,298  |        |  |   |         |        

Capital Resources

The equity capital of the Company totaled $16,895,000 at December 31, 2002.
The Company was formed in 1997 as a holding company of the subsidiary bank. In
effecting the transaction of establishing the holding company, the Company
acquired 100% of the issued and outstanding shares of stock of the Bank and in
exchange issued each stockholder a pro rata number of shares of stock of the
Company so each stockholders ownership of the Company was consistent with the
previous ownership of the Bank. The transaction has been accounted for in
accordance with generally accepted accounting principles in a manner similar to
a pooling of interests in which all prior periods presented in the Companys
consolidated financial statements have been restated to give effect to the
transaction as if it occurred at the beginning of the earliest period
presented.

The equity capital of the Bank totaled $17,761,000 at December 31, 2002, an
increase of $3,637,000, or 25.8%, from equity capital of $14,124,000 at
December 31, 2001. The increase in equity capital was attributable to the
Banks net income of $3.49 million, an increase of $238,000 in the Banks
unrealized loss on available-for-sale securities, which under Statement of
Financial Accounting Standard No. 115, is recognized in the available-for-sale
portion of the bond portfolio by making adjustments to the equity capital
account, and was decreased by a dividend paid to the Company of $95,000.

Management believes that the Banks capitalization is adequate to sustain
growth experienced in 2002. The following table sets forth the applicable
required capital ratios for the Company and the Bank and the actual capital
ratios for the Company and the Bank as of December 31, 2002:

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|                               |  |                   |       |                        |  |         |     |  
|------------------------------ |  | ----------------- | ----- | ---------------------- |  | ------- | --- | -
|                               |  |                   |       |                        |  | Minimum
|                               |  | December 31, 2002 |       | Regulatory Requirement
|                               |  |                   |       |                       
|Bank                          
|Tier 1 Capital ratio           |  |                   | 9.15  | %                      |  |         | 4.0 | %
|Total risk-based capital ratio |  |                   | 10.39 | %                      |  |         | 8.0 | %
|Leverage ratio                 |  |                   | 7.17  | %                      |  |         | 4.0 | %
|                              
|Company  Consolidated         |  |                   |       |                        |  |         |     |  
|Tier 1 Capital ratio           |  |                   | 8.68  | %                      |  |         | 4.0 | %
|Total risk-based capital ratio |  |                   | 9.93  | %                      |  |         | 8.0 | %
|Leverage ratio                 |  |                   | 6.81  | %                      |  |         | 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.




Item 7. Financial Statements and Supplementary Data.

The following financial statements are filed with this report:



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Report of Independent Certified Public Accountants                                                         
|
| | Consolidated Statements of Financial Condition as of
December 31, 2002 and 2001                            
|
| | Consolidated Statements of Income for the years ended
December 31, 2002, 2001 and 2000                     
|
| | Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31, 2002, 2001 and 2000
|
| | Consolidated Statements of Shareholders Equity for
the years ended December 31, 2002, 2001 and 2000       
|
| | Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000                 
|
| | Notes to Consolidated Financial Statements                                                                 

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[Letterhead of Cherry, Bekaert & Holland, LLP]

Report of Independent Certified Public Accountants

The Board of Directors
Georgia-Carolina Bancshares, Inc.
Augusta, Georgia

We have audited the accompanying consolidated statements of financial condition
of Georgia-Carolina Bancshares, Inc. and subsidiary as of December 31, 2002 and
2001, and the related consolidated statements of income, comprehensive income,
shareholders equity, and cash flows for each of the years in the three-year
period ended December 31, 2002. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the
Georgia-Carolina Bancshares, Inc. as of December 31, 2002 and 2001, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Cherry, Bekaert & Holland, L.L.P.

Augusta, Georgia
March 12, 2003

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GEORGIA-CAROLINA BANCSHARES, INC.
Consolidated Statements of Financial Condition
December 31, 2002 and 2001(dollars in thousands, except per share amounts)

|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |        |         | 
|--------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ----------------------------------- | ------------------------------------------ | ------- | ------ | ------- | ------- | ------- | ------ | ------- | 
|                                                    |                                                                                                                   |                                     |                                            |         | 2002   |         | 2001   
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |        
|Assets                                              |                                                                                                                   |                                     |                                            |         |        |         |         |        
|Cash and due from banks                             |                                                                                                                   | $                                   | 7,520                                      |         |        | $       | 3,316   |        
|Federal funds sold                                  |                                                                                                                   |                                     | 507                                        |         |        |         | 402     |        
|Securities available-for-sale                       |                                                                                                                   |                                     | 27,346                                     |         |        |         | 19,509  |        
|Loans, net of allowance for loan losses             |                                                                                                                   |                                     | 142,934                                    |         |        |         | 113,039 |        
|Loans held for sale                                 |                                                                                                                   |                                     | 67,927                                     |         |        |         | 58,736  |        
|Bank premises and fixed assets                      |                                                                                                                   |                                     | 7,171                                      |         |        |         | 6,991   |        
|Accrued interest receivable                         |                                                                                                                   |                                     | 1,245                                      |         |        |         | 1,092   |        
|Foreclosed real estate, net of allowance            |                                                                                                                   |                                     | 305                                        |         |        |         | 383     |        
|Deferred tax asset, net                             |                                                                                                                   |                                     | 449                                        |         |        |         | 401     |        
|Federal Home Loan Bank Stock                        |                                                                                                                   |                                     | 1,570                                      |         |        |         | 1,606   |        
|Other assets                                        |                                                                                                                   |                                     | 388                                        |         |        |         | 390     |        
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |        
|                                                    | Total assets                                                                                                      |                                     | $                                          | 257,362 |        |         | $       | 205,865 |       
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |        
|Liabilities and Shareholders Equity                |                                                                                                                  
|Deposits:                                           |                                                                                                                   |                                     |                                            |         |        |         |         |        
|                                                    | Non-interest bearing                                                                                              |                                     | $                                          | 22,512  |        |         | $       | 21,973  |       
|                                                    | Interest-bearing:                                                                                                 |                                     |                                            |         |        |         |         |         |       
|                                                    |                                                                                                                   | NOW accounts                        |                                            |         | 22,703 |         |         |         | 11,426 |        
|                                                    |                                                                                                                   | Savings                             |                                            |         | 30,763 |         |         |         | 11,586 |        
|                                                    |                                                                                                                   | Money market accounts               |                                            |         | 11,665 |         |         |         | 12,818 |        
|                                                    |                                                                                                                   | Time deposits of $100,000, and over |                                            |         | 48,709 |         |         |         | 42,848 |        
|                                                    |                                                                                                                   | Other time deposits                 |                                            |         | 65,267 |         |         |         | 48,972 |        
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       
|                                                    |                                                                                                                   |                                     | Total deposits                             |         |        | 201,619 |         |         |        | 149,623 | 
|Other liabilities, borrowings and retail agreements |                                                                                                                   |                                     | 38,848                                     |         |        |         | 43,042  |        
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       
|                                                    |                                                                                                                   |                                     | Total liabilities                          |         |        | 240,467 |         |         |        | 192,665 | 
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       
|Commitments and contingent liabilities              |                                                                                                                   |                                     |                                            |         |        |         |         |        
|Shareholders equity                                |                                                                                                                   |                                     |                                            |         |        |         |         |        
|                                                    | Preferred stock, par value $.001; 1,000,000
shares authorized; none issued                                        |                                     |                                            |        |        |         |         |        |       
|                                                    | Common stock, par value $.001; 9,000,000
shares authorized; 1,307,790 and 1,127,214
shares issued and outstanding |                                     |                                            | 1       |        |         |         | 1       |       
|                                                    | Additional paid-in capital                                                                                        |                                     |                                            | 13,294  |        |         |         | 10,267  |       
|                                                    | Retained earnings                                                                                                 |                                     |                                            | 3,196   |        |         |         | 2,766   |       
|                                                    | Accumulated other comprehensive income                                                                            |                                     |                                            | 404     |        |         |         | 166     |       
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       
|                                                    |                                                                                                                   | Total shareholders equity          |                                            |         | 16,895 |         |         |         | 13,200 |        
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       
|                                                    |                                                                                                                   |                                     | Total liabilities and shareholders equity |         | $      | 257,362 |         |         | $      | 205,865 | 
|                                                    |                                                                                                                   |                                     |                                            |         |        |         |         |         |       

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Consolidated Statements of Income
Years Ended December 31, 2002, 2001 and 2000(dollars in thousands, except per share amounts)

|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |       | 
|-------------------------- | ------------------------------------------------ | --------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ----- | ----- | ----- | 
|                           |                                                  |                                                     |        | 2002   |        | 2001 |        | 2000  
|                           |                                                  |                                                     |        |        |        |      |        |       
|Interest income            |                                                  |                                                     |        |        |        |      |        |        |        |  |       |      
|                           | Interest and fees on loans                       |                                                     | $      | 12,063 |        |      | $      | 10,464 |        |  | $     | 6,203 |      
|                           | Interest on taxable securities                   |                                                     |        | 1,289  |        |      |        | 1,106  |        |  |       | 817   |      
|                           | Interest on nontaxable securities                |                                                     |        | 7      |        |      |        |       |        |  |       | 25    |      
|                           | Interest on Federal funds sold                   |                                                     |        | 9      |        |      |        | 18     |        |  |       | 167   |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  | Total interest income                               |        |        | 13,368 |      |        |        | 11,588 |  |       |       | 7,212 | 
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|Interest expense           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |      
|                           | Interest on time deposits of $100,000 or more    |                                                     |        | 1,595  |        |      |        | 1,783  |        |  |       | 596   |      
|                           | Interest on other deposits                       |                                                     |        | 3,145  |        |      |        | 3,496  |        |  |       | 2,466 |      
|                           | Interest on funds purchased and other
borrowings |                                                     |        | 432    |        |      |        | 986    |        |  |       | 603   |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  | Total interest expense                              |        |        | 5,172  |      |        |        | 6,265  |  |       |       | 3,665 | 
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  | Net interest income                                 |        |        | 8,196  |      |        |        | 5,323  |  |       |       | 3,547 | 
|Provision for loan losses  |                                                  |                                                     | 451    |        |        |      | 1,106  |        |        |  | 361   |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  | Net interest income after provision for
loan losses |        |        | 7,745  |      |        |        | 4,217  |  |       |       | 3,186 | 
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|Noninterest income         |                                                  |                                                     |        |        |        |      |        |        |        |  |       |      
|                           | Service charges on deposits                      |                                                     |        | 564    |        |      |        | 480    |        |  |       | 330   |      
|                           | Other income                                     |                                                     |        | 14     |        |      |        | 170    |        |  |       |      |      
|                           | Gain on sale of mortgage loans                   |                                                     |        | 9,819  |        |      |        | 8,470  |        |  |       | 2,126 |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  |                                                     | 10,397 |        |        |      | 9,120  |        |        |  | 2,456 |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|Noninterest expense        |                                                  |                                                     |        |        |        |      |        |        |        |  |       |      
|                           | Salaries and employee benefits                   |                                                     |        | 8,502  |        |      |        | 7,246  |        |  |       | 3,404 |      
|                           | Occupancy expenses                               |                                                     |        | 1,016  |        |      |        | 926    |        |  |       | 595   |      
|                           | Other expenses                                   |                                                     |        | 3,361  |        |      |        | 2,622  |        |  |       | 1,470 |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  |                                                     | 12,879 |        |        |      | 10,794 |        |        |  | 5,469 |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|Income before income taxes |                                                  |                                                     | 5,263  |        |        |      | 2,543  |        |        |  | 173   |      
|Income tax expense         |                                                  |                                                     | 1,932  |        |        |      | 868    |        |        |  | 46    |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           |                                                  | Net income                                          |        | $      | 3,331  |      |        | $      | 1,675  |  |       | $     | 127   | 
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|Earnings per share         |                                                  |                                                     |        |        |        |      |        |        |        |  |       |      
|                           | Basic                                            |                                                     | $      | 2.56   |        |      | $      | 1.29   |        |  | $     | .10   |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      
|                           | Diluted                                          |                                                     | $      | 2.37   |        |      | $      | 1.22   |        |  | $     | .09   |      
|                           |                                                  |                                                     |        |        |        |      |        |        |        |  |       |       |      

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2002, 2001 and 2000(dollars in thousands, except per share amounts)

|                                                                                                                                        |  |      |       |      |  |      |       |  |  |   |     | 
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                                                                                                                                        |  | 2002 |       | 2001 |  | 2000
|                                                                                                                                        |  |      |       |      |  |     
|Net income                                                                                                                              |  | $    | 3,331 |      |  | $    | 1,675 |  |  | $ | 127 | 
|Unrealized holding gains arising during
period less reclassification adjustment for gains
and losses included in net income, net of tax |  |      | 238   |      |  |      | 259   |  |  |   | 217 | 
|                                                                                                                                        |  |      |       |      |  |      |       |  |  |   |     | 
|Comprehensive income                                                                                                                    |  | $    | 3,569 |      |  | $    | 1,934 |  |  | $ | 344 | 
|                                                                                                                                        |  |      |       |      |  |      |       |  |  |   |     | 

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Consolidated Statements of Shareholders Equity
Years Ended December 31, 2002, 2001 and 2000(dollars in thousands, except per share amounts)

|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  |             |      |   |  |   |        | 
|---------------------------------------------------------------------------------------- |  | ------ | --------- | --------- |  | ---------- | - | -------- |  | ------------- | ------ | ------------- |  | ----- | ------ | - |  | ----------- | ---- | - |  | - | ------ | 
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  | Accumulated |      |   |  |  
|                                                                                         |  | Common |           | Common    |  | Additional |   |          |  |               |        | Other         |  | Total
|                                                                                         |  | Stock  |           | Stock     |  | Paid-in    |   | Retained |  | Comprehensive |        | Shareholders'
|                                                                                         |  | Shares |           | Par Value |  | Capital    |   | Earnings |  | Income        |        | Equity       
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |              
|Balance, December 31, 1999                                                               |  |        | 931,750   |           |  | $          | 1 |          |  | $             | 10,188 |               |  | $     | 964    |   |  | $           | (310 | ) |  | $ | 10,843 | 
|Net income                                                                               |  |        |          |           |  |            |  |          |  |               |       |               |  |       | 127    |   |  |             |     |   |  |   | 127    | 
|Change in unrealized gain on
securities available-for-sale,
net of deferred taxes        |  |        |          |           |  |            |  |          |  |               |       |               |  |       |       |   |  |             | 217  |   |  |   | 217    | 
|Proceeds from exercise of
stock options                                                  |  |        | 4,000     |           |  |            |  |          |  |               | 40     |               |  |       |       |   |  |             |     |   |  |   | 40     | 
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  |             |      |   |  |   |        | 
|Balance, December 31, 2000                                                               |  |        | 935,750   |           |  |            | 1 |          |  |               | 10,228 |               |  |       | 1,091  |   |  |             | (93  | ) |  |   | 11,227 | 
|Net income                                                                               |  |        |          |           |  |            |  |          |  |               |       |               |  |       | 1,675  |   |  |             |     |   |  |   | 1,675  | 
|Change in unrealized gain
(loss) on securities available-for-sale, net of deferred taxes |  |        |          |           |  |            |  |          |  |               |       |               |  |       |       |   |  |             | 259  |   |  |   | 259    | 
|Stock split effected in the form
of a stock dividend                                     |  |        | 187,387   |           |  |            |  |          |  |               |       |               |  |       |       |   |  |             |     |   |  |   |       | 
|Issuance of stock for
compensation                                                       |  |        | 4,077     |           |  |            |  |          |  |               | 39     |               |  |       |       |   |  |             |     |   |  |   | 39     | 
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  |             |      |   |  |   |        | 
|Balance, December 31, 2001                                                               |  |        | 1,127,214 |           |  |            | 1 |          |  |               | 10,267 |               |  |       | 2,766  |   |  |             | 166  |   |  |   | 13,200 | 
|Net income                                                                               |  |        |          |           |  |            |  |          |  |               |       |               |  |       | 3,331  |   |  |             |     |   |  |   | 3,331  | 
|Change in unrealized gain on
securities available-for-sale,
net of deferred taxes        |  |        |          |           |  |            |  |          |  |               |       |               |  |       |       |   |  |             | 238  |   |  |   | 238    | 
|Stock dividend                                                                           |  |        | 170,523   |           |  |            |  |          |  |               | 2,901  |               |  |       | (2,901 | ) |  |             |     |   |  |   |       | 
|Proceeds from exercise of
stock options                                                  |  |        | 4,000     |           |  |            |  |          |  |               | 44     |               |  |       |       |   |  |             |     |   |  |   | 44     | 
|Issuance of stock for
compensation                                                       |  |        | 6,053     |           |  |            |  |          |  |               | 82     |               |  |       |       |   |  |             |     |   |  |   | 82     | 
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  |             |      |   |  |   |        | 
|Balance, December 31, 2002                                                               |  |        | 1,307,790 |           |  | $          | 1 |          |  | $             | 13,294 |               |  | $     | 3,196  |   |  | $           | 404  |   |  | $ | 16,895 | 
|                                                                                         |  |        |           |           |  |            |   |          |  |               |        |               |  |       |        |   |  |             |      |   |  |   |        | 

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 2002, 2001 and 2000(dollars in thousands, except per share amounts)

|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |         |         |  
|-------------------------------------------- |  | ------------------------------------------------------------------------------ | ---------------------------------------------------------------- | -------------------------------------------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                             |  |                                                                                |                                                                  |                                                    |         | 2002   |         | 2001 |         | 2000   
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |        
|Cash flows from operating activities         |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |  
|                                             |  | Net income                                                                     |                                                                  | $                                                  | 3,331   |        |         | $    | 1,675   |         |         | $ | 127     |        
|                                             |  | Adjustments
to reconcile net income to net cash

Used in operating activities: |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|                                             |  |                                                                                | Depreciation and amortization                                    |                                                    |         | 443    |         |      |         | 388     |         |   |         | 278     |        
|                                             |  |                                                                                | Provision for loan losses                                        |                                                    |         | 451    |         |      |         | 1,106   |         |   |         | 361     |        
|                                             |  |                                                                                | Stock compensation                                               |                                                    |         | 82     |         |      |         | 39      |         |   |         |        |        
|                                             |  |                                                                                | Deferred income tax                                              |                                                    |         | (210   | )       |      |         | (332    | )       |   |         | 40      |        
|                                             |  |                                                                                | Net originations, proceeds and gain
on loans originated for sale |                                                    |         | (9,191 | )       |      |         | (41,126 | )       |   |         | (17,610 | )      
|                                             |  |                                                                                | (Increase) in accrued interest
receivable                        |                                                    |         | (153   | )       |      |         | (496    | )       |   |         | (188    | )      
|                                             |  |                                                                                | (Decrease) increase in accrued interest
payable                  |                                                    |         | (883   | )       |      |         | 1,151   |         |   |         | 652     |        
|                                             |  |                                                                                | Net change in other assets and liabilities                       |                                                    |         | (532   | )       |      |         | 1,287   |         |   |         | (60     | )      
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|                                             |  |                                                                                |                                                                  | Net cash used in operating activities              |         |        | (6,662  | )    |         |         | (36,308 | ) |         |         | 16,400  | )
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|Cash flows from investing activities         |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |  
|                                             |  | (Increase) decrease in Federal funds sold                                      |                                                                  |                                                    | (105    | )      |         |      | (402    | )       |         |   | 17,010  |        
|                                             |  | Loan originations and collections, net                                         |                                                                  |                                                    | (31,002 | )      |         |      | (42,169 | )       |         |   | (37,738 | )      
|                                             |  | Purchases of available-for-sale securities                                     |                                                                  |                                                    | (14,988 | )      |         |      | (16,540 | )       |         |   | (2,746  | )      
|                                             |  | Proceeds from maturities, sales, and calls of
available-for-sale securities    |                                                                  |                                                    | 7,587   |        |         |      | 10,137  |         |         |   | 1,191   |        
|                                             |  | Proceeds from sale of foreclosed real estate                                   |                                                                  |                                                    | 741     |        |         |      | 100     |         |         |   |        |        
|                                             |  | Net additions to premises and equipment                                        |                                                                  |                                                    | (778    | )      |         |      | (1,819  | )       |         |   | (1,781  | )      
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|                                             |  |                                                                                |                                                                  | Net cash used in investing activities              |         |        | (38,545 | )    |         |         | (50,693 | ) |         |         | (24,064 | )
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|Cash flows from financing activities         |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |  
|                                             |  | Net increase in deposits and funds purchased                                   |                                                                  |                                                    | 49,367  |        |         |      | 84,795  |         |         |   | 42,675  |        
|                                             |  | Proceeds from stock options exercised                                          |                                                                  |                                                    | 44      |        |         |      |        |         |         |   | 40      |        
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|                                             |  |                                                                                |                                                                  | Net cash provided by financing activities          |         |        | 49,411  |      |         |         | 84,795  |   |         |         | 42,715  |  
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|                                             |  |                                                                                |                                                                  | Net increase (decrease) in cash and
due from banks |         |        | 4,204   |      |         |         | (2,206  | ) |         |         | 2,251   |  
|Cash and due from banks at beginning of year |  |                                                                                | 3,316                                                            |                                                    |         |        | 5,522   |      |         |         | 3,271   |  
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        
|Cash and due from banks at end of year       |  | $                                                                              | 7,520                                                            |                                                    |         | $      | 3,316   |      |         | $       | 5,522   |  
|                                             |  |                                                                                |                                                                  |                                                    |         |        |         |      |         |         |         |   |         |        

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements
December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies

Nature of business

Georgia-Carolina Bancshares, Inc. (the Company) is a one-bank holding
company. Substantially all of its business is conducted by its wholly-owned
subsidiary, First Bank of Georgia (the Bank). The Bank is engaged in
community banking activities through its locations in Thomson and Augusta,
Georgia, and the surrounding area. Most of the Banks loans and loan
commitments have been granted to customers in the Columbia, Richmond, and
McDuffie County, Georgia areas. Many of the Banks loan customers are also
depositors of the Bank. The Bank has established a mortgage division that
operates as First Bank Mortgage. This division currently has locations in
Augusta and Savannah, Georgia and Jacksonville, Florida. The division
originates residential real estate mortgage loans and provides financing to
residential construction and development companies. Substantially all
residential mortgage loans originated by the division are sold in the secondary
market.

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

Significant accounting policies

Basis of presentation- The consolidated financial statements include the
accounts of the Company and its subsidiary Bank. Significant inter-company
transactions and accounts are eliminated in consolidation. The accounting and
reporting policies of the Bank conform to accounting principles generally
accepted in the United States of America and general practices within the
banking industry.

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

Significant group concentrations of credit risk A substantial portion of the
Banks loan portfolio is to customers in the Thomson and Augusta, Georgia
market areas. The ultimate collectibility of a substantial portion of the
portfolio is therefore susceptible to changes in the economic and market
conditions in and around these areas.

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies(continued)

Investment securities- The Banks investments in securities are classified and
accounted for as follows:

Securities available-for-sale - Securities classified as available-for-sale are
identified when acquired as being available-for-sale to meet liquidity needs or
other purposes. They are carried at fair value with unrealized gains and
losses, net of taxes, reported in other comprehensive income.

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

The Bank has not classified any securities as trading.

Gains and losses on the sale of securities are determined using the
specific-identification method. Dividends and interest income are recognized
when earned. A decline in fair value of individual available-for-sale or
held-to-maturity securities below cost that is deemed other than temporary
results in write-downs of individual securities to their fair value.

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

Loans originated and intended for sale in the secondary market are stated at
the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income. As the mortgage loans originated are individually pre-approved by the
secondary market investors, the Bank is subject to minimal interest rate and
credit risk on these loans as the Bank only holds the loans temporarily as
funding is completed.

Accrual of interest income is discontinued when a loan becomes 90 days past due
as to principal and interest or when, in managements judgment, the interest
will not be collectible in the normal course of business. Accrual of interest
on such loans is resumed when, in managements judgment, the collection of
interest and principal becomes probable. When a loan is placed on non-accrual
status, all interest previously accrued but not collected is reversed against
current interest income. Interest income is subsequently recognized only to the
extent cash payments are received.

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies(continued)

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

Loan origination fees, net of certain direct origination costs, are deferred
and recognized as an adjustment of the related loan yield over the life of the
loan. Loan origination fees and direct loan origination costs on loans held for
sale are deferred and recognized at the time the loan is sold.

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

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

Bank premises and equipment- Premises and equipment are stated at cost less
accumulated depreciation, computed by straight-line and declining balance
methods over the estimated useful lives of the assets, which range from three
to forty years.

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

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies(continued)

Fair value of financial instruments- The following methods and assumptions are
used by the Bank in estimating fair values of financial instruments. In cases
where quoted market prices of financial instruments are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.

In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. Accordingly, the aggregate fair value
amounts presented are not intended to and do not represent the underlying value
of the Bank.

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

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

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

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

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

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies(continued)

Stock-based compensation The Company accounts for stock-based compensation
utilizing the intrinsic value method. See Note 10 for additional information
regarding the Companys stock-based compensation plan. Presented below is
certain actual financial information of the Company with comparative proforma
information determined as if the Company had accounted for the stock-based
compensation utilizing the fair-value method (in thousands, except per share
amounts).

|                                                                                               |          |   |       |      |      |   |       |      |  |   |     |     | 
|---------------------------------------------------------------------------------------------- | -------- | - | ----- | ---- | ---- | - | ----- | ---- |  | - | --- | --- | 
|                                                                                               |          |   | 2002  |      | 2001 |   | 2000 
|                                                                                               |          |   |       |      |      |   |      
|Net income as reported                                                                         |          | $ | 3,331 |      |      | $ | 1,675 |      |  | $ | 127 |    
|Earnings per share as reported                                                                 |          |   |       |      |      |   |       |      |  |   |     |    
|                                                                                               | Basic:   |   | $     | 2.56 |      |   | $     | 1.29 |  |   | $   | .10 | 
|                                                                                               | Diluted: |   | $     | 2.37 |      |   | $     | 1.22 |  |   | $   | .09 | 
|Stock-based employee compensation cost
included in net income as reported                      |          | $ |      |      |      | $ |      |      |  | $ |    |    
|Stock-based employee compensation cost
based on fair-value method                              |          | $ | 157   |      |      | $ | 118   |      |  | $ | 8   |    
|Proforma net income including stock-based
compensation cost based on fair-value
method         |          | $ | 3,174 |      |      | $ | 1,557 |      |  | $ | 119 |    
|Proforma earnings per share including
stock-based compensation cost based on
fair-value method |          |   |       |      |      |   |       |      |  |   |     |    
|                                                                                               | Basic:   |   | $     | 2.44 |      |   | $     | 1.20 |  |   | $   | .09 | 
|                                                                                               | Diluted: |   | $     | 2.26 |      |   | $     | 1.13 |  |   | $   | .09 | 

New accounting pronouncements- In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established accounting standards for
derivative instruments. This Statement and subsequent amendments to the
Statement were adopted by the Company for the year ended December 31, 2001. The
adoption of this Statement did not have a significant impact on the Companys
financial reporting or operations.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. No. 141 addresses
financial reporting for business combinations by specifying that all
combinations are to be accounted for by using the purchase method. No. 142
addresses reporting for acquired goodwill and other intangible assets, but not
those acquired in a business combination. The Company adopted the provisions of
SFAS No. 142 effective January 1, 2002 and determined that the provisions of
No. 142 do not have an impact on the financial position of the Company and
results of operations for the year ended 2002.

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 1  Nature of business and significant accounting policies(continued)

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions, which amended SFAS No. 72, and No. 144 and FASB
Interpretation No.9 to apply the purchase method of accounting for acquisitions
of all or parts of a financial institution. The provisions of this Statement
were adopted by the Company as of October 1, 2002 and the Company determined
that this Statement did not have a significant impact on the Companys
financial reporting or operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure, which provides alternative methods
of transition for entities that voluntarily change to the fair value based
method of accounting for stock-based employee compensation. The provisions of
SFAS No. 148 as adopted by the Company did not have a significant impact on the
Companys financial reporting or operations.

Reclassifications Certain amounts in the 2001 and 2000 financial statements
have been reclassified to conform with the 2002 presentation.

Note 2  Investment securities

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

|                               |                            |   |                |        |            |   |            |     |            |   |    |    |   |   |        |        | 
|------------------------------ | -------------------------- | - | -------------- | ------ | ---------- | - | ---------- | --- | ---------- | - | -- | -- | - | - | ------ | ------ | 
|                               |                            |   | 2002          
|                               |                            |   |               
|                               |                            |   |                |        |            |   | Gross      |     | Gross      |   |    |    |  
|                               |                            |   | Amortized      |        | Unrealized |   | Unrealized |     |            |   |   
|                               |                            |   | Cost           |        | Gains      |   | Losses     |     | Fair Value
|                               |                            |   |                |        |            |   |            |     |           
|                               |                            |   | (In thousands)
|                               |                            |   |               
|Available-for-sale securities: |                            |   |                |        |            |   |            |     |            |   |    |    |   |   |        |       
|                               | U.S. Government and agency |   | $              | 13,093 |            |   | $          | 334 |            |   | $  |   |   |   | $      | 13,427 | 
|                               | Mortgage-backed            |   |                | 10,558 |            |   |            | 198 |            |   |    |   |   |   |        | 10,756 | 
|                               | Corporate obligations      |   |                | 2,044  |            |   |            | 129 |            |   |    |   |   |   |        | 2,173  | 
|                               | State and municipal        |   |                | 999    |            |   |            |    |            |   |    | (9 | ) |   |        | 990    | 
|                               |                            |   |                |        |            |   |            |     |            |   |    |    |   |   |        |        | 
|                               |                            | $ | 26,694         |        |            | $ | 661        |     |            | $ | (9 | )  |   | $ | 27,346 |       
|                               |                            |   |                |        |            |   |            |     |            |   |    |    |   |   |        |        | 

|                               |                            |   |                |       |            |   |            |     |            |   |     |     |   |   |        |       | 
|------------------------------ | -------------------------- | - | -------------- | ----- | ---------- | - | ---------- | --- | ---------- | - | --- | --- | - | - | ------ | ----- | 
|                               |                            |   | 2001          
|                               |                            |   |               
|                               |                            |   |                |       |            |   | Gross      |     | Gross      |   |     |     |  
|                               |                            |   | Amortized      |       | Unrealized |   | Unrealized |     |            |   |    
|                               |                            |   | Cost           |       | Gains      |   | Losses     |     | Fair Value
|                               |                            |   |                |       |            |   |            |     |           
|                               |                            |   | (In thousands)
|                               |                            |   |               
|Available-for-sale securities: |                            |   |                |       |            |   |            |     |            |   |     |     |   |   |        |      
|                               | U.S. Government and agency |   | $              | 8,239 |            |   | $          | 146 |            |   | $   | (9  | ) |   | $      | 8,376 | 
|                               | Mortgage-backed            |   |                | 8,961 |            |   |            | 82  |            |   |     | (29 | ) |   |        | 9,014 | 
|                               | Corporate obligations      |   |                | 2,057 |            |   |            | 62  |            |   |     |    |   |   |        | 2,119 | 
|                               |                            |   |                |       |            |   |            |     |            |   |     |     |   |   |        |       | 
|                               |                            | $ | 19,257         |       |            | $ | 290        |     |            | $ | (38 | )   |   | $ | 19,509 |      
|                               |                            |   |                |       |            |   |            |     |            |   |     |     |   |   |        |       | 

The amortized cost and fair value of securities as of December 31, 2002, by
contractual maturity, are as follows. Actual maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty,
therefore these securities are not included in the maturity categories in
the following maturity summary.


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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 2  Investment securities(continued)

|                                   |  |                    |        |       |  |   |        | 
|---------------------------------- |  | ------------------ | ------ | ----- |  | - | ------ | 
|                                   |  | Securities        
|                                   |  | Available-for-Sale
|                                   |  |                   
|                                   |  | Amortized          |        | Fair 
|                                   |  | Cost               |        | Value
|                                   |  |                    |        |      
|                                   |  | (In thousands)    
|                                   |  |                   
|One year or less                   |  | $                  | 750    |       |  | $ | 768    | 
|After one year through five years  |  |                    | 5,237  |       |  |   | 5,450  | 
|After five years through ten years |  |                    | 9,150  |       |  |   | 9,379  | 
|After ten years                    |  |                    | 999    |       |  |   | 993    | 
|Mortgage backed securities         |  |                    | 10,558 |       |  |   | 10,756 | 
|                                   |  |                    |        |       |  |   |        | 
|                                   |  | $                  | 26,694 |       |  | $ | 27,346 | 
|                                   |  |                    |        |       |  |   |        | 

Securities with a carrying amount of approximately $16.1 million and $15.9
million at December 31, 2002 and 2001, respectively, were pledged to secure
public deposits and for other purposes.

There were no material net realized gains (losses) on sales of securities
during 2002, 2001, or 2000.

Note 3  Loans

The composition of loans is summarized as follows:

|                           |            |   |                |         |      |   |         |         | 
|-------------------------- | ---------- | - | -------------- | ------- | ---- | - | ------- | ------- | 
|                           |            |   | December 31,  
|                           |            |   |               
|                           |            |   | 2002           |         | 2001
|                           |            |   |                |         |     
|                           |            |   | (In thousands)
|                           |            |   |               
|Commercial and industrial  |            | $ | 24,105         |         |      | $ | 26,863  |        
|Real estate - construction |            |   | 26,117         |         |      |   | 20,312  |        
|Real estate - mortgage     |            |   | 79,374         |         |      |   | 53,730  |        
|Consumer                   |            |   | 15,832         |         |      |   | 14,435  |        
|                           |            |   |                |         |      |   |         |        
|                           |            |   | 145,428        |         |      |   | 115,340 |        
|Unearned income            |            |   | (58            | )       |      |   | (114    | )      
|                           |            |   |                |         |      |   |         |        
|                           |            |   | 145,370        |         |      |   | 115,226 |        
|Allowance for loan losses  |            |   | (2,436         | )       |      |   | (2,187  | )      
|                           |            |   |                |         |      |   |         |        
|                           | Loans, net |   | $              | 142,934 |      |   | $       | 113,039 | 
|                           |            |   |                |         |      |   |         |        

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 3  Loans(continued)

Changes in the allowance for loan losses were as follows:

|                                |                      |   |                |       |      |   |       |       |  |   |       |       | 
|------------------------------- | -------------------- | - | -------------- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                |                      |   | December 31,  
|                                |                      |   |               
|                                |                      |   | 2002           |       | 2001 |   | 2000 
|                                |                      |   |                |       |      |   |      
|                                |                      |   | (In thousands)
|                                |                      |   |               
|Balance, beginning of year      |                      | $ | 2,187          |       |      | $ | 1,194 |       |  | $ | 1,000 |      
|Provision charged to operations |                      |   | 451            |       |      |   | 1,106 |       |  |   | 361   |      
|Recoveries                      |                      |   | 11             |       |      |   | 11    |       |  |   | 53    |      
|Loans charged off               |                      |   | (213           | )     |      |   | (124  | )     |  |   | (220  | )    
|                                |                      |   |                |       |      |   |       |       |  |   |       |      
|                                | Balance, end of year |   | $              | 2,436 |      |   | $     | 2,187 |  |   | $     | 1,194 | 
|                                |                      |   |                |       |      |   |       |       |  |   |       |      

Loans for which the accrual of interest had been discontinued or reduced
amounted to approximately $597,000 and $302,000 at December 31, 2002 and 2001,
respectively. There was no significant reduction in interest income associated
with non-accrual and renegotiated loans. There were no loans identified as
impaired under SFAS 114 at December 31, 2002 or 2001.

At December 31, 2002, executive officers and directors, and companies in which
they have a beneficial ownership, were indebted to the Bank in the aggregate
amount of $910,000. The interest rates on these loans were substantially the
same as rates prevailing at the time of the transactions, and repayment terms
are customary for the type of loan involved. Following is a summary of
transactions for 2002 and 2001:

|                           |                      |   |                |     |      |   |     |     | 
|-------------------------- | -------------------- | - | -------------- | --- | ---- | - | --- | --- | 
|                           |                      |   | December 31,  
|                           |                      |   |               
|                           |                      |   | 2002           |     | 2001
|                           |                      |   |                |     |     
|                           |                      |   | (In thousands)
|                           |                      |   |               
|Balance, beginning of year |                      | $ | 490            |     |      | $ | 759 |    
|Advances                   |                      |   | 764            |     |      |   | 152 |    
|Repayments                 |                      |   | 344            |     |      |   | 421 |    
|                           |                      |   |                |     |      |   |     |    
|                           | Balance, end of year |   | $              | 910 |      |   | $   | 490 | 
|                           |                      |   |                |     |      |   |     |    

Note 4  Foreclosed real estate

A summary of foreclosed real estate is as follows:

|                            |  |                |     |      |  |      |     |  |  |   |     | 
|--------------------------- |  | -------------- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                            |  | December 31,  
|                            |  |               
|                            |  | 2002           |     | 2001 |  | 2000
|                            |  |                |     |      |  |     
|                            |  | (In thousands)
|                            |  |               
|Carrying amount of property |  | $              | 305 |      |  | $    | 383 |  |  | $ | 483 | 
|Less: valuation allowance   |  |                |    |      |  |      |    |  |  |   |    | 
|                            |  |                |     |      |  |      |     |  |  |   |     | 
|                            |  | $              | 305 |      |  | $    | 383 |  |  | $ | 483 | 
|                            |  |                |     |      |  |      |     |  |  |   |     | 

The provision charged to income, net of recoveries and charge offs, amounted to
approximately $0 for each of the years presented.

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 5  Bank premises and equipment

Bank premises and equipment consists of the following:

|                                  |                             |   |                |       |      |   |        |       | 
|--------------------------------- | --------------------------- | - | -------------- | ----- | ---- | - | ------ | ----- | 
|                                  |                             |   | December 31,  
|                                  |                             |   |               
|                                  |                             |   | 2002           |       | 2001
|                                  |                             |   |                |       |     
|                                  |                             |   | (In thousands)
|                                  |                             |   |               
|Land                              |                             | $ | 3,092          |       |      | $ | 2,898  |      
|Building and improvements         |                             |   | 3,305          |       |      |   | 3,241  |      
|Equipment, furniture and fixtures |                             |   | 2,629          |       |      |   | 2,333  |      
|Construction in progress          |                             |   | 58             |       |      |   | 361    |      
|                                  |                             |   |                |       |      |   |        |      
|                                  | Total cost                  |   |                | 9,084 |      |   |        | 8,833 | 
|Less accumulated depreciation     |                             |   | (1,913         | )     |      |   | (1,842 | )    
|                                  |                             |   |                |       |      |   |        |      
|                                  | Premises and equipment, net |   | $              | 7,171 |      |   | $      | 6,991 | 
|                                  |                             |   |                |       |      |   |        |      

Depreciation expense for the years ended December 31, 2002, 2001, and 2000 was
approximately $443,000, $388,000, and $278,000, respectively.

Note 6  Deposits

At December 31, 2002, the scheduled maturities of time deposit liabilities were
as follows:

|                    |  |                |         | 
|------------------- |  | -------------- | ------- | 
|                    |  | (In thousands)
|                    |  |               
|2003                |  |                | 93,946  | 
|2004                |  |                | 12,784  | 
|2005                |  |                | 4,707   | 
|2006                |  |                | 555     | 
|2007 and thereafter |  |                | 1,984   | 
|                    |  |                |         | 
|                    |  | $              | 113,976 | 
|                    |  |                |         | 

To manage the Banks funding capabilities the Bank may also enter into retail
deposit agreements with customers and may obtain short-term funding from other
institutions. Retail deposit agreements with customers are generally secured by
investment securities owned by the Bank. Retail agreements are established at
prevailing market rates. Short-term funding from other institutions is
generally overnight funding at current market rates.

Note 7  Federal Home Loan Bank advances

The Bank had available at December 31, 2002 and 2001, a warehouse line of
credit through the Federal Home Loan Bank of Atlanta (FHLB) that provided the
availability of up to $45 million in advances to the Bank. As of December 31,
2002 and 2001, the Bank had outstanding advances on this warehouse line of
approximately $33.5 million and $33.6 million, respectively. The advances are
collateralized by Bank loans held-for-sale. The outstanding balances consist
of individual advances
with separate maturity periods of thirty-one days from date of issuance. The
weighted average interest rates on the outstanding advances were 1.80% and
2.08% as of December 31, 2002 and 2001, respectively. Maturity dates for the
outstanding advances as of December 31, 2002 ranged from January 23 through
January 31, 2003.

40



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 8  Line of Credit

The Company has a line of credit with a financial institution providing the
Company the ability to draw $3 million at current market rates. The line
matures January 2014. The balance drawn by the Company at December 31, 2002 was
$1 million. The arrangement provides for the Company and Bank to comply with
financial covenants related to capital levels, the allowance for loan losses,
dividend payments and other financial matters. At December 31, 2002 the Company
was in compliance with these covenants.

Note 9  Employee benefit plan

The Bank has a 401(k) salary-deferred plan covering substantially all
employees. At the discretion of the Banks Board of Directors, the Bank may
match a percentage of the annual amounts deferred by employees. Matching
amounts are funded by the Bank as accrued. Total deferred and matching amounts
are limited to amounts that can be deducted for Federal income tax purposes.
The Banks matching contributions were approximately $102,000, $58,000 and
$15,000, respectively, for each of the years in the three year period ended
December 31, 2002.

Note 10  Shareholders equity and regulatory requirements

The primary source of funds available to the Company is the payment of
dividends by the subsidiary Bank. Banking regulations limit the amount of
dividends that may be paid by the Bank without prior approval of regulatory
agencies.

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes that as of December 31, 2002,
the Bank met all capital adequacy requirements to which it is subject.

As of December 31, 2002, the most recent notification from the regulatory
agencies categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Banks
category.

41



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 10  Shareholders equity and regulatory requirements(continued)

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

|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|---------------------------------------- |  | ---------------------------------- | ------ | ----------------- |  | ----------------- | ----- | ----- |  | -------------------- | ------ | ----------------- |  |  | --- | - |  | -------------------- | ------ |  |  |  | ---- | -
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  | Required to be Well-
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  | Capitalized Under   
|                                         |  |                                    |        |                   |  |                   |       |       |  | Required For Capital |        | Prompt Corrective
|                                         |  | Actual                             |        | Adequacy Purposes |  | Action Provisions
|                                         |  |                                    |        |                   |  |                  
|                                         |  | Amount                             |        | Ratio             |  | Amount            |       | Ratio |  | Amount               |        | Ratio            
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                  
|                                         |  | (In thousands, except percentages)
|                                         |  |                                   
|As of December 31, 2002                  |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Total capital (to Risk Weighted Assets)  |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 19,729 |                   |  |                   | 10.39 | %     |  | $                    | 15,184 |                   |  |  | 8.0 | % |  | $                    | 18,980 |  |  |  | 10.0 | %
|Consolidated                             |  | $                                  | 18,866 |                   |  |                   | 9.93  | %     |  | $                    | 15,184 |                   |  |  | 8.0 | % |  | $                    |       |  |  |  |     |  
|Tier 1 capital (to Risk Weighted Assets) |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 17,356 |                   |  |                   | 9.15  | %     |  | $                    | 7,592  |                   |  |  | 4.0 | % |  | $                    | 11,388 |  |  |  | 6.0  | %
|Consolidated                             |  | $                                  | 16,491 |                   |  |                   | 8.68  | %     |  | $                    | 7,592  |                   |  |  | 4.0 | % |  | $                    |       |  |  |  |     |  
|Tier 1 leverage (to Average Assets)      |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 17,356 |                   |  |                   | 7.17  | %     |  | $                    | 9,687  |                   |  |  | 4.0 | % |  | $                    | 12,109 |  |  |  | 5.0  | %
|Consolidated                             |  | $                                  | 16,491 |                   |  |                   | 6.81  | %     |  | $                    | 9,687  |                   |  |  | 4.0 | % |  | $                    |       |  |  |  |     |  



|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|---------------------------------------- |  | ---------------------------------- | ------ | ----------------- |  | ----------------- | ----- | ----- |  | -------------------- | ------ | ----------------- |  |  | --- | - |  | -------------------- | ------ |  |  |  | ---- | -
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  | Required to be Well-
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  | Capitalized Under   
|                                         |  |                                    |        |                   |  |                   |       |       |  | Required For Capital |        | Prompt Corrective
|                                         |  | Actual                             |        | Adequacy Purposes |  | Action Provisions
|                                         |  |                                    |        |                   |  |                  
|                                         |  | Amount                             |        | Ratio             |  | Amount            |       | Ratio |  | Amount               |        | Ratio            
|                                         |  |                                    |        |                   |  |                   |       |       |  |                      |        |                  
|                                         |  | (In thousands, except percentages)
|                                         |  |                                   
|As of December 31, 2001                  |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Total capital (to Risk Weighted Assets)  |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 15,886 |                   |  |                   | 10.32 | %     |  | $                    | 12,318 |                   |  |  | 8.0 | % |  | $                    | 15,398 |  |  |  | 10.0 | %
|Consolidated                             |  | $                                  | 14,962 |                   |  |                   | 9.72  | %     |  | $                    | 12,318 |                   |  |  | 8.0 | % |  | $                    |       |  |  |  |     |  
|Tier 1 capital (to Risk Weighted Assets) |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 13,958 |                   |  |                   | 9.06  | %     |  | $                    | 6,159  |                   |  |  | 4.0 | % |  | $                    | 9,239  |  |  |  | 6.0  | %
|Consolidated                             |  | $                                  | 13,034 |                   |  |                   | 8.47  | %     |  | $                    | 6,159  |                   |  |  | 4.0 | % |  | $                    |       |  |  |  |     |  
|Tier 1 leverage (to Average Assets)      |  |                                    |        |                   |  |                   |       |       |  |                      |        |                   |  |  |     |   |  |                      |        |  |  |  |      |  
|Bank                                     |  | $                                  | 13,958 |                   |  |                   | 7.54  | %     |  | $                    | 7,409  |                   |  |  | 4.0 | % |  | $                    | 9,260  |  |  |  | 5.0  | %
|Consolidated                             |  | $                                  | 13,034 |                   |  |                   | 7.04  | %     |  | $                    | 7,409  |                   |  |  | 4.0 | % |  | $                    |       |  |  |  |     |  

In 2001 the Company paid a 20% stock dividend in the form of a six-for-five
split of the common stock. As a result, approximately $187 ($0.001 par for each
share issued pursuant to the split) was transferred from retained earnings to
the common stock. Cash was paid in lieu of fractional shares.

42



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 10  Shareholders equity and regulatory requirements(continued)

In 2002, the Company paid a 15% stock dividend. As a result, approximately
$170 ($0.001 par for each share issued pursuant to the dividend) was
transferred from retained earnings to common stock. Additionally,
approximately $2.9 million was transferred from retained earnings to additional
paid in capital based on the issuance price of the dividend of $17 per share.
Cash was paid in lieu of fractional shares.

During 1997 the Company adopted the 1997 Stock Option Plan (the Plan) for
eligible directors, officers and key employees of the Company and subsidiary
bank. Options are granted to purchase common shares at prices not less than
the fair market value of the stock at the date of grant. The maximum number of
shares which may be reserved and made available-for-sale under the Plan is
138,000 shares, as adjusted for the Companys six-for-five split of the common
stock and the 15% stock dividend.

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

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

Presentation of pro forma information regarding net income and earnings per
share is presented in Note 1 to the financial statements, and has been
determined as if the Company had accounted for the Plan under the fair value
method of that Statement. The fair value for these options was estimated, for
each of the years presented, at the date of grant using an option pricing model
which included the following assumptions:

|               |  |  |      |  
|-------------- |  |  | ---- | -
|Dividend yield |  |  | 1.0  | %
|Volatility     |  |  | 10.0 | %
|Risk-free rate |  |  | 6.5  | %

In addition, the model assumed that each option was exercised in the initial
year of vesting.

For purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the options vesting period. Option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Changes in the subjective input assumptions can materially
affect the fair value estimate. In managements opinion, the model does not
necessarily provide a reliable single measure of the fair value of options.

Vesting requirements are determined by the Board of Directors at the time
options are granted, and generally provide for vesting over a four-year period.
The Plan provides that vesting periods may not exceed ten years.

43



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 10  Shareholders equity and regulatory requirements(continued)

A summary of the Companys stock option activity, and related information, for
the years ended December 31, 2002, 2001 and 2000 follows. Exercise price per
share information is based on weighted averages.

|                                |  |  |                |  |                |   |                |  |       |  |         |  |       |   |      |  |  |  |        |  |  |   |      |  | 
|------------------------------- |  |  | -------------- |  | -------------- | - | -------------- |  | ----- |  | ------- |  | ----- | - | ---- |  |  |  | ------ |  |  | - | ---- |  | 
|                                |  |  | 2002           |  | 2001           |   | 2000          
|                                |  |  |                |  |                |   |               
|                                |  |  | Exercise Price |  | Exercise Price |   | Exercise Price
|                                |  |  |                |  |                |   | Per            |  |       |  |         |  | Per   |   |      |  |  |  | Per   
|                                |  |  | Options        |  | Share          |   | Options        |  | Share |  | Options |  | Share
|                                |  |  |                |  |                |   |                |  |       |  |         |  |      
|Outstanding 
beginning of year |  |  | 76,520         |  |                | $ | 9.09           |  |       |  | 55,075  |  |       | $ | 9.29 |  |  |  | 35,755 |  |  | $ | 9.68 | 
|Granted                         |  |  | 25,237         |  |                |   | 13.98          |  |       |  | 21,445  |  |       |   | 8.57 |  |  |  | 19,320 |  |  |   | 8.62 | 
|Expired                         |  |  |               |  |                |   |               |  |       |  |        |  |       |   |     |  |  |  |       |  |  |   |     | 
|                                |  |  |                |  |                |   |                |  |       |  |         |  |       |   |      |  |  |  |        |  |  |   |      |  | 
|Outstanding 
end of year       |  |  | 101,757        |  |                | $ | 10.30          |  |       |  | 76,520  |  |       | $ | 9.09 |  |  |  | 55,075 |  |  | $ | 9.29 | 
|                                |  |  |                |  |                |   |                |  |       |  |         |  |       |   |      |  |  |  |        |  |  |   |      |  | 

Stock options exercisable and the weighted-average exercise price at December
31, 2002, 2001 and 2000 follows:

|                                |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                |  | 2002 |        | 2001 |  | 2000
|                                |  |      |        |      |  |     
|Options                         |  |      | 59,813 |      |  |      | 35,243 |  |  |   | 15,011 | 
|Weighted-average exercise price |  | $    | 9.55   |      |  | $    | 9.50   |  |  | $ | 11.25  | 

The estimated weighted-average fair value of options granted during the years
ended December 31 are as follows (per option):

|     |  |   |      | 
|---- |  | - | ---- | 
|2002 |  | $ | 1.62 | 
|2001 |  | $ | 1.46 | 
|2000 |  | $ | 0.81 | 

At December 31, 2002, options outstanding have exercise prices that range from
$8.33 per share to $17.05 per share. The weighted-average remaining contractual
life of options outstanding at December 31, 2002 was 48 months.

At December 31, 2002, options to purchase 4,000 shares of the Companys common
stock were outstanding from options granted prior to the 1997 Stock Option
Plan. The options are non-transferable and have an exercise price of twelve
dollars per share and expire during the year 2003. Four thousand options were
exercised during the year ended December 31, 2002. No additional shares are
available to be granted under this arrangement. None of the options outstanding
under this arrangement are owned by employees or directors of the Company.

Following is a reconciliation of the income amounts and common stock amounts
utilized in computing the Companys earnings per share for each of the
following years ended December 31. Share amounts are weighted average amounts.

44



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GEORGIA-CAROLINA BANCSHARES,
INC.Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 10  Shareholders equity and regulatory requirements (continued)

|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 
|-------------------------------------------------------- |  | ---------------------------------------- | ----- | ------------- |  | --------- | --------- |  |  | - | ---- | 
|                                                         |  | 2002                                    
|                                                         |  |                                         
|                                                         |  | Income                                   |       | Shares        |  |           |           | 
|                                                         |  | (Numerator)                              |       | (Denominator) |  | Per Share
|                                                         |  |                                          |       |               |  |          
|                                                         |  | (Dollars in thousands, except per share)
|                                                         |  |                                         
|Basic
EPS                                                | 
|Income available to common stockholders                  |  | $                                        | 3,331 |               |  |           | 1,301,465 |  |  | $ | 2.56 | 
|Effect of stock options outstanding                      |  |                                          |      |               |  |           | 105,757   |  |  |   | 0.19 | 
|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 
|Diluted EPS                                              |  |                                          |       |               |  |           |           |  |  |   |      | 
|Income available to common stockholders
plus conversions |  | $                                        | 3,331 |               |  |           | 1,407,222 |  |  | $ | 2.37 | 
|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 

|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 
|-------------------------------------------------------- |  | ---------------------------------------- | ----- | ------------- |  | --------- | --------- |  |  | - | ---- | 
|                                                         |  | 2001                                    
|                                                         |  |                                         
|                                                         |  | Income                                   |       | Shares        |  |           |           | 
|                                                         |  | (Numerator)                              |       | (Denominator) |  | Per Share
|                                                         |  |                                          |       |               |  |          
|                                                         |  | (Dollars in thousands, except per share)
|                                                         |  |                                         
|Basic EPS                                                |  |                                          |       |               |  |           |           |  |  |   |      | 
|Income available to common stockholders                  |  | $                                        | 1,675 |               |  |           | 1,294,011 |  |  | $ | 1.29 | 
|Effect of stock options outstanding                      |  |                                          |      |               |  |           | 84,520    |  |  |   | 0.07 | 
|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 
|Diluted EPS                                              |  |                                          |       |               |  |           |           |  |  |   |      | 
|Income available to common stockholders
plus conversions |  | $                                        | 1,675 |               |  |           | 1,378,531 |  |  | $ | 1.22 | 
|                                                         |  |                                          |       |               |  |           |           |  |  |   |      | 

45



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 10  Shareholders equity and regulatory requirements (continued)

|                                                         |  |                                          |     |               |  |           |           |  |  |   |      | 
|-------------------------------------------------------- |  | ---------------------------------------- | --- | ------------- |  | --------- | --------- |  |  | - | ---- | 
|                                                         |  | 2000                                    
|                                                         |  |                                         
|                                                         |  | Income                                   |     | Shares        |  |           |           | 
|                                                         |  | (Numerator)                              |     | (Denominator) |  | Per Share
|                                                         |  |                                          |     |               |  |          
|                                                         |  | (Dollars in thousands, except per share)
|                                                         |  |                                         
|Basic EPS                                                |  |                                          |     |               |  |           |           |  |  |   |      | 
|Income available to common stockholders                  |  | $                                        | 127 |               |  |           | 1,285,185 |  |  | $ | 0.10 | 
|Effect of stock options outstanding                      |  |                                          |    |               |  |           | 67,075    |  |  |   | 0.01 | 
|                                                         |  |                                          |     |               |  |           |           |  |  |   |      | 
|Diluted EPS                                              |  |                                          |     |               |  |           |           |  |  |   |      | 
|Income available to common stockholders
plus conversions |  | $                                        | 127 |               |  |           | 1,352,890 |  |  | $ | 0.09 | 
|                                                         |  |                                          |     |               |  |           |           |  |  |   |      | 

Previously reported earnings per share amounts have been restated to reflect
the effects of the 2001 stock split and the 2002 stock dividend.

46



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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 11  Income taxes

The total income taxes in the statements of income for the years ended December
31, were as follows (in thousands):

|                       |  |      |       |      |  |      |       |   |  |   |    | 
|---------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | -- | 
|                       |  | 2002 |       | 2001 |  | 2000
|                       |  |      |       |      |  |     
|Current tax            |  | $    | 2,044 |      |  | $    | 1,237 |   |  | $ | 6  | 
|Deferred tax (benefit) |  |      | (112  | )    |  |      | (369  | ) |  |   | 40 | 
|                       |  |      |       |      |  |      |       |   |  |   |    | 
|                       |  | $    | 1,932 |      |  | $    | 868   |   |  | $ | 46 | 
|                       |  |      |       |      |  |      |       |   |  |   |    | 

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

|                |                                                    |  |      |      |      |  |      |      |   |  |      |      |  
|--------------- | -------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                |                                                    |  | 2002 |      | 2001 |  | 2000
|                |                                                    |  |      |      |      |  |     
|Statutory rates |                                                    |  | 38.0 | %    |      |  | 38.0 | %    |   |  | 38.0 | %   
|                | Tax exempt income                                  |  |      |     |      |  |      |     |   |  |      | (5.5 | )
|                | Nondeductible interest                             |  |      |     |      |  |      |     |   |  |      | 0.7  |  
|                | Other, including effect of graduated
rate brackets |  |      | (1.3 | )    |  |      | (4.0 | ) |  |      | (6.5 | )
|                |                                                    |  |      |      |      |  |      |      |   |  |      |     
|                |                                                    |  | 36.7 | %    |      |  | 34.0 | %    |   |  | 26.7 | %   
|                |                                                    |  |      |      |      |  |      |      |   |  |      |     

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

|                         |                                                  |                                 |   |                |     |      |   |     |     | 
|------------------------ | ------------------------------------------------ | ------------------------------- | - | -------------- | --- | ---- | - | --- | --- | 
|                         |                                                  |                                 |   | 2002           |     | 2001
|                         |                                                  |                                 |   |                |     |     
|                         |                                                  |                                 |   | (In thousands)
|                         |                                                  |                                 |   |               
|Deferred tax assets      |                                                  |                                 |   |                |     |      |   |    
|                         | Allowance for loan losses                        |                                 | $ | 856            |     |      | $ | 523 |    
|                         |                                                  |                                 |   |                |     |      |   |     |    
|                         |                                                  | Deferred income tax assets      |   |                | 856 |      |   |     | 523 | 
|                         |                                                  |                                 |   |                |     |      |   |     |    
|Deferred tax liabilities |                                                  |                                 |   |                |     |      |   |    
|                         | Depreciation                                     |                                 |   | 159            |     |      |   | 37  |    
|                         | Unrealized gain on securities available-for-sale |                                 |   | 248            |     |      |   | 85  |    
|                         |                                                  |                                 |   |                |     |      |   |     |    
|                         |                                                  | Deferred income tax liabilities |   |                | 407 |      |   |     | 122 | 
|                         |                                                  |                                 |   |                |     |      |   |     |    
|                         |                                                  | Net deferred income tax assets  |   | $              | 449 |      |   | $   | 401 | 
|                         |                                                  |                                 |   |                |     |      |   |     |    

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

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 12  Commitments and contingencies

In the ordinary course of business, the Bank may enter into off-balance sheet
financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when funds are disbursed or the instruments become payable.

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

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

|                             |  |                |        |      |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                             |  | 2002           |        | 2001
|                             |  |                |        |     
|                             |  | (In thousands)
|                             |  |               
|Commitments to extend credit |  | $              | 34,748 |      |  | $ | 28,309 | 
|Standby letters of credit    |  |                | 141    |      |  |   | 606    | 
|                             |  |                |        |      |  |   |        | 
|                             |  | $              | 34,889 |      |  | $ | 28,915 | 
|                             |  |                |        |      |  |   |        | 

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

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

Note 13  Supplemental consolidated cash flow information

|                  |  |                        |       |      |  |      |       |  |  |   |       | 
|----------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                  |  | 2002                   |       | 2001 |  | 2000
|                  |  |                        |       |      |  |     
|                  |  | (Dollars in thousands)
|                  |  |                       
|Income taxes paid |  | $                      | 2,945 |      |  | $    |      |  |  | $ | 85    | 
|Interest paid     |  | $                      | 6,013 |      |  | $    | 5,444 |  |  | $ | 3,014 | 

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 14 - Fair value of financial instruments

The estimated fair values of the Banks financial instruments, for those
instruments for which the Banks management believes estimated fair value does
not by nature approximate the instruments carrying amount, were as follows at
December 31, 2002 and 2001 (in millions):

|                                   |  |          |       |       |  |          |       |       |  |   |       |  |  |   |       | 
|---------------------------------- |  | -------- | ----- | ----- |  | -------- | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                                   |  | 2002     |       | 2001 
|                                   |  |          |       |      
|                                   |  | Carrying |       | Fair  |  | Carrying |       | Fair 
|                                   |  | Amount   |       | Value |  | Amount   |       | Value
|                                   |  |          |       |       |  |          |       |      
|Loans and loans held for sale, net |  | $        | 213.3 |       |  | $        | 214.9 |       |  | $ | 173.9 |  |  | $ | 174.1 | 
|Certificates of deposit            |  | $        | 113.9 |       |  | $        | 113.8 |       |  | $ | 91.8  |  |  | $ | 91.6  | 

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

Note 15 - Other expenses

Other non-interest expenses were as follows:

|                      |  |                        |       |      |  |      |       |  |  |   |       | 
|--------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                      |  | December 31,          
|                      |  |                       
|                      |  | 2002                   |       | 2001 |  | 2000
|                      |  |                        |       |      |  |     
|                      |  | (Dollars in thousands)
|                      |  |                       
|Data processing       |  | $                      | 503   |      |  | $    | 362   |  |  | $ | 236   | 
|Legal and accounting  |  |                        | 209   |      |  |      | 140   |  |  |   | 87    | 
|Printing and supplies |  |                        | 354   |      |  |      | 360   |  |  |   | 154   | 
|Advertising           |  |                        | 301   |      |  |      | 275   |  |  |   | 105   | 
|Telephone             |  |                        | 160   |      |  |      | 167   |  |  |   | 95    | 
|Outside services      |  |                        | 218   |      |  |      | 338   |  |  |   | 96    | 
|Other                 |  |                        | 1,616 |      |  |      | 980   |  |  |   | 697   | 
|                      |  |                        |       |      |  |      |       |  |  |   |       | 
|                      |  | $                      | 3,361 |      |  | $    | 2,622 |  |  | $ | 1,470 | 
|                      |  |                        |       |      |  |      |       |  |  |   |       | 

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 16 - Comprehensive Income

The components of other comprehensive income and related tax effects for each
of the years ended December 31, were as follows (in thousands):

|                                                          |  |              |      |      |  |      |      |   |  |   |      |  
|--------------------------------------------------------- |  | ------------ | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                          |  | December 31,
|                                                          |  |             
|                                                          |  | 2002         |      | 2001 |  | 2000
|                                                          |  |              |      |      |  |     
|Unrealized holding gains on
available-for-sale securities |  | $            | 400  |      |  | $    | 392  |   |  | $ | 333  |  
|Tax effect                                                |  |              | (162 | )    |  |      | (133 | ) |  |   | (116 | )
|                                                          |  |              |      |      |  |      |      |   |  |   |      |  
|Net of tax amount                                         |  | $            | 238  |      |  | $    | 259  |   |  | $ | 217  |  
|                                                          |  |              |      |      |  |      |      |   |  |   |      |  

Note 17 - Condensed financial information on Georgia-Carolina Bancshares, Inc.

(parent company only)


Condensed Balance Sheet

December 31, 2002 and 2001(dollars in thousands)

|                     |                          |                                            |        |        |        |      |        |        |        | 
|-------------------- | ------------------------ | ------------------------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | 
|                     |                          |                                            |        | 2002   |        | 2001
|                     |                          |                                            |        |        |        |     
|Assets               |                          |                                            |        |        |        |      |        |       
|                     | Cash                     |                                            | $      | 25     |        |      | $      | 9      |       
|                     | Investment in subsidiary |                                            |        | 17,760 |        |      |        | 14,124 |       
|                     | Other assets             |                                            |        | 10     |        |      |        | 53     |       
|                     | Deferred tax benefit     |                                            |        | 111    |        |      |        | 14     |       
|                     |                          |                                            |        |        |        |      |        |        |       
|                     |                          | Total assets                               |        | $      | 17,906 |      |        | $      | 14,200 | 
|                     |                          |                                            |        |        |        |      |        |        |       
|Liabilities          |                          |                                            |        |        |        |      |        |       
|                     | Notes payable            |                                            | $      | 1,000  |        |      | $      | 1,000  |       
|                     | Other Liabilities        |                                            |        | 11     |        |      |        |       |       
|Shareholders equity |                          |                                            | 16,895 |        |        |      | 13,200 |       
|                     |                          |                                            |        |        |        |      |        |        |       
|                     |                          | Total liabilities and shareholders equity |        | $      | 17,906 |      |        | $      | 14,200 | 
|                     |                          |                                            |        |        |        |      |        |        |       

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Condensed Statement of Income
Years Ended December 31, 2002 and 2001(dollars in thousands)

|                                  |                       |                                                                                    |    |      |       |      |    |     |       |  
|--------------------------------- | --------------------- | ---------------------------------------------------------------------------------- | -- | ---- | ----- | ---- | -- | --- | ----- | -
|                                  |                       |                                                                                    |    | 2002 |       | 2001
|                                  |                       |                                                                                    |    |      |       |     
|Income, dividends from subsidiary |                       | $                                                                                  | 95 |      |       | $    | 10 |    
|Expenses                          |                       |                                                                                    |    |      |       |      |    |    
|                                  | Director compensation |                                                                                    |    | (37  | )     |      |    | (39 | )    
|                                  | Other                 |                                                                                    |    | (224 | )     |      |    | (87 | )    
|                                  |                       |                                                                                    |    |      |       |      |    |    
|                                  |                       | Loss before income tax benefits and equity in
undistributed earnings of subsidiary |    |      | (166  | )    |    |     | (116  | )
|Income tax benefits               |                       |                                                                                    | 98 |      |       |      | 43 |    
|                                  |                       |                                                                                    |    |      |       |      |    |    
|                                  |                       | Loss before equity in undistributed earnings
of subsidiary                         |    |      | (68   | )    |    |     | (73   | )
|                                  |                       | Equity in undistributed earnings of Subsidiary                                     |    |      | 3,399 |      |    |     | 1,748 |  
|                                  |                       |                                                                                    |    |      |       |      |    |    
|                                  |                       | Net income                                                                         |    | $    | 3,331 |      |    | $   | 1,675 |  
|                                  |                       |                                                                                    |    |      |       |      |    |    

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GEORGIA-CAROLINA BANCSHARES, INC.
Notes to Consolidated Financial Statements- (continued)December 31, 2002 and 2001

Note 17 - Condensed financial information on Georgia-Carolina Bancshares, Inc.

(parent company only)(continued)


Condensed Statement of Cash Flows
Years Ended December 31, 2002 and 2001

(dollars in thousands)

|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |        |   | 
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | ----- | ------ | ------ | ----- | ------ | ------ | ------ | - | 
|                                                                                  |                                                                       |                                                |                                       |       |        | 2002   |       | 2001  
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |       
|Cash flows from operating activities                                              |                                                                       |                                                |                                       |       |        |        |       |       
|                                                                                  | Net income                                                            |                                                | $                                     | 3,331 |        |        | $     | 1,675  |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                       |                                                |                                       |       |        |        |       |       
|                                                                                  |                                                                       | Stock compensation                             |                                       |       | 37     |        |       |        | 39     |       
|                                                                                  |                                                                       | Equity in undistributed earnings of subsidiary |                                       |       | (3,399 | )      |       |        | (1,748 | )     
|                                                                                  |                                                                       | Other assets                                   |                                       |       | 3      |        |       |        | (43    | )     
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|                                                                                  |                                                                       |                                                | Total adjustments                     |       |        | (3,359 | )     |        |        | (1,752 | )
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|                                                                                  |                                                                       |                                                | Net cash used in operating activities |       |        | (28    | )     |        |        | (77    | )
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|Cash flows from investing activities                                              |                                                                       |                                                |                                       |       |        |        |       |       
|                                                                                  | Cash used in additional investment in subsidiary
bank                 |                                                |                                       |      |        |        |       | (1,000 | )     
|                                                                                  | Other                                                                 |                                                |                                       |      |        |        |       | 10     |       
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|                                                                                  |                                                                       |                                                | Net cash used in investing activities |       |        |       |       |        |        | (990   | )
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|Cash flows from financing activities                                              |                                                                       |                                                |                                       |       |        |        |       |       
|                                                                                  | Proceeds from borrowed funds                                          |                                                |                                       |      |        |        |       | 1,000  |       
|                                                                                  | Proceeds from issuance of common stock, and
exercise of stock options |                                                |                                       | 44    |        |        |       |       |       
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|Net cash provided by financing activities                                         |                                                                       |                                                | 44                                    |       |        |        | 1,000 |       
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|Net change in cash                                                                |                                                                       |                                                | 16                                    |       |        |        | (67   | )     
|Cash at beginning of year                                                         |                                                                       |                                                | 9                                     |       |        |        | 76    |       
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       
|Cash at end of year                                                               |                                                                       | $                                              | 25                                    |       |        | $      | 9     |       
|                                                                                  |                                                                       |                                                |                                       |       |        |        |       |        |        |       

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Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

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




PART III

Certain information required by Part III of this Form 10-KSB is 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 21, 2003. The Company will, within 120 days of
the end of its fiscal year, file with the Securities and Exchange Commission a
definitive proxy statement pursuant to Regulation 14A.




Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.

The information responsive to this item is incorporated by reference from the
section entitled Election of Directors contained in the Proxy Statement.




Item 10. Executive Compensation.

The information responsive to this item is incorporated by reference from the
section entitled Executive Compensation contained in the Proxy Statement.




Item 11. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.

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




Item 12. Certain Relationships and Related Transactions.

The information responsive to this item is incorporated by reference from the
section entitled Certain Transactions contained in the Proxy Statement.




Item 13. Exhibits and Reports on Form 8-K.

(a)  Exhibits

The following exhibits are filed with this report:

|        |       |  |  |                        |  |                                                                                                                                                                                                                                                                                   
|------- | ----- |  |  | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |  |                       
|Number  |       |  |  | Description of Exhibit
|        |       |  |  |                        | 
|        | 3.1   |  |  | -                      |  | 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)).                                                       

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| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | ------ |  |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1    |  |  | - |  | Specimen Common Stock Certificate (incorporated
herein by reference to the exhibit of the same
number in the Companys Registration Statement on
Form 8-A, under the Securities Exchange Act of
1934, as amended, previously filed with the
Commission).                                                                                                            
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 10.1   |  |  | - |  | Employment Agreement dated October 6, 1997 between
the Company and Patrick G. Blanchard (incorporated
herein by reference to the exhibit of the same
number in the Companys Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997,
previously filed with the Commission).                                                                       
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 10.1.1 |  |  | - |  | Amendment No. 1 to Employment Agreement dated
October 6, 1997 between First Bank of Georgia, the
Company and Patrick G. Blanchard, dated September
30, 1998 (incorporated herein by reference to the
exhibit of the same number in the Companys
Registration Statement on Form SB-2, as amended,
Registration No. 333-69763, previously filed with
the Commission).
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 10.1.2 |  |  | - |  | Amendment No. 2 to Employment Agreement dated
October 6, 1997 between First Bank of Georgia, the
Company and Patrick G. Blanchard, dated December
23, 1998 (incorporated herein by reference to the
exhibit of the same number in the Companys
Registration Statement on Form SB-2, as amended,
Registration No. 333-69763, previously filed with
the Commission). 
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 10.2   |  |  | - |  | 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).                                                                                                                                        
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 21.1   |  |  |   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                     
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 23.1   |  |  |   |  | Consent of Cherry, Bekaert & Holland, L.L.P.                                                                                                                                                                                                                                                                                                                        
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 99.1   |  |  |   |  | Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                            
| |        |  |  |   |  |                                                                                                                                                                                                                                                                                                                                                                     
| | 99.2   |  |  |   |  | Code of Business Conduct and Ethics                                                                                                                                                                                                                                                                                                                                 

(b)  Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
2002.




Item 14. Controls and Procedures.

Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company and its subsidiary required to be included in the
Companys Securities and Exchange Commissions filings. Disclosure controls and
procedures are controls and procedures that are designed to ensure that
information required to be disclosed in Company reports filed

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or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commissions rules and forms.

There have been no significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls subsequent to
the date management carried out this evaluation.

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.

|                     |  |                                   |                                |                                                                                         
|-------------------- |  | --------------------------------- | ------------------------------ | ----------------------------------------------------------------------------------------
|                     |  | GEORGIA-CAROLINA BANCSHARES, INC.
|                     |  |                                   |                                |                                                                                         
|Date: March 19, 2003 |  |                                   | By:    /s/Patrick G. Blanchard
|                     |  |                                   |                                |                                                                                         
|                     |  |                                   |                                | Patrick G. Blanchard
President and Chief Executive Officer
(principal executive officer)
|                     |  |                                   |                                |                                                                                         
|Date: March 19, 2003 |  |                                   | By:   /s/ James M. Thomas     
|                     |  |                                   |                                |                                                                                         
|                     |  |                                   |                                | James M. Thomas
Chief Financial Officer
(principal financial and accounting officer)    

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                                 |  |                |  |                                                  |  |               
|------------------------------------------------ |  | -------------- |  | ------------------------------------------------ |  | --------------
|DIRECTORS                                        |  | DATE           |  | DIRECTORS                                        |  | DATE          
|/s/ Patrick G. Blanchard

Patrick G. Blanchard   |  | March 19, 2003 |  | /s Hugh L. Hamilton, Jr.

Hugh L. Hamilton, Jr.  |  | March 19, 2003
|                                                 |  |                |  |                                                  |  |               
|/s/ Larry DeMeyers
Larry DeMeyers                |  | March 19, 2003 |  | /s/ William G. Hatcher

William G. Hatcher       |  | March 19, 2003
|                                                 |  |                |  |                                                  |  |               
|/s/ Phillip G. Farr

Phillip G. Farr             |  | March 19, 2003 |  | /s/ George O. Hughes

George O. Hughes           |  | March 19, 2003
|                                                 |  |                |  |                                                  |  |               
|/s/ Samuel A. Fowler, Jr.

Samuel A. Fowler, Jr. |  | March 19, 2003 |  | /s/ George H. Inman

George H. Inman             |  | March 19, 2003
|                                                 |  |                |  |                                                  |  |               
|/s/ Arthur J. Gay, Jr.

Arthur J. Gay, Jr.       |  | March 19, 2003 |  | /s/ David W. Joesbury

David W. Joesbury         |  | March 19, 2003
|                                                 |  |                |  |                                                  |  |               
|/s/ Joseph D. Greene

Joseph D. Greene           |  | March 19, 2003 |  | /s/ James L. Lemley, M.D.

James L. Lemley, M.D. |  | March 19, 2003

(SIGNATURES CONTINUED ON NEXT PAGE)

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|                                                 |  |                |  |                                            |  |               
|------------------------------------------------ |  | -------------- |  | ------------------------------------------ |  | --------------
|/s/ Randall Hall

J. Randall Hall                |  | March 19, 2003 |  | /s/ Julian W. Osbon

Julian W. Osbon       |  | March 19, 2003
|                                                 |  |                |  |                                            |  |               
|/s/ John W. Lee

John W. Lee                     |  | March 19, 2003 |  | /s/ Bennye M. Young

Bennye M. Young       |  | March 19, 2003
|                                                 |  |                |  |                                            |  |               
|/s/ Robert N. Wilson, Jr.

Robert N. Wilson, Jr. |  | March 19, 2003 |  | /s/ A. Montague Miller

A. Montague Miller |  | March 19, 2003

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CERTIFICATIONS

I, Patrick G Blanchard, President and Chief Executive Officer of
Georgia-Carolina Bancshares, certify that:



|1. |  | I have reviewed this annual report on Form 10-KSB of Georgia-Carolina
Bancshares, Inc.;                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                |  |                                                         
|----- |  | -------------- |  | --------------------------------------------------------
|Date: |  | March 19, 2003 |  | /s/ Patrick G.
Blanchard                                
|      |  |                |  | Patrick G. Blanchard
President & Chief Executive Officer





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##### Table of Contents



CERTIFICATIONS

I, James M. Thomas, Chief Financial Officer of Georgia-Carolina Bancshares,
Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-KSB of Georgia-Carolina
Bancshares, Inc.;                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|      |  |                |  |                                                            
|----- |  | -------------- |  | -----------------------------------------------------------
|Date: |  | March 19, 2003 |  | /s/ James M.
Thomas
James M. Thomas
Chief Financial Officer





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##### Table of Contents



|        |      |                        |  |                                                                        
|------- | ---- | ---------------------- |  | -----------------------------------------------------------------------
|EXHIBIT |      |                       
|NUMBER  |      | DESCRIPTION OF EXHIBIT
|        |      |                       
|        | 21.1 |                        |  | Subsidiaries of the Registrant                                         
|        |      |                        |  |                                                                        
|        | 23.1 |                        |  | Consent of Cherry, Bekaert & Holland, L.L.P.                           
|        |      |                        |  |                                                                        
|        | 99.1 |                        |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|        |      |                        |  |                                                                        
|        | 99.2 |                        |  | Code of Business Conduct and Ethics