<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                  FORM 10-KSB
                 ----------------------------------------------

                 ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                          COMMISSION FILE NO. 0-22891
                                              -------
                       GEORGIA-CAROLINA BANCSHARES, INC.

              INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA

                (I.R.S. EMPLOYER IDENTIFICATION NO. 58-2326075)

                              110 EAST HILL STREET
                             THOMSON, GEORGIA 30824

                           TELEPHONE: (706) 595-1600

-------------------------------------------------------------------------------
 Securities registered under Section 12(b) of the Securities Exchange Act: None

   Securities registered under Section 12(g) of the Securities Exchange Act:
                         Common Stock, $0.001 Par Value
   -------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes  [X]   No  [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment of
this Form 10-KSB.  [ ]

Revenue for the fiscal year ended December 31, 1999: $4,283,000

The aggregate market value of the registrant's common stock held by
nonaffiliates of the registrant (585,843 shares) on March 20, 2000 was
$7,539,799 based on the closing price of the registrant's common stock as
reported on the Over-The-Counter-Bulletin Board on March 20, 2000. 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 20, 2000, 931,750 shares of the registrant's common stock were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

Portions of the registrant's definitive proxy statement to be delivered to
shareholders in connection with the 2000 Annual Meeting of Shareholders
scheduled to be held May 17, 2000 are incorporated by reference in response to
Part III of this Report.

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


<PAGE>   2

                                     PART I


         SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
         ACT OF 1995

         Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology,
and are made on the basis of management's plans and current analyses of the
Company, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, the Company's financial performance
and could cause actual results for fiscal 2000 and beyond to differ materially
from those expressed or implied in such forward-looking statements. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.


ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

         Georgia-Carolina Bancshares, Inc. (the "Company") was incorporated
under the laws of the State of Georgia on January 31, 1997, to operate as a
bank holding company under the federal Bank Holding Company Act of 1956, as
amended.

         The Company is a one-bank holding company and owns 100% of the issued
and outstanding stock of First Bank of Georgia (the "Bank"), a state-chartered
commercial bank that operates two offices in Thomson, Georgia under the name
First Bank-McDuffie and two offices in the Augusta, Georgia area under the names
First Bank -- Augusta and First Bank -- Columbia County, respectively. The Bank
opened the Daniel Village Office in Augusta in March 1999 and opened the West
Town Office in Martinez, Georgia in October 1999. The Bank has entered into
agreements to purchase sites for two additional branches, one in Augusta and one
in Columbia County. The Bank expects to begin construction on the Augusta branch
office in the second quarter of 2000. The Bank does not expect to begin
construction on the Columbia County branch office until 2001.

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

         The Bank offers a full range of deposit and lending services and is a
member of an electronic banking network, which enables its customers to use the
automated teller machines of other financial institutions. In addition, the
Bank offers commercial and business credit services, as well as various
consumer credit services, including home mortgage loans, automobile loans,
lines of credit, home equity loans, home improvement loans and credit card
accounts. In September 1999, the Bank established the Mortgage Division of the
Bank which originates mortgage loans and offers a variety of other mortgage
products. The Bank is in the process of expanding its mortgage lending
operations through the acquisition of certain mortgage banking offices from
another financial institution. The offices are located in Augusta, Warner
Robins and Savannah. The acquisition of these mortgage banking offices will
involve the hiring of executives and staff employees, the assumption of leases,
the purchase of fixed assets for a price of approximately $200,000, and the
potential to purchase a $15 million loan portfolio.


                                      -1-

<PAGE>   3

         The Company was organized in 1997 at the direction of the Board of
Directors of the Bank based on a plan of reorganization developed by the Board
to substantially strengthen the Bank's competitive position. On April 28, 1997,
the shareholders of the Bank, at the Bank's Annual Meeting of Shareholders,
duly approved and authorized the reorganization, in which the Bank would become
a wholly-owned subsidiary of the Company. After final regulatory approvals, the
reorganization was completed on June 6, 1997.

         In February 1997, while Bank management and the Board of Directors of
the Bank were pursuing the organization of the Company, the Bank was contacted
by certain businessmen located in and around Augusta, Georgia who were
interested in chartering a new bank to serve the markets of Augusta and
neighboring Columbia County as a subsidiary of the Company. In October 1997,
the Company and the businessmen reached an agreement, subsequently approved by
the Company's shareholders and subject to certain other conditions, whereby the
Company agreed to register certain shares of its common stock for sale to the
public and to use the proceeds of such sale to expand the Bank, through the
establishment of offices, into Augusta and Columbia County. In March 1999, the
Company completed a best efforts public offering of its common stock as a
result of which the Company sold 296,370 shares and received proceeds of
approximately $4,000,995.

MARKET AREA AND COMPETITION

         The primary service area (the "PSA") of the Bank is the county of
McDuffie, Georgia and the community of Thomson, Georgia which is approximately
30 miles west of Augusta, Georgia. As a result of the Bank's opening of its two
new branch offices, the Bank is now serving customers in the Augusta area. The
Bank encounters competition in its PSA and in surrounding areas from other
commercial banks. These competitors offer a full range of banking services and
compete for all types of services, especially deposits. In addition, in certain
aspects of its banking business, the Bank also competes with credit unions,
small loan companies, consumer finance companies, brokerage houses, insurance
companies, money market funds, and other financial services companies which
have recently started to attract customers that have traditionally been served
by banks.

         The extent to which other types of financial services companies
compete with commercial banks has increased significantly over the past several
years as a result of federal and state legislation which has permitted these
organizations to compete for customers and offer products that have
historically been offered by banks. The impact of this legislation and other
subsequent legislation on the financial services industry cannot be predicted.
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, 1999 and 1998. Also presented is the Bank's actual
interest income and expense from each asset and the average yield of each
interest-earning asset and the average cost of each interest-bearing liability.
This table includes all major categories of interest-earning assets and
interest-bearing liabilities:


                                      -2-

<PAGE>   4

                             AVERAGE BALANCE SHEETS
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              December 31,
                                            --------------------------------------------------------------------------------
                                                         1999                                           1998
                                            ----------------------------------           -----------------------------------
                                                          Interest     Average                         Interest    Average
                                             Average      Income/      Yield/             Average      Income/      Yield/
                                             Balance      Expense       Rate              Balance      Expense       Rate
<S>                                         <C>          <C>              <C>            <C>          <C>             <C>
ASSETS
INTEREST-EARNING ASSETS
  Loans, net of unearned income             $ 30,602     $  2,818         9.21%          $ 21,533     $  2,232        10.37%
  Investment securities                       13,024          809         6.21%            14,477          897         6.20%
  Interest-bearing deposits in banks              --           --           --                100            7         7.00%
  Federal funds sold                           5,305          284         5.35%             3,370          169         5.01%
                                            --------     --------                        --------     --------
     TOTAL INTEREST-EARNING ASSETS            48,931        3,911         7.99%            39,480        3,305         8.37%
                                                         --------                                     --------

NON-INTEREST EARNING ASSETS
  Cash and due from banks                      1,478                                        1,770
  Bank premises and fixed assets               3,477                                        1,976
  Accrued interest receivable                    404                                          412
  Other assets                                 1,409                                          717
  Allowance for loan losses                     (922)                                        (824)
                                            --------                                     --------
     TOTAL ASSETS                           $ 54,777                                     $ 43,531
                                            ========                                     ========

LIABILITIES AND SHAREHOLDERS'
 EQUITY
INTEREST-BEARING DEPOSITS
  NOW accounts                              $  7,035     $    127         1.80%          $  7,601     $    145         1.91%
  Savings accounts                             2,407           60         2.49%             1,970           50         2.54%
  Money market accounts                        7,208          273         3.79%             3,034          101         3.33%
  Time accounts                               22,431        1,191         5.31%            19,065        1,104         5.79%
                                            --------     --------                        --------     --------
     TOTAL INTEREST-BEARING DEPOSITS          39,081        1,651         4.22%            31,670        1,400         4.42%

OTHER INTEREST-BEARING
 LIABILITIES
  Funds purchased                                153            6         3.97                 --           --           --
                                            --------     --------                        --------     --------     --------
     TOTAL INTEREST-BEARING LIABILITIES       39,234        1,657         4.22%            31,670        1,400         4.42%

NONINTEREST-BEARING LIABILITIES
 AND SHAREHOLDERS' EQUITY
  Demand deposits                              5,030                                        4,046
  Other liabilities                              470                                          446
  Shareholders' equity                        10,043                                        7,369
                                            --------                                     --------
     TOTAL LIABILITIES AND SHAREHOLDERS'
      EQUITY                                $ 54,777                                     $ 43,531
                                            ========                                     ========

Interest rate spread                                                      3.77%                                        3.95%
Net interest income                                         2,254                                        1,905
Net interest margin                                                       4.62%                                        4.83%
Average interest-earning assets to
 average total assets                                                    89.33%                                       90.69%
Average loans to average deposits                                        69.37%                                       60.29%
</TABLE>

                                      -3-

<PAGE>   5

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

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

<TABLE>
<CAPTION>
                                                           Year Ended December 31, 1999
                                                                  compared with
                                                           Year Ended December 31, 1998
                                                           (Dollar amounts in thousands)
                                                      --------------------------------------
                                                      Increase (Decrease) Due to
                                                      --------------------------
                                                       Volume           Rate         Total
                                                      --------       -----------    --------

<S>                                                   <C>            <C>            <C>
Interest earned on:
  Tax-exempt securities                               $    (13)      $     (1)      $    (14)
  Taxable securities                                       (69)            (5)           (74)
  Federal funds sold                                       140            (25)           115
  Net loans                                                806           (220)           586
  Interest-bearing deposits in banks                        (7)            --             (7)
                                                      --------       --------       --------

Total interest income                                      857           (251)           606
                                                      --------       --------       --------

Interest paid on:
  NOW deposits                                              (4)           (13)           (17)
  Money market deposits                                    151             21            172
  Savings deposits                                          11             (1)            10
  Time deposits                                            197           (111)            86
  Funds purchased                                            6             --              6
                                                      --------       --------       --------

Total interest expense                                     361           (104)           257
                                                      --------       --------       --------

Increase (decrease) in net interest income            $    496       $   (147)      $    349
                                                      ========       ========       ========
</TABLE>



                                      -4-

<PAGE>   6

<TABLE>
<CAPTION>
                                                           Year Ended December 31, 1999
                                                                  compared with
                                                           Year Ended December 31, 1998
                                                           (Dollar amounts in thousands)
                                                      --------------------------------------
                                                      Increase (Decrease) Due to
                                                      --------------------------
                                                       Volume           Rate         Total
                                                      --------       -----------    --------
<S>                                                   <C>            <C>            <C>
Interest earned on:
  Tax-exempt securities                               $    (34)      $     (3)      $    (37)
  Taxable securities                                       205            (29)           176
  Federal funds sold                                        23            (14)             9
  Net loans                                                169             29            198
  Interest-bearing deposits in banks                        (3)            (1)            (4)
                                                      --------       --------       --------

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

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

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

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


DEPOSITS

         The Bank offers a wide range of commercial and consumer interest
bearing and non-interest bearing deposit accounts, including checking accounts,
money market accounts, negotiable order of withdrawal ("NOW") accounts,
individual retirement accounts, certificates of deposit and regular savings
accounts. The Bank also provides interest bearing commercial sweep accounts.
The sources of deposits are residents, businesses and employees of businesses
within the Bank's market area, obtained through the personal solicitation of
the Bank's officers and directors, direct mail solicitation and advertisements
published in the local media. The Bank pays competitive interest rates on time
and savings deposits. In addition, the Bank has implemented a service charge
fee schedule competitive with other financial institutions in the Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and similar items.





                                      -5-

<PAGE>   7

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


<TABLE>
<CAPTION>
                                             Year Ended December 31, 1999          Year Ended December 31, 1998
                                          ---------------------------------     ----------------------------------
                                            (Dollar amounts in thousands)         (Dollar amounts in thousands)
Deposit Category                          Average Amount  Average Rate Paid     Average Amount   Average Rate Paid
----------------                          --------------  -----------------     --------------   -----------------
<S>                                       <C>             <C>                   <C>              <C>
Non-interest bearing demand deposits        $  5,030             --                 $  4,046             --

NOW and money market deposits                 14,243           2.81%                  10,635           2.30%

Savings deposits                               2,407           2.49%                   1,970           2.54%

Time deposits                                 22,431           5.31%                  19,065           5.79%
</TABLE>

         The maturities of certificates of deposit and individual retirement
accounts of $100,000 or more as of December 31, 1999 were as follows:

<TABLE>
<CAPTION>
                                                                                 (In thousands)
<S>                                                                              <C>
Three months or less                                                                $  2,691
Over three months through twelve months                                                4,972
Over twelve months                                                                     1,187
                                                                                    --------
                          Total                                                     $  8,850
                                                                                    ========
</TABLE>

LOAN PORTFOLIO

         The Bank engages in a full complement of lending activities, including
commercial, consumer/ installment and real estate loans. The Bank concentrates
its lending efforts in the areas of consumer/ installment and real estate
loans, particularly home mortgage lending. As of December 31, 1999, the Bank's
loan portfolio consisted of 29% commercial loans, 11% consumer/installment
loans and 60% real estate loans.

         Commercial lending is directed principally towards businesses whose
demands for funds fall within the Bank's legal lending limits and which are
potential deposit customers of the Bank. This category of loans includes loans
made to individual, partnership or corporate borrowers, and obtained for a
variety of business purposes. Such loans include short-term lines of credit,
short to medium-term plant and equipment loans, short to medium-term land
acquisition and development loans, construction loans and letters of credit.

         The Bank's consumer loans consist primarily of residential first and
second mortgage loans, home equity loans, installment loans to individuals for
personal, family or household purposes, including automobile loans to
individuals and pre-approved lines of credit.

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


                                      -6-

<PAGE>   8

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

         While risk of loss in the Bank's loan portfolio is primarily tied to
the credit quality of the various borrowers, risk of loss may also increase due
to factors beyond the Bank's control, such as local, regional and/or national
economic downturns. General conditions in the real estate market may also
impact the relative risk in the Bank's real estate portfolio.

         The Bank may originate loans and participate 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 various categories of loans contained in
the Bank's loan portfolio as of December 31, 1999 and 1998 and the total amount
of all loans for such periods:

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                            -----------------------------
                                                                               1999              1998
                                                                            -----------       -----------
                                                                            (Dollar amounts in thousands)
Type of Loan
------------
<S>                                                                         <C>               <C>

  Commercial, financial and agricultural                                      $ 10,468          $  3,969
  Real estate - construction                                                     5,458             5,614
  Real estate - mortgage                                                        16,033            10,084
  Installment and consumer                                                       4,159             3,212
                                                                              --------          --------

                          Subtotal                                              36,118            22,879

Less:
-----
  Unearned income and deferred loan fees                                           (25)               (4)
  Allowance for possible loan losses                                            (1,000)             (835)
                                                                              --------          --------

                         Total (net of allowance)                             $ 35,093          $ 22,040
                                                                              ========          ========
</TABLE>


         The table below presents an analysis of maturities of certain
categories of loans as of December 31, 1999:

<TABLE>
<CAPTION>

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

<S>                                                 <C>           <C>              <C>            <C>
Commercial, financial and agricultural                $  4,265      $  1,882        $  4,321      $ 10,468
Real estate construction                                 4,603           847               8         5,458
                                                      --------      --------        --------      --------

                        Total                         $  8,868      $  2,729        $  4,329      $ 15,926
                                                      ========      ========        ========      ========
</TABLE>


                                      -7-

<PAGE>   9

         The following is a presentation of an analysis of sensitivities of
certain loans (those presented in the maturity table above) to changes in
interest rates as of December 31, 1999:

<TABLE>
                  <S>                                                             <C>
                  Loans due after 1 year with predetermined interest rates        $6,383,077

                  Loans due after 1 year with floating interest rates             $       --
</TABLE>

         Accrual of interest is discontinued when a loan becomes 90 days past
due as to principal and interest or, when in management's judgment, the
interest will not be collectible in the normal course of business. At December
31, 1999, the Bank had nine loans aggregating $1,140,000 accounted for on a
nonaccrual basis, and there was one loan that was past due 90 days or more as
to principal or interest and was still accruing. At December 31, 1998, the Bank
had three loans aggregating $220,000 accounted for on a nonaccrual basis, and
there were two loans aggregating $1,000 which were past due 90 days or more and
were still accruing.

         At December 31, 1999 and 1998, there were no loans classified for
regulatory purposes as doubtful, substandard or special mention that have not
been disclosed above which (i) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources, or (ii) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.





                                      -8-

<PAGE>   10

SUMMARY OF LOAN LOSS EXPERIENCE

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

<TABLE>
<CAPTION>
                                                             Summary of Loan Loss Experience
                                                             -------------------------------
                                                                      December 31,
                                                                1999                  1998
                                                              --------              --------
                                                               (Dollar amounts in thousands)

<S>                                                           <C>                   <C>
Allowance for loan losses, beginning of year                  $    835              $    752

Charge-offs:
  Installment and consumer                                         (15)                  (34)
  Credit cards                                                      (6)                   (3)
                                                              --------              --------
                                                                   (21)                  (37)
                                                              --------              --------

Recoveries:
  Commercial, financial and agricultural (primarily
   single payment)                                                   2                    22
  Installment and consumer                                          68                    98
  Credit cards                                                       1                    --
                                                              --------              --------
                                                                    71                   120
                                                              --------              --------

Net (charge-offs) recovery                                          50                    83
                                                              --------              --------
Provision charged to operations                                    115                    --
                                                              --------              --------

Allowance for loan losses, end of year                        $  1,000              $    835
                                                              ========              ========

Ratio of net charge-offs (recoveries) during the period
 to average loans outstanding during the period                  (0.16)%               (0.39)%
</TABLE>


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 $1.0 million at December 31, 1999, which is
allocated according to the following table:





                                      -9-

<PAGE>   11

<TABLE>
<CAPTION>
                                                   Allowance for Loan Losses
                                             -----------------------------------
                                                                Percent of Loans
                                                                In Each Category
                                             Amount              To Total Loans
                                            --------            ----------------
                                              (Dollar amounts in thousands)
<S>                                         <C>                 <C>
Commercial, financial and agricultural      $     99                      28.98%
Real estate - construction                        44                      15.11
Real estate - mortgage                           522                      44.39
Installment and consumer                          85                      11.52
Unallocated                                      250                        N/A
                                            --------                   --------

                                 Total      $  1,000                      100.0%
                                            ========                   ========
</TABLE>

         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 29% 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, approximately 98% of these commercial loans at December 31, 1999 were
made on a secured basis. Management believes that the secured condition of a
substantial portion of the commercial loan portfolio greatly reduces the risk
of loss inherently present in commercial loans.

         The Bank's installment and consumer loan portfolio is also well
secured. At December 31, 1999, 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 44% of outstanding loans.
Approximately $6.3 million or 40% of this category represents residential real
estate mortgages. The remaining portion of this category consists of commercial
real estate 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.

         Real estate construction loans represent approximately 15% of the
Bank's outstanding loans at December 31, 1999. Included in this category of the
loan portfolio are construction and development mortgage loans for real estate
located in suburban Atlanta, Georgia. These loans are generated by a
third-party loan broker and consist primarily of construction loans to builders
of new homes and commercial office buildings. 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 Board of Directors monitors the loan portfolio quarterly to
enable the Board to evaluate the adequacy of the allowance for loan losses. The
Board reviews the loans as rated for performance


                                      -10-

<PAGE>   12

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.

INVESTMENTS

         As of December 31, 1999, federal funds sold and investment securities
comprised approximately 41% of the Bank's assets, with loans comprising
approximately 48% of the Bank's assets. The Bank invests primarily in
obligations of the United States or 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, and
primarily acts as a net seller of such funds. The sale of federal funds amounts
to a short-term loan from the Bank to another bank.

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

<TABLE>
<CAPTION>
                                                                           December 31,
                                                                     -----------------------
                                                                       1999           1998
                                                                     --------       --------
                                                                  (Dollar amounts in thousands)
<S>                                                               <C>               <C>
Obligations of U.S. government agencies                              $ 11,073       $ 12,499
U.S. Treasury notes                                                        --             --
Mortgage-backed securities                                                420            740
State, county and municipal securities                                    806            837
                                                                     --------       --------
                                                                       12,299         14,076
Federal Home Loan Bank stock                                              137            132
                                                                     --------       --------

              Total                                                  $ 12,436       $ 14,208
                                                                     ========       ========
</TABLE>


         The following tables present the contractual maturities and weighted
average yields of the Bank's investments:
<TABLE>
<CAPTION>
                                                              Maturities of Investment Securities
                                                      -----------------------------------------------------
                                                                     After One     After Five
                                                       Within         Through       Through         After
                                                      One Year      Five Years     Ten Years      Ten Years
                                                      --------      ----------     ----------     ---------

                                    (Dollar amounts in thousands)
<S>                                                   <C>           <C>            <C>            <C>
Obligation of U.S. government agencies                $     --       $  5,508       $  5,565       $     --
U.S. Treasury notes                                         --             --             --             --
Mortgage-backed securities                                  61            349             --             10
State, county and municipal securities                      --            704            102             --
Federal Home Loan Bank stock                                --             --             --            137
                                                      --------       --------       --------       --------
                             Total                    $     61       $  6,561       $  5,667       $    147
                                                      ========       ========       ========       ========
</TABLE>


                                      -11-

<PAGE>   13

<TABLE>
<CAPTION>
                                                                               Weighted Average Yields
                                                                -----------------------------------------------------
                                                                               After One     After Five
                                                                 Within        Through        Through         After
                                                                One Year      Five Years     Ten Years      Ten Years
                                                                --------      ----------     ----------     ---------
<S>                                                             <C>           <C>            <C>            <C>
Obligation of U.S. government agencies                                --%          6.09%          6.39%            --%
U.S. Treasury notes                                                   --             --             --             --
Mortgage-backed securities                                          6.10           5.48             --          10.00
State, county and municipal securities                                --           4.50           4.99             --
Federal Home Loan Bank stock                                          --             --             --           7.50
                                                                --------       --------       --------       --------

                             Total weighted average yield           6.10%          5.92%          6.33%          7.67%
                                                                ========       ========       ========       ========
</TABLE>

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

RETURN ON EQUITY AND ASSETS

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

<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                 ----------------------
Ratio                                                                              1999          1998
-----                                                                            --------      --------
<S>                                                                              <C>           <C>
Return on Assets                                                                    .12%           .11%
Return on Equity                                                                    .78%           .65%
Dividend Payout                                                                      --         131.25%
Equity to Assets                                                                  14.91%         16.18%
</TABLE>

ASSET/LIABILITY MANAGEMENT

         It is the objective of the Bank to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan investment, borrowing and capital policies. An assets
and liabilities management committee is responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank seeks to invest the largest portion of the
Bank's assets in commercial, consumer and real estate loans.

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

CORRESPONDENT BANKING

         Correspondent banking involves the provision of services by one bank
to another bank which cannot provide that service for itself from an economic
or practical standpoint. The Bank purchases correspondent


                                      -12-

<PAGE>   14

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

         In March 1999, the Bank officially opened its Daniel Village Office at
2805 Wrightsboro Road at Daniel Village in Augusta, Georgia. The Daniel Village
Office is approximately 3,300 square feet in size and located on approximately
 .90 acres of land. In addition, 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. The West Town Office is approximately
4,200 square feet in size and located on approximately 1.0 acre of land.

         The Bank has entered into agreements to purchase sites for two
additional branches, one in Augusta and one in Columbia County. The purchase
prices for the properties in Augusta and Columbia County are expected to be
approximately $550,000 and $375,000, respectively.

EMPLOYEES

         The Bank employs 44 persons on a full-time or part-time basis,
including nine 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


                                      -13-

<PAGE>   15

authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or
the business and earnings of the Bank.

SUPERVISION AND REGULATION

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

         The Company is regulated by the Federal Reserve Board under the
federal Bank Holding Company Act, which requires every bank holding company to
obtain the prior approval of the Federal Reserve Board before acquiring more
than 5% of the voting shares of any bank or all or substantially all of the
assets of a bank, and before merging or consolidating with another bank holding
company. The Federal Reserve Board (pursuant to regulation and published policy
statements) has maintained that a bank holding company must serve as a source
of financial strength to its subsidiary banks. In adhering to the Federal
Reserve Board policy, the Company may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve Board policy,
the Company may not deem it advisable to provide such assistance.

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

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

         On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new
financial services organizations.

         A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the Company being the agency
which traditionally regulates the activity in which the Company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee
banking activities.


                                      -14-

<PAGE>   16

         The principal provisions of the Financial Services Modernization Act
will permit the Company, if it meets the standards for a "well-managed" and
"well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. The Company,
if it satisfies the above criteria, can file a declaration of its status as a
"financial holding company" ("FHC") with the Federal Reserve, and thereafter
engage directly or through nonbank subsidiaries in the expanded range of
activities which the Financial Services Modernization Act identifies as
financial in nature. Further, the Company, if it elects FHC status, will be
able to pursue additional activities which are incidental or complementary in
nature to a financial activity, or which the Federal Reserve subsequently
determines to be financial in nature. The Financial Services Modernization Act
will also allow the Bank, with FDIC approval, to control or hold an interest in
a "financial subsidiary" which may engage in, among other things, the
activities specified in the Financial Services Modernization Act as being
financial in nature. Such a subsidiary, though, is not permitted to engage in
insurance underwriting or annuity issuance, real estate development, investment
activities, or merchant banking activities. Further, any financial subsidiary
that the Bank created would generally be treated as an affiliate of the Bank,
rather than as a subsidiary for purposes of affiliate transaction restrictions
of Sections 23A and 23B of the Federal Reserve Act.

         It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding
companies to restructure their existing activities in order to take advantage
of the new powers granted and comply with their attendant requirements and
conditions.

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


                                      -15-

<PAGE>   17

         In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition, and
gains in efficiency, that outweigh such possible adverse effects as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices. Generally, bank holding companies must
obtain approval of the Federal Reserve Board to engage in any activity not
previously approved by the Federal Reserve Board or to modify in any material
respect an activity for which Federal Reserve Board approval has been obtained.

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

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

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


                                      -16-

<PAGE>   18

         Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless
the applicable regulating authority determines that different minimum capital
ratios are appropriate for a particular institution based upon its
circumstances. Institutions operating at or near these ratios are expected to
have well-diversified risks, excellent control systems, high asset quality,
high liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. All but the most highly-rated
banks and all banks with high levels of risk or experiencing or anticipating
significant growth will maintain ratios at least 100 to 200 basis points above
the stated minimums. The Federal Reserve Board requires bank holding companies
without a BOPEC-1 rating to maintain a ratio of at least 4% Tier 1 capital to
total assets; furthermore, banking organizations with supervisory, financial,
operational, or managerial weaknesses, as well as organizations that are
anticipating or experiencing significant growth, are expected to maintain
capital ratios well above the 3% and 4% minimum levels.

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

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

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


                                      -17-

<PAGE>   19

         The Federal Reserve Board and the FDIC recently added a provision to
the risk-based capital guidelines that supplements and modifies the usual
risk-based capital calculations to ensure that institutions with significant
exposure to market risk maintain adequate capital to support that exposure.
Market risk is the potential loss to an institution resulting from changes in
market prices. The modifications are intended to address two types of market
risk: general market risk, which includes changes in general interest rates,
equity prices, exchange rates, or commodity prices, and specific market risk,
which includes particular risks faced by the individual institution, such as
event and default risks. The provision defines a new category of capital, Tier
3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, beginning no later than January 1,
1999, covered institutions must "backtest," comparing the actual net trading
profit or loss for each of its most recent 250 days against the corresponding
measures generated by the statutory model. Once per quarter, the institution
must identify the number of times the actual net trading loss exceeded the
corresponding measure and must then apply a statutory multiplication factor
based on that number for the next quarter's capital charge for market risk.

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

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


                                      -18-

<PAGE>   20

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

<TABLE>
<CAPTION>
                                                  Total Risk -           Tier I Risk -          Tier I
                                                  Based Capital          Based Capital         Leverage
                                                      Ratio                  Ratio               Ratio
                                                  -------------          -------------         --------

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

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

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

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

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

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

(1)      An institution must meet all three minimums.
(2)      3% for composite 1-rated institutions, subject to appropriate federal
         banking agency guidelines.
(3)      <3% for composite 1-rated institutions, subject to appropriate federal
         banking agency guidelines.
(4)      An institution falls into this category if it is below the specified
         capital level for any of the three capital measures.
(5)      Ratio of tangible equity to total assets.

         The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, the Federal Reserve Board and the FDIC have
adopted regulations defining operational and managerial standards relating to
internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. Both the capital
standards and the safety and soundness standards which the FDICIA seeks to
implement are designed to bolster and protect the deposit insurance fund.

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

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


                                      -19-

<PAGE>   21

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

ITEM 2.  DESCRIPTION OF PROPERTY.

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

         In March 1999, the Bank officially opened its Daniel Village Office at
2805 Wrightsboro Road at Daniel Village in Augusta, Georgia. The Daniel Village
Office is approximately 3,300 square feet in size and located on approximately
 .90 acres of land. In addition, 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. The West Town Office is approximately
4,200 square feet in size and located on approximately 1.0 acre of land.

         The Bank has entered into an agreement to purchase a parcel of land for
a future branch site of approximately .80 acres located in the medical center
area of Augusta for a purchase price of approximately $550,000. The Bank expects
to close the transaction in the second quarter of 2000, at which time it intends
to begin construction on the branch office. The Bank has also entered into an
agreement to purchase a parcel of land for a future branch site of approximately
1.0 acre located in Martinez, Georgia in Columbia County for a purchase price of
approximately $375,000. The Bank expects to close the transaction in the second
quarter of 2000 and to begin construction in 2001.


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,
1999 to a vote of security holders of the Company.





                                      -20-

<PAGE>   22

                                    PART II

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

         A.       MARKET INFORMATION

                  The Company's common stock began trading on the
         Over-The-Counter Bulletin Board under the symbol "GECR" in May 1999.
         Prior to this time, there was no established public market for the
         Company's common stock. 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.

<TABLE>
<CAPTION>

                                                           HIGH          LOW
                                                           ----          ---
         <S>                                              <C>          <C>
         Fiscal year ended December 31, 1999
                  Second Quarter........................  $13.50       $11.75
                  Third Quarter.........................  $13.50       $11.75
                  Fourth Quarter........................  $13.50       $11.75
</TABLE>

         B.       HOLDERS OF COMMON STOCK

                  As of March 20, 2000, the number of holders of record of the
         Company's common stock was 737.

         C.       DIVIDENDS

                  Subsequent to the Bank's reorganization into a holding
         company structure, the Company paid a cash dividend of $.10 per share
         in April 1998. No dividends were paid in 1999.

                  Future dividends will be determined by the Board of Directors
         of the Company in light of circumstances existing from time to time,
         including the Company's growth, financial condition and results of
         operations, the continued existence of the restrictions described
         below on the Bank's ability to pay dividends and other factors that
         the Board of Directors of the Company considers relevant. In addition,
         the Board of Directors of the Company may determine, from time to
         time, that it is prudent to pay special nonrecurring cash dividends in
         addition to or in lieu of regular cash dividends. Such special
         dividends will depend upon the financial performance of the Company
         and will take into account its capital position. No special dividend
         is presently contemplated.

                  Because the Company's principal operations are conducted
         through the Bank, the Company generates cash to pay dividends
         primarily through dividends paid to it by the Bank. Accordingly, any
         dividends paid by the Company will depend on the Bank's earnings,
         capital requirements, financial condition and other factors condition
         relevant by the Company's Board of Directors. Pursuant to the Georgia
         code, the Bank may pay dividends only when and if the Bank is not
         insolvent. In addition, dividends may not be declared or paid at any
         time when the Bank does not have combined paid-in capital and
         appropriated retained earnings equal to at least 20% of the Bank's
         capital stock.


                                      -21-

<PAGE>   23

         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.


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

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

THE COMPANY

         Certain financial information for the Company and the Bank
consolidated, and solely for the Bank as of and for the years ended December
31, 1999 and 1998 is presented below:

<TABLE>
<CAPTION>
                                       1999                          1998
                                --------------------         -------------------
                                 Total         Net            Total        Net
                                 Assets      Income           Assets     Income
                                --------     -------         -------     -------
                                         (Dollar amounts in thousands)
<S>                             <C>          <C>             <C>         <C>
     Consolidated                $72,719      $ 71           $45,609      $ 48

     Bank only                   $72,708      $ 95           $45,797      $201
</TABLE>

         During 1999, the Company funded operational costs through internally
generated funds. The Company incurred approximately $28,000 in operational
costs for the year ended December 31,1999. During 1999, the Company completed
an "any and all" best efforts public offering of its common stock. The Company
sold 296,370 shares and received gross proceeds of $4,000,995. After offering
expenses, the Company retained approximately $3.8 million of the proceeds and
contributed approximately $3.6 million of these proceeds to the Bank as
additional capital.

         During the year ended December 31, 1998, the Company funded its
operational costs through a $93,000 dividend from the Bank. Throughout 1998,
the Company was in the process of raising capital to fund the expansion of the
Company to new market areas. Substantial costs were incurred in an effort to
raise capital for the Company. The services of a third party were obtained to
fully underwrite a firm commitment basis offering. However, due to unfavorable
market conditions, the third party withdrew from the process prior to closing
the offering. Costs incurred relating to the efforts to raise capital included
legal fees related to the offering, legal and accounting fees for the
preparation of the registration statement, and an independent pricing
appraisal. These costs were funded by the Bank with the Company recording a
corresponding intercompany liability. A portion of these incurred costs were
capitalized due to their future benefit to a private placement offering. The
remainder of the costs were charged to expense.





                                      -22-

<PAGE>   24

THE BANK

RESULTS OF OPERATIONS

1999 Compared to 1998

         For the year ended December 31, 1999, assets increased and earnings
decreased. Total assets increased 59.0% to $72,708,000 from $45,797,000 in
1998. Average total assets were $54,777,000 for 1999 and were $43,531,000 for
1998, an increase of $11,246,000 or 25.8%. This increase in assets is reflected
in increases in federal funds sold, net loans and bank premises and equipment.
Bank premises and equipment increased $1,589,000, or 64.7%, from $2,457,000 at
December 31, 1998 to $4,046,000 at December 31, 1999. This increase resulted
from the Bank opening two new locations in Augusta, Georgia and Martinez,
Georgia during 1999. Net loans increased from $22,040,000 in 1998 to
$35,093,000 in 1999, a change of $13,053,000, or 59.2%. This increase is a
direct result of the Bank's expansion to new market areas through the opening
of two new locations during 1999. Commercial loans increased $6,499,000, or
163.7%, to $10,468,000 in 1999 from $3,969,000 in 1998. Real estate mortgage
loans increased $5,949,000, or 59.0% to $16,033,000 in 1999 from $10,084,000 in
1998. These increases are the result of the Bank's continuing efforts to obtain
these types of lending opportunities.

         The allowance for loan losses was $1,000,000 at December 31, 1999 and
was $835,000 at December 31, 1998. This represents an increase of $165,000 or
19.8%. 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 portfolio. The Bank's ratio of allowance
for loan losses to gross loans was 2.77% at December 31, 1999 and was 3.65% at
December 31, 1998.

         The asset growth of the Bank during 1999 was funded through additional
capital provided by the Company, and through deposit account growth resulting
from the Bank's expansion to new market areas. Total deposit accounts at
December 31, 1999 were $61,325,000, an increase of $23,589,000, or 62.5%, from
$37,736,000 at December 31, 1998.

         The Bank's loan to deposit ratio was 58.9% at December 31, 1999 and
62.3% at December 31, 1998.

         Interest income was $3,911,000 for the year ended December 31, 1999,
compared to $3,305,000 for the year ended December 31, 1998. This represents an
increase of $606,000, or 18.3%. This increase was primarily attributable to a
net volume increase in interest income from loans of $586,000. Interest expense
increased $257,000, or 18.4%, from $1,400,000 for 1998 to $1,657,000 for 1999.
This increase resulting primarily from the effects of volume and rate increases
in money market accounts and time deposits. Noninterest bearing deposits
increased $1,556,000 from $4,179,000 for the year ended December 31, 1998 to
$5,735,000 for the year ended December 31, 1999. Net interest income for the
year ended December 31, 1999 was $2,254,000, representing an increase of
$349,000, or 18.3%, from $1,905,000 for the year ended December 31, 1998.

         Noninterest income increased from $312,000 for the year ended December
31, 1998 to $372,000 for the year ended December 31, 1999, an increase of
$60,000, or 19%. This increase is primarily due to an increase in service
charges resulting from deposit account growth.


                                      -23-

<PAGE>   25

         Noninterest expense increased from $1,931,000 for the year ended
December 31, 1998 to $2,400,000 for the year ended December 31, 1999, an
increase of $469,000 or 24.3%. The increase primarily resulted from increased
personnel and occupancy costs resulting from the opening of two new locations
during 1999.

         Net income declined $106,000 or 53% from $201,000 for the year ended
December 31, 1998 to $95,000 for the year ended December 31, 1999 principally
as a result of the increase in noninterest expense discussed above.

1998 Compared to 1997

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

         The increase in loan demand is reflected in the Bank's loan to deposit
ratio of 62.3% for 1998, compared to 59.9% in 1997. This increase contributed
to an increase in total interest income of $342,000, or 11.5%, from $2,963,000
for the year ended December 31, 1997 to $3,305,000 for the year ended December
31, 1998. Net interest income increased $155,000, or 8.9%, from $1,705,000 for
the year ended December 31, 1997 to $1,905,000 for the year ended December 31,
1998. While total interest income for 1998 increased, the Bank's total interest
expense also increased $187,000, or 15.4%. The increase in interest expense
resulted from a volume increase in substantially each type of interest bearing
deposit account offered by the Bank.

         Noninterest income increased $55,000, or 21.4%, from $257,000 for the
year ended December 31, 1997 to $312,000 for the year ended December 31, 1998.
The increase primarily resulted from an increase in service charges on deposit
accounts.

         Noninterest expense increased $364,000, or 23.2%, from $1,567,000 for
the year ended December 31, 1997 to $1,931,000 for the year ended December 31,
1998. The increase primarily resulted from increased personnel, depreciation
and data processing expenses. Personnel costs, consisting of salaries and
employee benefits, increased $190,000, or 22.9%, primarily as a result of the
Bank obtaining additional lending personnel to support the expansion of the
Company into new market areas.

         Net income declined $75,000, or 27.2%, from $276,000 for the year
ended December 31, 1997 to $201,000 for the year ended December 31, 1998 as a
result of each of the above matters.


                                      -24-

<PAGE>   26

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, 1999, the Bank's liquidity ratio was 47.2% as
compared to 45.5% at December 31, 1998. In addition to the liquid assets
described above, the Bank has a reserve funding source in the form of federal
funds lines of credit with The Bankers Bank and SunTrust Bank. Management is
not aware of any demands, commitments or uncertainties which could materially
affect the Bank's liquidity position. However, should an unforeseen demand for
funds arise, the Bank held readily marketable investment securities on December
31, 1998 with a market value of $12.4 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,
1999, the Bank was slightly asset sensitive through six months, and through one
year as well. As it appears that interest rates may be more likely to rise than
to fall, the Bank will be in a position to increase the net interest margin
slightly.

         The following is an analysis of rate sensitive assets and liabilities
as of December 31, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                                                      5 years
                                                         0 - 3 mos.    3 - 12 mos.     1-5 years      or more         Total
                                                         ----------    -----------     ---------      --------      ---------
<S>                                                       <C>           <C>            <C>            <C>            <C>
Taxable securities                                        $     61      $     --       $  2,808       $  8,761       $ 11,630
Tax-exempt securities                                           --            --            549            257            806
Federal funds sold                                          17,010            --             --             --         17,010
Loans                                                       11,003         4,886         13,841          6,388         36,118
                                                          --------      --------       --------       --------       --------
              Total rate sensitive assets                   28,074         4,886         17,198         15,406         65,564


NOW and money market deposits                               18,538            --             --             --         18,538
Savings deposits                                             2,593            --             --             --          2,593
Time deposits                                               10,340        17,177          4,417             44         31,978
                                                          --------      --------       --------       --------       --------
              Total rate sensitive liabilities              31,471        17,177          4,417             44         53,109

Excess of rate sensitive assets less rate sensitive
 liabilities                                                (3,397)      (12,291)        12,781         15,362         12,455
Ratio of rate sensitive liabilities                             89%           28%           389%           395%            --
Cumulative gap                                              (3,397)      (15,688)        (2,907)        12,455             --
</TABLE>


                                      -25-

<PAGE>   27

CAPITAL RESOURCES

         The equity capital of the Company totaled $10,843,000 at December 31,
1999. The Company was formed in 1997 as a holding company of the subsidiary
bank. In effecting the transaction of establishing the holding company, as
previously described in reports filed with the Securities and Exchange
Commission, 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 as 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 $10,752,000 at December 31,
1999, an increase of $3,242,000 or 43.0% from equity capital of $7,510,000 at
December 31, 1998. The increase in equity capital was attributable to the
Bank's net income of $95,000 and net proceeds contributed to the Bank from the
Company's public offering of $3,834,000. The Bank's unrealized loss on
available-for-sale securities amounted to $310,000, which under the 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.

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

<TABLE>
<CAPTION>
                             Leverage Ratio                Tier I Capital              Risk-Based Capital
                           --------------------       ----------------------        ----------------------
                           Regulatory                 Regulatory                    Regulatory
                            Minimum      Actual        Minimum        Actual         Minimum        Actual
                           ----------    ------       ----------      ------        ----------      ------
                           <S>           <C>          <C>             <C>           <C>             <C>
                                  4.0%     16.5%             4.0%       24.8%              8.0%       26.1%
</TABLE>

         At December 31, 1999, the capital ratios for the Company and Bank
consolidated were materially consistent with those presented above.

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





                                      -26-

<PAGE>   28

ITEM 7.  FINANCIAL STATEMENTS.

         The following financial statements are filed with this report:

         Report of Independent Certified Public Accountants

         Consolidated Statements of Financial Condition as of
          December 31, 1999 and 1998

         Consolidated Statements of Income for the years ended
          December 31, 1999, 1998 and 1997

         Consolidated Statements of Comprehensive Income
          for the years ended December 31, 1999, 1998 and 1997

         Consolidated Statements of Shareholders' Equity for
          the years ended December 31, 1999, 1998 and 1997

         Consolidated Statements of Cash Flows for the years ended
          December 31, 1999, 1998 and 1997

         Notes to Consolidated Financial Statements





                                      -27-

<PAGE>   29
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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


We have audited the accompanying consolidated statements of financial condition
of GEORGIA-CAROLINA BANCSHARES, INC. as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income (loss),
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Georgia-Carolina
Bancshares, Inc. as of December 31, 1999 and 1998, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 1999, in conformity with generally accepted accounting principles.

As described in Note 5 to the financial statements, the Company changed its
method of computing depreciation in 1999.

/s/ Cherry, Bekaert & Holland LLP

Augusta, Georgia
January 17, 2000



<PAGE>   30

                        GEORGIA-CAROLINA BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           DECEMBER 31, 1999 AND 1998
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                         1999                   1998
                                                                                      ----------                ----------

<S>                                                                                   <C>                       <C>
Cash and due from banks                                                               $    3,271                $    1,130
Interest-bearing deposits in banks                                                            --                        --
Federal funds sold                                                                        17,010                     4,740
Securities available-for-sale                                                             12,436                    14,208
Loans, net of allowance for loan losses                                                   35,093                    22,040
Bank premises and fixed assets                                                             4,046                     2,457
Accrued interest receivable                                                                  408                       379
Foreclosed real estate, net of allowance                                                      --                       253
Deferred tax asset, net                                                                      367                       122
Other assets                                                                                  88                       280
                                                                                      ----------                ----------

              TOTAL ASSETS                                                            $   72,719                $   45,609
                                                                                      ==========                ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
     Non-interest bearing                                                             $    5,735                $    4,179
     Interest-bearing:
         NOW accounts                                                                      7,893                     7,865
         Savings                                                                           2,593                     2,107
         Money market accounts                                                            10,645                     3,815
         Time deposits of $100,000, and over                                               8,850                     4,202
         Other time deposits                                                              23,128                    15,568
                                                                                      ----------                ----------
              Total deposits                                                              58,844                    37,736
     Other liabilities and retail agreements                                               3,032                       493
                                                                                      ----------                ----------
              Total liabilities                                                           61,876                    38,229
                                                                                      ----------                ----------

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;
      931,750 and 635,380 shares issued and outstanding                                        1                         1
     Additional paid-in capital                                                           10,188                     6,354
     Retained earnings                                                                       964                       893
     Accumulated other comprehensive income                                                 (310)                      132
                                                                                      ----------                ----------
              Total shareholders' equity                                                  10,843                     7,380
                                                                                      ----------                ----------

              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $   72,719                $   45,609
                                                                                      ==========                ==========
</TABLE>


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



<PAGE>   31

                        GEORGIA-CAROLINA BANCSHARES, INC.

                        CONSOLIDATED STATEMENTS OF INCOME

                 YEARS ENDED DECEMBER 31, 1999 AND 1998 AND 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                      1999              1998                1997
                                                                                     --------          --------           --------
<S>                                                                                  <C>               <C>                <C>
INTEREST INCOME
     Interest and fees on loans                                                      $  2,818          $  2,232           $  2,034
     Interest on taxable securities                                                       772               846                670
     Interest on nontaxable securities                                                     37                51                 88
     Interest on Federal funds sold                                                       284               169                160
     Interest on deposits in other banks                                                   --                 7                 11
                                                                                     --------          --------           --------
              TOTAL INTEREST INCOME                                                     3,911             3,305              2,963
                                                                                     --------          --------           --------

INTEREST EXPENSE
     Interest on time deposits of $100,000, or more                                       282               244                273
     Interest on other deposits                                                         1,369             1,156                938
     Interest on funds purchased                                                            6                --                  2
                                                                                     --------          --------           --------
              TOTAL INTEREST EXPENSE                                                    1,657             1,400              1,213
                                                                                     --------          --------           --------

              NET INTEREST INCOME                                                       2,254             1,905              1,750

PROVISION FOR LOAN LOSSES                                                                 115                --                 16
                                                                                     --------          --------           --------

              NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                       2,139             1,905              1,734
                                                                                     --------          --------           --------

NONINTEREST INCOME
     Service charges on deposits                                                          303               260                210
     Other income                                                                          69                64                 45
     Net realized gain (loss), sales of available-for-sale securities                      --               (12)                 2
                                                                                     --------          --------           --------
                                                                                          372               312                257
                                                                                     --------          --------           --------

NONINTEREST EXPENSE
     Salaries and employee benefits                                                     1,238             1,021                831
     Occupancy expenses                                                                   304               195                167
     Securities offering expenses                                                          --               219                 --
     Other expenses                                                                       886               727                621
                                                                                     --------          --------           --------
                                                                                        2,428             2,162              1,619
                                                                                     --------          --------           --------

INCOME BEFORE INCOME TAXES                                                                 83                55                372

INCOME TAX EXPENSE                                                                         12                 7                138
                                                                                     --------          --------           --------

              NET INCOME                                                             $     71          $     48           $    234
                                                                                     ========          ========           ========

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


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



<PAGE>   32

                        GEORGIA-CAROLINA BANCSHARES, INC.

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                 YEARS ENDED DECEMBER 31, 1999 AND 1998 AND 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                       1999             1998               1997
                                                                                     --------          --------           --------

<S>                                                                                  <C>               <C>                <C>
Net income                                                                           $     71          $     48           $    234

Unrealized holding gains (losses) arising during period
 less reclassification adjustment for gains included in
 net income, net of tax                                                                  (442)              156                (12)
                                                                                     --------          --------           --------

Comprehensive income (loss)                                                          $   (371)         $    204           $    222
                                                                                     ========          ========           ========
</TABLE>


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



<PAGE>   33

                        GEORGIA-CAROLINA BANCSHARES, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                 YEARS ENDED DECEMBER 31, 1999 AND 1998 AND 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                          Accumulated
                                                         Common Stock       Additional       Other                         Total
                                                     --------------------     Paid-in       Retained   Comprehensive   Shareholders'
                                                     Shares     Par Value     Capital       Earnings       Income         Equity
                                                     ------     ---------     -------       --------       ------        --------

<S>                                                  <C>        <C>         <C>           <C>          <C>             <C>
BALANCE, DECEMBER 31, 1996                           635,380        $1        $ 6,354        $ 801         $ (24)        $  7,132

Net income                                                --         -             --          234            --              234

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

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

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

Net income                                                --         -             --           48            --               48

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

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

BALANCE, DECEMBER 31, 1998                           635,380         1          6,354          893           132            7,380

Net income                                                --         -             --           71            --               71

Change in unrealized gain (loss)
 on securities available-for-sale,
 net of deferred taxes                                    --         -             --           --          (442)            (442)

Proceeds from issuance of
 296,370 shares of common
 stock, net of offering costs                        296,370         -          3,834           --            --            3,834
                                                     -------        --        -------        -----         -----         --------

BALANCE, DECEMBER 31, 1999                           931,750        $1        $10,188        $ 964         $(310)        $ 10,843
                                                     =======        ==        =======        =====         =====         ========
</TABLE>


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



<PAGE>   34

                        GEORGIA-CAROLINA BANCSHARES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 YEARS ENDED DECEMBER 31, 1999 AND 1998 AND 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                       1999             1998                1997
                                                                                     --------          --------           --------
<S>                                                                                  <C>               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                                      $     71          $     48           $    234
     Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and amortization                                                    174               102                 86
         Provision for loan losses                                                        115                --                 16
         Net realized loss on available-for-sale securities                                --                12                 --
         Deferred income tax                                                                7                --                 83
         Other gains and losses, net                                                      (10)               21                 (4)
         Net decrease (increase) in accrued interest receivable                           (29)                2                 28
         Net change in other assets and liabilities                                       225               (33)                53
                                                                                     --------          --------           --------
              NET CASH PROVIDED BY OPERATING ACTIVITIES                                   553               152                496
                                                                                     --------          --------           --------

CASH FLOWS FROM INVESTING ACTIVITIES
     Net decrease in interest-bearing deposits with banks                                  --               100                 --
     Net (increase) in federal funds sold                                             (12,270)             (990)            (2,330)
     Net (increase) decrease in loans, net                                            (13,168)           (3,068)             1,058
     Purchases of available-for-sale securities                                            (5)           (9,895)            (6,166)
     Proceeds from sales of available-for-sale securities                                 307             3,464              2,096
     Proceeds from maturities of available-for-sale securities                            800             6,166              2,957
     Proceeds from sale of foreclosed real estate                                         263                32                284
     Net purchases of premises and equipment                                           (1,763)           (1,113)               (92)
                                                                                     --------          --------           --------
              NET CASH USED IN INVESTING ACTIVITIES                                   (25,836)           (5,304)            (2,193)
                                                                                     --------          --------           --------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in deposits and funds purchased                                      23,590             4,799              2,282
     Proceeds from issuance of common stock, net of offering costs                      3,834                --                 --
     Dividends paid                                                                        --               (63)              (127)
                                                                                     --------          --------           --------
              NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                      27,424             4,736              2,155
                                                                                     --------          --------           --------

              NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS                        2,141              (416)               458

CASH AND DUE FROM BANKS AT BEGINNING OF YEAR                                            1,130             1,546              1,088
                                                                                     --------          --------           --------

CASH AND DUE FROM BANKS AT END OF YEAR                                               $  3,271          $  1,130           $  1,546
                                                                                     ========          ========           ========
</TABLE>


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



<PAGE>   35

                        GEORGIA-CAROLINA BANCSHARES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1999 AND 1998


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 has locations in Thomson and
Augusta, Georgia. Most of the Bank's loans and loan commitments have been
granted to customers in the Columbia, Richmond, and McDuffie County areas. Many
of the Bank's loan customers are also depositors of the Bank. The Bank also
engages in commercial and residential real estate development loans in suburban
Atlanta, Georgia. These loans are generated by a third party loan broker.

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

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

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

At the end of 1998, the Company filed with the SEC for the registration and sale
of 740,741 shares of the Company's common stock. The registration was declared
effective by the SEC early in 1999, at which time the Company completed an "any
and all" best efforts public offering issuing 296,370 shares of common stock.
Gross proceeds from the offering were $4,000,995, with $167,866 of issuance
costs charged against these proceeds.

SIGNIFICANT ACCOUNTING POLICIES

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

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

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



<PAGE>   36

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

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

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

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

The Bank has not classified any securities as trading.

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

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

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

The accrual of interest on impaired loans is discontinued when, in management's
judgment, the borrower may be unable to meet payments as due. Management applies
this criteria to all loans identified for evaluation except for smaller-balance
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.

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.



<PAGE>   37

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

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

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

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

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

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

EARNINGS PER SHARE - Earnings per share are calculated on the basis of the
weighted average number of shares outstanding. During 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share". This Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. The Company's outstanding stock options are the primary
cause of the Company's diluted earnings per share.

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



<PAGE>   38

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

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

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

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments and
hedging activities. This Statement was effective for the Company's year
beginning January 1, 2000. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133," which delays the implementation date
to the Company's year beginning January 1, 2001. Management of the Company is
presently determining the effects of this Statement on the Company's financial
statements.



<PAGE>   39

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 2 - INVESTMENT SECURITIES

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

<TABLE>
<CAPTION>
                                                                                            1999
                                                                -----------------------------------------------------------------
                                                                                    Gross             Gross
                                                                Amortized         Unrealized        Unrealized           Market
                                                                   Cost             Gains              Losses             Value
                                                                 --------          --------           --------           --------
                                                                                         (In thousands)
<S>                                                              <C>               <C>                <C>                <C>
Available-for-sale securities:
  U.S. Government and agency securities                          $11,534           $     --           $   (461)          $ 11,073
  State, county and municipal securities                              805                 2                 (1)               806
  Mortgage-backed securities                                          430                 1                (11)               420
  Federal Home Loan Bank stock                                        137                --                 --                137
                                                                 --------          --------           --------           --------

                                                                 $ 12,906          $      3           $   (473)          $ 12,436
                                                                 ========          ========           ========           ========
<CAPTION>
                                                                                                1998
                                                                -----------------------------------------------------------------
                                                                                    Gross             Gross
                                                                Amortized         Unrealized        Unrealized           Market
                                                                   Cost             Gains              Losses             Value
                                                                 --------          --------           --------           --------
                                                                                         (In thousands)
<S>                                                              <C>                     <C>          <C>                <C>
Available-for-sale securities:
  U.S. Government and agency securities                          $ 12,331          $    172           $     (4)          $ 12,499
  State, county and municipal securities                              805                32                 --                837
  Mortgage-backed securities                                          739                 2                 (1)               740
  Federal Home Loan Bank stock                                        132                --                 --                132
                                                                 --------          --------           --------           --------

                                                                 $ 14,007          $    206           $     (5)          $ 14,208
                                                                 ========          ========           ========           ========
</TABLE>

The amortized cost and fair value of securities as of December 31, 1999, by
contractual maturity, are as follows. Actual maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or prepaid without penalty, therefore
these securities are not included in the maturity categories in the following
maturity summary.

<TABLE>
<CAPTION>
                                                                            Securities
                                                                         Available-for-Sale
                                                              ---------------------------------------
                                                                Amortized                   Fair
                                                                  Cost                      Value
                                                               ------------              ------------
                                                                           (In thousands)
          <S>                                                  <C>                       <C>
          One year or less                                     $         --              $         --
          After one year through five years                           6,371                     6,212
          After five years through ten years                          5,968                     5,667
          After ten years                                               137                       137
          Mortgage-backed securities                                    430                       420
                                                               ------------              ------------

                                                               $     12,906              $     12,436
                                                               ============              ============
</TABLE>



<PAGE>   40

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 2 - INVESTMENT SECURITIES (CONTINUED)

Securities with a carrying amount of approximately $8.9 million and $5.8 million
at December 31, 1999 and 1998, respectively, were pledged to secure public
deposits and for other purposes.

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

<TABLE>
                           <S>                                         <C>
                           1999                                        $  -
                           1998                                         (12)
                           1997                                           2
</TABLE>

NOTE 3 - LOANS

The composition of loans is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                December 31
                                                                                   ---------------------------------------
                                                                                        1999                      1998
                                                                                   -------------             -------------
                                                                                               (In thousands)

         <S>                                                                       <C>                       <C>
         Commercial and industrial                                                 $      10,468              $      3,969
         Real estate - construction                                                        5,458                     5,614
         Real estate - mortgage                                                           16,033                    10,084
         Consumer                                                                          4,159                     3,212
                                                                                    ------------              ------------
                                                                                          36,118                    22,879
          Unearned income                                                                    (25)                       (4)
                                                                                    ------------              ------------
                                                                                          36,093                    22,875
          Allowance for loan losses                                                       (1,000)                     (835)
                                                                                    ------------              ------------

              Loans, net                                                            $     35,093              $     22,040
                                                                                    ============              ============
</TABLE>

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                                                                       December 31
                                                                                     ---------------------------------------------
                                                                                       1999             1998                1997
                                                                                     --------          --------           --------
                                                                                                  (In thousands)

<S>                                                                                  <C>               <C>                <C>
Balance, beginning of year                                                           $    835          $    752           $    889
Provision charged to operations                                                           115                --                 16
Recoveries                                                                                 71               120                 89
Loans charged off                                                                         (21)              (37)              (242)
                                                                                     --------          --------           --------

         Balance, end of year                                                        $  1,000          $    835           $    752
                                                                                     ========          ========           ========
</TABLE>

Loans for which the accrual of interest had been discontinued or reduced
amounted to approximately $1,140,000 and $220,000 at December 31, 1999 and 1998,
respectively. There was no significant reduction in interest income associated
with nonaccrual and renegotiated loans. There were no loans identified as
impaired under SFAS 114 at December 31, 1999 or 1998.



<PAGE>   41

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 3 - LOANS (CONTINUED)

At December 31, 1999, executive officers and directors, and companies in which
they have a beneficial ownership, were indebted to the Bank in the aggregate
amount of $681,000. 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 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                         1999                      1998
                                                                                      ----------                ----------
                                                                                                (In thousands)

<S>                                                                                   <C>                       <C>
Balance, beginning of year                                                            $      459                $      563
    Advances                                                                                 402                        18
    Repayments                                                                               180                       122
                                                                                      ----------                ----------

Balance, end of year                                                                  $      681                $      459
                                                                                      ==========                ==========
</TABLE>

NOTE 4 - FORECLOSED REAL ESTATE

A summary of foreclosed real estate is as follows:

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                ----------------------------------------------------
                                                                  1999                   1998                 1997
                                                                ---------               -------              -------
                                                                                    (In thousands)

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

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

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

The provision charged to income, net of recoveries and charge offs, amounted to
approximately $13,000 and $28,000 for the years ended December 31, 1998 and
1997, respectively. There was no provision charged to income for the year ended
December 31, 1999.

NOTE 5 - BANK PREMISES AND EQUIPMENT

Bank premises and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                                                December 31
                                                                                    --------------------------------------
                                                                                       1999                       1998
                                                                                    ------------              ------------
                                                                                               (In thousands)

          <S>                                                                       <C>                       <C>
          Land                                                                      $      1,292              $        873
          Building and improvements                                                        2,518                     1,248
          Equipment, furniture & fixtures                                                  1,518                       915
          Construction in progress                                                            --                       613
                                                                                    ------------              ------------
                   Total cost                                                              5,328                     3,649
          Less accumulated depreciation                                                   (1,282)                   (1,192)
                                                                                    ------------              ------------

                   Premises and equipment, net                                      $      4,046              $      2,457
                                                                                    ============              ============
</TABLE>



<PAGE>   42

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 5 - BANK PREMISES AND EQUIPMENT (CONTINUED)

During 1999 the Bank prospectively changed methods of accounting for
depreciation from accelerated methods to the straight-line method for all
depreciable assets placed in service on or after January 1, 1999. The effect of
this change during the 1999 year end was an increase in net income of
approximately $36,000, and an increase in both basic and diluted earnings per
share of $.04. Management of the Bank believes that utilizing the straight-line
method is preferable as it more closely matches the methods utilized by peer
institutions.

NOTE 6 - DEPOSITS

At December 31, 1999, the scheduled maturities of time deposit liabilities were
as follows:

<TABLE>
<CAPTION>
                                                                          (In thousands)
              <S>                                                                <C>
              2000                                                           $27,463
              2001                                                             3,684
              2002                                                               621
              2003                                                                80
              2004 and thereafter                                                130
                                                                             -------

                                                                             $31,978
                                                                             =======
</TABLE>

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Bank has a 401(k) salary-deferred plan covering substantially all employees.
At the discretion of the Bank's Board of Directors, the Bank may match a
percentage of the annual amounts deferred by employees. Matching amounts are
funded by the Bank as accrued. Total deferred and matching amounts are limited
to amounts that can be deducted for Federal income tax purposes. The Bank's
matching contribution for the three years ended December 31, 1999, was
approximately $15,000 per year.

NOTE 8 - SHAREHOLDERS' EQUITY AND REGULATORY MATTERS

The primary source of funds available to the Company is the payment of dividends
by the subsidiary Bank. Banking regulations limit the amount of dividends that
may be paid by the Bank without prior approval of regulatory agencies.
Approximately $47,000 is available to be paid as dividends at December 31, 1999,
without prior regulatory approval.

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as



<PAGE>   43

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

defined). Management believes that as of December 31, 1999, the Bank meets all
capital adequacy requirements to which it is subject.

As of December 31, 1999, 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.

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

<TABLE>
<CAPTION>
                                                                                                            Required
                                                                                                           To Be Well-
                                                                               Required                 Capitalized Under
                                                                              For Capital               Prompt Corrective
                                                 Actual                    Adequacy Purposes            Action Provisions
                                         ---------------------          ----------------------        ---------------------
                                         Amount          Ratio          Amount           Ratio        Amount          Ratio
                                         ------          -----          ------           -----        ------          -----
                                                              (In thousands, except percentages)
<S>                                     <C>              <C>            <C>              <C>          <C>             <C>
As of December 31, 1999:
 Total capital
   (To Risk Weighted Assets)            $11,626          26.1%          $3,569           8.0%         $4,461          10.0%
 Tier I capital
   (To Risk Weighted Assets)             11,063          24.8%           1,784           4.0%          2,676           6.0%
 Tier I capital
   (To Average Assets)                   11,063          16.5%           2,680           4.0%          3,350           5.0%
</TABLE>

As of December 31, 1998, the Bank's actual regulatory capital ratios were as
follows:

<TABLE>
                      <S>                                                    <C>
                      Total capital (to Risk Weighted Assets)                 27.4%
                      Tier I capital (to Risk Weighted Assets)                26.1%
                      Tier I capital (to Average Assets)                      16.7%
</TABLE>

At December 31, 1999 and 1998, the capital ratios for the Company and Bank
consolidated were materially consistent with those presented above.

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

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

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


<PAGE>   44

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

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

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

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

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

<TABLE>
<CAPTION>
                                                                          1999           1998           1997
                                                                         -------        -------        -------

          <S>                                                            <C>            <C>            <C>
          Pro forma net income                                           $    67        $    46        $   231
          Pro forma earnings per share                                   $   .08        $   .07        $   .06
</TABLE>

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

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

A summary of the Company's stock option activity, and related information, for
the years ended December 31, 1999, 1998 and 1997 follows. Exercise price per
share information is based on weighted averages.

<TABLE>
<CAPTION>
                                                             1999                         1998                       1997
                                                    ----------------------       -----------------------    ------------------------
                                                              Exercise Price              Exercise Price              Exercise Price
                                                    Options      per Share       Options     per Share      Options      per Share
                                                    -------      ---------       -------     ---------      -------      ---------

<S>                                                   <C>         <C>             <C>         <C>                         <C>
Outstanding - beginning of year                       8,500       $ 12.10         8,500       $ 12.10            --       $    --
Granted                                              25,409         13.50            --            --         8,500         12.10
Expired                                               8,000         12.45            --            --            --            --
                                                     ------                       -----                       -----

Outstanding - end of year                            25,909         13.36         8,500         12.10         8,500         12.10
                                                     ======                       =====                       =====
</TABLE>

Stock options exercisable and the weighted-average exercise price at December
31, 1999, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                                                      1999               1998              1997
                                                                                     --------          --------           --------

<S>                                                                                  <C>               <C>                <C>
Options                                                                                 6,953             3,000                 --
Weighted-average exercise price                                                      $  13.34          $  12.10           $     --
</TABLE>



<PAGE>   45

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

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

<TABLE>
                               <S>                                   <C>
                               1999                                  $1.03
                               1998                                  $  --
                               1997                                  $0.92
</TABLE>

At December 31, 1999, options outstanding have exercise prices that range from
$12.10 per share to $13.50 per share. The weighted-average remaining contractual
life of options outstanding at December 31, 1999 was 52 months.

At December 31, 1999, options to purchase 16,000 shares of the Company's common
stock were outstanding from a plan originated prior to the 1997 Plan. The
options are nontransferrable and have exercise prices between ten and twelve
dollars per share and expire during the years 2000 to 2003. No options were
exercised during the three-year period ended December 31, 1999. No additional
shares are available to be granted under this plan. None of the options
outstanding under this plan are owned by employees or directors of the Company.

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.

<TABLE>
<CAPTION>
                                                                                                 1999
                                                                         ------------------------------------------------------
                                                                           Income               Shares              Per-Share
                                                                         (Numerator)          (Denominator)           Amount
                                                                         ------------         -------------        ------------
                                                                            (Dollars in thousands, except per-share amounts)
          <S>                                                            <C>                  <C>                  <C>
          BASIC EPS
          Income available to common stockholders                        $         71              877,498         $       0.08
                                                                                                                   ============

          EFFECT OF STOCK OPTIONS OUTSTANDING                                      --               34,997
                                                                         ------------         ------------
          DILUTED EPS
          Income available to common stockholders
           plus conversions                                              $         71              912,495         $       0.08
                                                                         ============         ============         ============
<CAPTION>

                                                                                                 1999
                                                                         ------------------------------------------------------
                                                                           Income               Shares              Per-Share
                                                                         (Numerator)          (Denominator)           Amount
                                                                         ------------         -------------        ------------
                                                                            (Dollars in thousands, except per-share amounts)
          <S>                                                            <C>                  <C>                  <C>
          BASIC EPS
          Income available to common stockholders                        $         48              635,380         $       0.08
                                                                                                                   ============

          EFFECT OF STOCK OPTIONS OUTSTANDING                                      --               24,500
                                                                         ------------         ------------
          DILUTED EPS
          Income available to common stockholders
           plus conversions                                              $         48              659,880         $       0.07
                                                                         ============         ============         ============
</TABLE>



<PAGE>   46

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


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

<TABLE>
<CAPTION>
                                                                                                 1997
                                                                         ------------------------------------------------------
                                                                           Income               Shares              Per-Share
                                                                         (Numerator)          (Denominator)           Amount
                                                                         ------------         -------------        ------------
                                                                            (Dollars in thousands, except per-share amounts)
          <S>                                                            <C>                  <C>                  <C>
          BASIC EPS
          Income available to common stockholders                        $        234              635,380         $       0.37
                                                                                                                   ============

          EFFECT OF STOCK OPTIONS OUTSTANDING                                      --               24,500
                                                                         ------------         ------------         ------------

          DILUTED EPS
          Income available to common stockholders
           plus conversions                                              $        234              659,880         $       0.35
                                                                         ============         ============         ============
</TABLE>


NOTE 9 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                            1999                  1998                1997
                                                                         ------------         ------------         ------------
                                                                                           (In thousands)

          <S>                                                            <C>                  <C>                  <C>
          Current tax                                                    $          5         $        100         $         58
          Deferred tax (benefit)                                                    7                  (93)                  80
                                                                         ------------         ------------         ------------

                                                                         $         12         $          7         $        138
                                                                         ============         ============         ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                            1999                  1998                 1997
                                                                         ------------         ------------         ------------
          <S>                                                            <C>                  <C>                  <C>
          Statutory rates                                                        38.0%                38.0%                38.0%
               Tax exempt income                                                (17.0)               (14.0)                (8.0)
               Nondeductible interest                                             2.1                  1.4                  1.0
               Other, including effect of graduated
                rate brackets                                                    (9.2)               (12.2)                 5.0
                                                                         ------------         ------------         ------------

                                                                                 13.9%                13.2%                36.0%
                                                                         ============         ============         ============
</TABLE>



<PAGE>   47

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 9 - INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                                                                       1999                      1998
                                                                                    ------------              ------------
                                                                                               (In thousands)
          <S>                                                                       <C>                       <C>
          Deferred tax assets
               Allowance for loan losses                                            $        198              $        181
               Foreclosed real estate allowance                                               --                         9
               Unrealized loss on securities available-for-sale                              159                        --
               Other                                                                          10                        --
                                                                                    ------------              ------------
                   Deferred income tax assets                                                367                       190
                                                                                    ------------              ------------

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

                   Net deferred income tax asset                                    $        367              $        122
                                                                                    ============              ============
</TABLE>

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Bank may enter into off-balance sheet
financial instruments which are not reflected in the financial statements. These
instruments include commitments to extend credit and standby letters of credit.
Such financial instruments are recorded in the financial statements when funds
are disbursed or the instruments become payable. The Bank uses the same credit
policies for these off-balance-sheet financial instruments as it does for other
instruments that are recorded in the financial statements.

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

<TABLE>
<CAPTION>
                                                                                       1999                      1998
                                                                                    ------------              ------------
                                                                                               (In thousands)
          <S>                                                                       <C>                       <C>
          Commitments to extend credit                                              $      5,123              $      4,670
          Standby letters of credit                                                          104                       119
                                                                                    ------------              ------------

                                                                                    $      5,227              $      4,789
                                                                                    ============              ============
</TABLE>

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

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



<PAGE>   48

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 11 - SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                  1999                    1998                1997
                                                                ---------               -------              -------
                                                                                     (In thousands)

          <S>                                                   <C>                     <C>                  <C>
          Income taxes paid                                     $       5               $    65              $    68
          Interest paid                                         $   1,543               $ 1,239              $ 1,131
</TABLE>

NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Bank's financial instruments, for those
instruments for which the Bank's management believes estimated fair value does
not by nature approximate the instruments' carrying amount, are as follows at
December 31, 1999 and 1998 (in millions):

<TABLE>
<CAPTION>
                                                                          1999                                   1998
                                                                ---------------------------          ----------------------------
                                                                 Carrying           Fair              Carrying            Fair
                                                                  Amount            Value              Amount             Value
                                                                 --------          --------           --------           --------
<S>                                                              <C>               <C>                <C>                <C>
Loans                                                            $   35.1          $   34.7           $   22.0           $   22.1
                                                                 ========          ========           ========           ========

Certificates of deposit                                          $   32.0          $   31.8           $   19.8           $   19.8
                                                                 ========          ========           ========           ========
</TABLE>

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

NOTE 13 - OTHER EXPENSES

Other noninterest expenses are as follows:

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                         ------------------------------------------------------
                                                                             1999                 1998                1997
                                                                         ------------         ------------         ------------
                                                                                             (In thousands)

          <S>                                                            <C>                  <C>                  <C>
          Data processing                                                $        167         $        129         $         97
          FDIC assessment                                                           4                    4                    9
          Legal and accounting                                                     81                   75                  157
          Printing and supplies                                                   107                   58                   31
          Other                                                                   527                  461                  327
                                                                         ------------         ------------         ------------

                                                                         $        886         $        727         $        621
                                                                         ============         ============         ============
</TABLE>



<PAGE>   49

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 14 - CONDENSED FINANCIAL INFORMATION ON GEORGIA-CAROLINA BANCSHARES, INC.
          (PARENT COMPANY ONLY)

                            CONDENSED BALANCE SHEET
                                DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
          <S>                                                                               <C>
          ASSETS
              Cash                                                                          $     78
              Investment in subsidiary                                                        10,752
              Other assets                                                                         4
              Deferred tax benefit                                                                 9
                                                                                            --------

                   TOTAL ASSETS                                                             $ 10,843
                                                                                            ========
          LIABILITIES
              Accrued expenses and other liabilities                                        $     --

          SHAREHOLDERS' EQUITY                                                                10,843
                                                                                            --------
                   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $ 10,843
                                                                                            ========

</TABLE>
                         CONDENSED STATEMENT OF INCOME
                               DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
          <S>                                                                               <C>
          INCOME, DIVIDENDS FROM SUBSIDIARY                                                 $     --

          EXPENSES
              Other                                                                               28
                   LOSS BEFORE INCOME TAX BENEFITS AND EQUITY IN                            --------
                    UNDISTRIBUTED EARNINGS OF SUBSIDIARY                                         (28)

          INCOME TAX BENEFITS                                                                      4
                                                                                            --------

                   LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
                    SUBSIDIARY                                                                   (24)

                   EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY                                 95
                                                                                            --------

                   NET INCOME                                                               $     71
                                                                                            ========
</TABLE>



<PAGE>   50

                        GEORGIA-CAROLINA BANCSHARES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                           DECEMBER 31, 1999 AND 1998


NOTE 14 - CONDENSED FINANCIAL INFORMATION ON GEORGIA-CAROLINA BANCSHARES, INC.
          (PARENT COMPANY ONLY) (CONTINUED)

                        CONDENSED STATEMENT OF CASH FLOWS
                                DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
          <S>                                                                               <C>
          CASH FLOWS FROM OPERATING ACTIVITIES
              Net income                                                                    $     71
              Adjustments to reconcile net income to net cash provided
               by operating activities
                   Equity in undistributed earnings of subsidiary                                (95)
                   Other assets                                                                   76
                   Other liabilities                                                            (219)
                                                                                            --------
                       Total adjustments                                                        (238)
                                                                                            --------

                       NET CASH USED IN OPERATING ACTIVITIES                                    (167)
                                                                                            --------

          CASH FLOWS FROM INVESTING ACTIVITIES
              Cash used in additional investment in subsidiary bank                           (3,590)
                                                                                            --------

                       NET CASH USED IN INVESTING ACTIVITIES                                  (3,590)
                                                                                            --------

          CASH FLOWS FROM FINANCING ACTIVITIES
              Proceeds from issuance of common stock, net of offering costs                    3,834
                                                                                            --------

                       NET CASH PROVIDED BY FINANCING ACTIVITIES                               3,834
                                                                                            --------

          NET CHANGE IN CASH                                                                      77

          CASH AT BEGINNING OF YEAR                                                                1
                                                                                            --------
          CASH AT END OF YEAR                                                               $     78
                                                                                            ========
</TABLE>

<PAGE>   51
                       GEORGIA-CAROLINA BANCSHARES, INC.
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                          SUPPLEMENTARY FINANCIAL DATA
                           QUARTERLY DATA (UNAUDITED)
          (In thousands, except per share and number of share amounts)


<TABLE>
<CAPTION>
                                                                                    Year Ended December 31, 1999
                                                                          ------------------------------------------------
                                                                           First        Second       Third         Fourth
                                                                          Quarter      Quarter      Quarter        Quarter
                                                                          -------      -------      -------        -------
<S>                                                                       <C>          <C>          <C>            <C>
NET INCOME
      Income before income taxes                                               75           43           71           (106)
      Effect of change in accounting principle                                 (8)           4            3              1
                                                                          -------      -------      -------        -------
      Income before income taxes as restated in first three
          quarters and reported in fourth quarter                              67           47           74           (105)
      Income tax expense                                                       29           13           24            (54)
                                                                          -------      -------      -------        -------
      Net Income as restated in first three quarters and
          reported in fourth quarter                                           38           34           50            (51)
                                                                          =======      =======      =======        =======

COMPREHENSIVE INCOME
      Net Income as restated in first three quarters and
          reported in fourth quarter                                           38           34           50            (51)
      Unrealized holding gains and (losses) arising during period,
          less reclassification adjustment for gains and losses
          included in net income, net of tax                                 (162)        (220)         (65)             5
                                                                          -------      -------      -------        -------
      Comprehensive income (loss) as restated in first three quarters
          and reported in fourth quarter                                     (124)        (186)         (15)           (46)
                                                                          =======      =======      =======        =======

NET INCOME PER BASIC SHARE
      Earnings per share before cumulative effect of change
          in accounting principle as previously reported                     0.05         0.03         0.05          (0.05)
      Effect of change in accounting principle                              (0.01)        0.01            -              -
                                                                          -------      -------      -------        -------
      Earnings per share as restated in first three quarters
          and reported in fourth quarter                                     0.04         0.04         0.05          (0.05)
                                                                          =======      =======      =======        =======

NET INCOME PER DILUTED SHARE
      Diluted earnings per share before cumulative effect of change
          in accounting principle as previously reported                     0.05         0.03         0.05          (0.05)
      Effect of change in accounting principle                              (0.01)        0.01            -              -
                                                                          -------      -------      -------        -------
      Diluted earnings per share as restated in first three quarters
          and reported in fourth quarter                                     0.04         0.04         0.05          (0.05)
                                                                          =======      =======      =======        =======


Shares used in per share calculations
      Basic                                                               931,750      931,750      931,750        931,750
      Diluted                                                             956,250      966,526      966,659        973,392
</TABLE>



<PAGE>   52


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

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

                                    PART III

         Certain information required by Part III of this Form 10-KSB is,
pursuant to General Instruction E(3) of Form 10-KSB, incorporated by reference
from the Company's definitive proxy statement (the "Proxy Statement") to be
filed pursuant to Regulation 14A for the Company's Annual Meeting of
Shareholders to be held on May 17, 2000. The Company will, within 120 days of
the end of its fiscal year, file with the Securities and Exchange Commission a
definitive proxy statement pursuant to Regulation 14A.

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

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

Item 10. Executive Compensation.

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

Item 11. Security Ownership of Certain Beneficial Owners and Management

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

Item 12. Certain Relationships and Related Transactions.

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

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

         (a)      Exhibits.

                  The following exhibits are filed with this report:


                                      -51-

<PAGE>   53



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
              Exhibit
              Number                         Description of Exhibit
              ------          ----------------------------------------------

              <S>             <C>      <C>
                   3.1        -        Amended and Restated Articles of
                                       Incorporation of the Company
                                       (incorporated herein by reference to the
                                       exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2 under the Securities Act of 1933, as
                                       amended, Registration No. 333-41547,
                                       previously filed with the Commission).

                   3.2        -        Amended and Restated By-Laws of the
                                       Company (incorporated herein by reference
                                       to the exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2 under the Securities Act of 1933, as
                                       amended (Registration No. 333-41547)).

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

                  10.1        -        Employment Agreement dated October 6,
                                       1997 between the Company and Patrick G.
                                       Blanchard (incorporated herein by
                                       reference to the exhibit of the same
                                       number in the Company's Quarterly Report
                                       on Form 10-QSB for the quarter ended
                                       September 30, 1997, previously filed with
                                       the Commission).

                10.1.1                 Amendment No. 1 to Employment Agreement
                                       dated October 6, 1997 between First Bank
                                       of Georgia, the Company and Patrick G.
                                       Blanchard, dated September 30, 1998
                                       (incorporated herein by reference to the
                                       exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2, as amended, Registration No.
                                       333-69763, previously filed with the
                                       Commission).

                10.1.2                 Amendment No. 2 to Employment Agreement
                                       dated October 6, 1997 between First Bank
                                       of Georgia, the Company and Patrick G.
                                       Blanchard, dated December 23, 1998
                                       (incorporated herein by reference to the
                                       exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2, as amended, Registration No.
                                       333-69763, previously filed with the
                                       Commission).

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


                                      -52-

<PAGE>   54



<TABLE>
              <S>             <C>      <C>
                                       10-QSB for the quarter ended September
                                       30, 1997, previously filed with the
                                       Commission).

                10.2.1        -        Amended and Restated Agreement among Ray
                                       Brown, RDB Limited Partnership, Arthur J.
                                       Gay, Jr., J. Randal Hall, George H.
                                       Inman, John W. Lee, A. Montague Miller
                                       and Julian W. Osbon as the Augusta Group
                                       and the Company, dated September 30, 1998
                                       (incorporated herein by reference to the
                                       exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2, as amended, Registration No.
                                       333-69763, previously filed with the
                                       Commission).

                10.2.2                 Amendment No. 1 to Amended and Restated
                                       Agreement among Ray Brown, RDB Limited
                                       Partnership, Arthur J. Gay, Jr., J.
                                       Randal Hall, George H. Inman, John W.
                                       Lee, A. Montague Miller and Julian W.
                                       Osbon as the Augusta Group and the
                                       Company, dated September 30, 1998
                                       (incorporated herein by reference to the
                                       exhibit of the same number in the
                                       Company's Registration Statement on Form
                                       SB-2, as amended, Registration No.
                                       333-69763, previously filed with the
                                       Commission).

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

                  10.4        -        Severance Agreement dated July 7, 1997
                                       between the Company, McDuffie Bank &
                                       Trust and Joseph E. Gore (incorporated
                                       herein by reference to the exhibit of the
                                       same number in the Company's Registration
                                       Statement on Form SB-2, as amended,
                                       Registration No. 333-69763, previously
                                       filed with the Commission).

                  18          -        Letter on change in accounting principles

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

                  27.1        -        Financial Data Schedule (for SEC use
                                       only)

                  27.2        -        Restated Financial Data Schedule for
                                       quarter ended March 31, 1999

                  27.3        -        Restated Financial Data Schedule for
                                       quarter ended June 30, 1999

                  27.4        -        Restated Financial Data Schedule for
                                       quarter ended September 30, 1999

                  (b)         Reports on Form 8-K
</TABLE>

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


                                      -53-

<PAGE>   55



                                   SIGNATURES

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


                               GEORGIA-CAROLINA BANCSHARES, INC.


                               By:  /s/ Patrick G. Blanchard
                                  ----------------------------------------------
Date:  March 30, 2000                      Patrick G. Blanchard
                                  President and Chief Executive Officer
                                  (principal executive officer)


                               By:
Date:  March 30, 2000               /s/ J. Harold Ward, Jr.
                                  ----------------------------------------------
                                               J. Harold Ward, Jr.
                                  Sr. Vice President and Chief Financial Officer
                                  (principal financial and accounting officer)

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


<TABLE>
<CAPTION>
DIRECTORS                        DATE                         DIRECTORS                            DATE
<S>                              <C>                          <C>                                 <C>

/s/ Patrick G. Blanchard         March 30, 2000               /s/ Hugh L. Hamilton, Jr.           March 30, 2000
-----------------------                                       --------------------------
Patrick G. Blanchard                                          Hugh L. Hamilton, Jr.

/s/ Larry DeMeyers               March 30, 2000
-----------------------                                       --------------------------
Larry DeMeyers                                                William G. Hatcher

/s/ Philip G. Farr               March 30, 2000               /s/ George O. Hughes                March 30, 2000
-----------------------                                       --------------------------
Philip G. Farr                                                George O. Hughes

/s/ Samuel A. Fowler             March 30, 2000               /s/ George H. Inman                 March 30, 2000
-----------------------                                       --------------------------
Samuel A. Fowler                                              George H. Inman

/s/ Arthur J. Gay, Jr.           March 30, 2000               /s/ David W. Joesbury               March 30, 2000
-----------------------                                       --------------------------
Arthur J. Gay, Jr.                                            David W. Joesbury

/s/ Joseph D. Greene             March 30, 2000               /s/ James L. Lemley, M.D.           March 30, 2000
-----------------------                                       --------------------------
Joseph D. Greene                                              James L. Lemley, M.D.
</TABLE>
                      (SIGNATURES CONTINUED ON NEXT PAGE)



<PAGE>   56




<TABLE>
<S>                              <C>                          <C>                                 <C>

/s/ J. Randall Hall              March 30, 2000                /s/ Julian W. Osbon                March 30, 2000
--------------------------                                    ------------------------
J. Randall Hall                                                    Julian W. Osbon

                                                               /s/  Bennye M. Young               March 30, 2000
--------------------------                                    ------------------------
John W. Lee                                                        Bennye M. Young

/s/ Robert N. Wilson, Jr.        March 30, 2000
--------------------------
Robert N. Wilson, Jr.
</TABLE>



<PAGE>   57


                        GEORGIA-CAROLINA BANCSHARES, INC.

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                  Description of Exhibit
----------------------------------------------------------------------

<S>            <C>      <C>

   18          -        Letter on change in accounting principles

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

   27.1        -        Financial Data Schedule (for SEC use only)

   27.2        -        Restated Financial Data Schedule for quarter ended March 31, 1999

   27.3        -        Restated Financial Data Schedule for quarter ended June 30, 1999

   27.4        -        Restated Financial Data Schedule for quarter ended September 30, 1999
</TABLE>