<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
|X| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1998
| | Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
------------- ---------------
Commission File Number 0-22891.
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GEORGIA-CAROLINA BANCSHARES, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-2326075
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(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
110 East Hill Street, Thomson, Georgia 30824
--------------------------------------------
(Address of Principal Executive Offices)
Issuers Telephone Number (706) 595-1600
---------------
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at September 30, 1998
- ----------------------------- ---------------------------------
Common Stock, $.001 Par Value 635,380 shares
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE> 2
GEORGIA-CAROLINA BANCSHARES, INC.
Form 10-QSB
Index
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet as of September 30, 1998 1
Condensed Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended September 30, 1998 and 1997,
and the Nine Months Ended September 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION
Item 2. Use of Proceeds from Sales of Registered Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
Index to Exhibits
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and due from banks $ 1,371
Federal funds sold 3,000
Interest-bearing deposits in banks 99
Securities available-for-sale 14,755
Loans, net of allowance for loan losses of $860 20,982
Bank premises and fixed assets 2,448
Accrued interest receivable 435
Foreclosed real estate, net of allowance 253
Deferred tax benefit 138
Other assets 317
-------
TOTAL ASSETS $43,798
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Non-interest bearing $ 3,561
Interest-bearing:
NOW accounts 7,561
Savings 2,109
Money market accounts 2,870
Time deposits of $100,000, and over 3,953
Other time deposits 15,769
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TOTAL DEPOSITS 35,823
Accrued expenses and other liabilities 497
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TOTAL LIABILITIES $36,320
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SHAREHOLDERS' EQUITY:
Preferred stock, par value $.001; 1,000,000 shares authorized; none issued $ --
Common stock, par value $.001; 9,000,000 shares authorized;
635,380 shares issued and outstanding 1
Additional paid-in capital 6,354
Retained earnings 987
Unrealized gain on securities available-for-sale, net of tax 136
-------
TOTAL SHAREHOLDERS' EQUITY $ 7,478
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $43,798
=======
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1998 1997 1997
------------- ------------- ------------- -------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Interest and fees on loans $ 557 $1,670 $ 494 $1,513
Interest on taxable securities 225 628 161 504
Interest on nontaxable securities 11 42 21 67
Interest on Federal funds sold 37 125 57 96
Interest on deposits in other banks 3 7 4 9
------ ------ ------ ------
TOTAL INTEREST INCOME 833 2,472 737 2,189
------ ------ ------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000
or more 61 189 73 206
Interest on other deposits 299 850 234 689
Interest on Federal funds purchased -- -- -- 2
------ ------ ------ ------
TOTAL INTEREST EXPENSE 360 1,039 307 897
------ ------ ------ ------
NET INTEREST INCOME 473 1,433 430 1,292
PROVISION FOR LOAN LOSSES -- -- 3 15
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 473 1,433 427 1,277
------ ------ ------ ------
NONINTEREST INCOME
Service charges on deposits 74 188 51 162
Other income 10 28 13 33
Net realized gain on sales of assets 5 1 2 2
------ ------ ------ ------
89 217 66 197
------ ------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 251 765 213 602
Occupancy expenses 54 148 42 121
Other expenses 186 540 191 453
------ ------ ------ ------
491 1,453 446 1,176
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 71 197 47 298
INCOME TAX EXPENSE 27 55 13 93
------ ------ ------ ------
NET INCOME $ 44 $ 142 $ 34 $ 205
====== ====== ====== ======
</TABLE>
2
<PAGE> 5
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF
INCOME AND COMPREHENSIVE INCOME - CONTINUED
(UNAUDITED)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Nine Three Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1998 1997 1997
------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
OTHER COMPREHENSIVE INCOME, NET
OF TAX
Unrealized gain on securities
arising during current period, net
of reclassification adjustment for
net gains and losses included in
net income $ 90 $ 121 $ 1 $ 15
------ ----- ------ -------
COMPREHENSIVE INCOME $ 134 $ 263 $ 35 $ 220
====== ===== ====== =======
NET INCOME PER SHARE OF COMMON STOCK:
Basic $ .07 $ .22 $ .05 $ .33
====== ===== ====== =======
Diluted $ .07 $ .21 $ .05 $ .31
====== ===== ====== =======
DIVIDENDS PER SHARE OF COMMON STOCK $ -- $ .10 $ -- $ .20
====== ===== ====== =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
GEORGIA-CAROLINA BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 142 $ 205
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 78 62
Provision for loan loss -- 15
Deferred income tax 44 32
Adjustment to foreclosed real estate -- 5
Net (increase) decrease in accrued interest receivable (54) 101
Net increase in other assets (207) (52)
Net increase in other liabilities 143 95
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 146 463
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 750 (3,660)
Net (increase) decrease in interest-bearing deposits with banks 1 (99)
Net (increase) decrease in loans, net (2,010) 2,085
Net purchase and proceeds, available-for-sale securities (857) 1,359
Net purchases of premises and equipment (1,080) (61)
Proceeds from sale of foreclosed real estate 53 188
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NET CASH USED IN INVESTING ACTIVITIES (3,143) (188)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 2,886 (104)
Dividends paid (64) (127)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,822 (231)
------- -------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (175) 44
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 1,546 1,088
------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,371 $ 1,132
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 7
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Georgia-Carolina
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, First Bank of
Georgia, (formerly First Bank of East Georgia), (the "Bank"). Significant
intercompany transactions and accounts are eliminated in consolidation.
The financial statements as of September 30, 1998 and for the three and nine
months ended September 30, 1998 and 1997 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Bank's annual report for
the year ended December 31, 1997.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the financial position and results for
interim periods.
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities and
income and expense amounts. Actual results could differ from those estimates.
NOTE 2 - EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding. During 1997 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share". This Statement
establishes standards for computing and presenting basic and diluted earnings
per share. As the Company has granted stock options to certain officers of the
Company, diluted earnings per share has been presented in the Statements of
Income and Comprehensive Income. See the financial statements and notes thereto
included in the Company's annual report for the year ended December 31, 1997,
for information on the outstanding stock options.
NOTE 3 - COMPREHENSIVE INCOME
During the first quarter of 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This Statement establishes standards for reporting and
display of comprehensive income in a set of financial statements. Matters of
comprehensive income have been presented in the accompanying condensed
consolidated statements of income and comprehensive income for 1998 and 1997.
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public companies report information about segments of
their business in annual financial statements and reports issued to
shareholders. The SFAS also provides for entity wide disclosures about the
products and services an entity provides and major customers. The Company will
adopt this Statement for the year ended December 31, 1998. The adoption of this
Statement is not expected to have a material effect on the financial statements.
5
<PAGE> 8
GEORGIA-CAROLINA BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revises employers'
disclosures about pension and other post-retirement benefit plans. The Statement
does not change the measurement or recognition of those plans, but provides for
additional information on changes in benefit obligations and fair value of plan
assets, and eliminates certain disclosures previously required by SFAS Nos. 87,
88 and 106. The Company will adopt this Statement for the year ended December
31, 1998. The adoption of this Statement is not expected to have a material
effect on the financial statements.
In June 1998, the FASB issues SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. This Statement is
effective for the Company's year beginning January 1, 2000. Management of the
Company is presently determining the effects of this Statement on the Company's
financial statements.
6
<PAGE> 9
GEORGIA-CAROLINA BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's net income was $44,000 for the third quarter of 1998, an increase
of $10,000 (29.4%) from net income of $34,000 for the third quarter of 1997.
Basic earnings per share were $0.07 for the third quarter of 1998, an increase
of $0.02 (40.0%) from $0.05 for the third quarter of 1997. Total consolidated
assets at September 30, 1998 were $43,798,000, an increase of $3,227,000 (8.0%)
from December 31, 1997 total consolidated assets of $40,571,000 and an increase
of $5,721,000 (15.0%) from September 30, 1997 total consolidated assets of
$38,077,000.
The increase in net income for the three months ended September 30, 1998,
primarily resulted from an increase in interest income of $96,000, a decrease in
the provision for loan losses of $3,000 and an increase in noninterest income of
$23,000 from the three months ended September 30, 1997. These were partially
offset by an increase in interest expense of $53,000, an increase in noninterest
expense of $45,000 and an increase in income tax expense of $14,000 from the
three months ended September 30, 1997.
The Company's net income was $142,000 for the nine months ending September 30,
1998, a decrease of $63,000 (30.7%) from net income of $205,000 for the nine
months ending September 30, 1997. Basic earnings per share for the nine months
ending September 30, 1998 were $0.22, a decrease of $0.11 (33.3%) from $0.33 for
the nine months ending September 30, 1997. While interest income for the nine
months ending September 30, 1998 increased $283,000 over the nine months ending
September 30, 1997, and net interest income increased $141,000, noninterest
expense increased $277,000, resulting in the decline in net income from 1997.
The return on average assets was 0.86% (annualized) for the nine months ended
September 30, 1998, compared to 0.72% (annualized) for the nine months ended
September 30, 1997. The return on average equity was 2.53% (annualized) for the
nine months ended September 30, 1998, compared to 3.80% (annualized) for the
nine months ended September 30, 1997.
Further discussion of significant items affecting net income are discussed in
detail below.
NET INTEREST INCOME
Net interest income is the difference between the interest and fees earned on
loans, securities, and other interest-earning assets (interest income) and the
interest paid on deposits and borrowed funds (interest expense). Higher net
interest income is a result of the relationship between the interest-earning
assets and interest-bearing liabilities.
Net interest income was $473,000 for the three months ended September 30, 1998,
an increase of $43,000 (10.0%) from $430,000 for the three months ended
September 30, 1997. The increase was primarily the result of investing increased
deposit liability funds in loans and investment securities. Interest-earning
assets were $38,836,000 at September 30, 1998 compared to $34,383,000 at
September 30, 1997, an increase of $4,451,000 (12.9%). Loans, the highest
yielding component of interest-earning assets, were $20,982,000, an increase of
$3,095,000 (17.3%) from the September 30, 1997 balance of $17,887,000. At
September 30, 1998, loans represented 54.0% of interest-earning assets compared
to 52.0% at September 30, 1997. Investments in securities were $14,755,000 at
September 30, 1998, an increase of $3,536,000 from the September 30, 1997
balance of $11,219,000. Interest-bearing deposits were $32,262,000 at September
30, 1998, an increase of $5,497,000 (20.5%) from the September 30, 1997 balance
of $26,765,000.
7
<PAGE> 10
GEORGIA-CAROLINA BANCSHARES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
INTEREST INCOME
Interest income for the three months ended September 30, 1998 was $833,000, an
increase of $96,000 (13.0%) from the three months ended September 30, 1997. The
increase in interest income primarily resulted from the increase in
interest-earning assets previously described. Interest income on loans was
$557,000 for the three months ended September 30, 1998, an increase of $63,000
(12.8%) from the September 30, 1997 three month earnings of $494,000. Interest
income on securities was $225,000 for the three months ended September 30, 1998,
an increase of $64,000 (39.8%) from the September 30, 1997 amount of $161,000.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1998 was $360,000, an
increase of $53,000 (17.3%) from $307,000 for the three months ended September
30, 1997. The increase primarily resulted from the increase in interest-bearing
deposit accounts as previously discussed.
NONINTEREST INCOME
Noninterest income was $89,000 for the three months ended September 30, 1998, an
increase of $23,000 (34.8%) from the three months ended September 30, 1997. The
increase was primarily attributable to an increase in service charges received
on deposit accounts.
NONINTEREST EXPENSE
Noninterest expense was $491,000 for the three months ended September 30, 1998,
an increase of $45,000 from the three months ended September 30, 1997. Salary
and employee benefit costs increased $38,000 (17.8%) primarily as a result of
the Company obtaining an additional executive officer to develop and manage the
Company's strategic expansion to the Augusta, Georgia market area. This
executive officer was retained by the Company subsequent to September 30, 1997.
Occupancy expenses increased $12,000 (28.6%) as a result of acquisitions of new
equipment and as a result of leasing office space in Augusta, Georgia for the
new executive officer.
INCOME TAXES
Income tax expense for the third quarter of 1998 totaled $27,000, representing
an increase of $14,000 from the comparable quarter in 1997. The increase is
attributable to an increase in income before income taxes of $24,000 over the
three months ended September 30, 1997.
REVIEW OF FINANCIAL CONDITION
OVERVIEW
Management continuously monitors the financial condition of the Bank in order to
protect depositors, increase retained earnings and protect current and future
earnings. Further discussion of significant items affecting the Bank's financial
condition are discussed in detail below.
ASSET QUALITY
A major key to long-term earnings growth is the maintenance of a high-quality
loan portfolio. The Bank's directive in this regard is carried out through its
policies and procedures for extending credit to the Bank's customers. The goal
and result of these policies and procedures is to provide a sound basis for new
credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely disposition.
8
<PAGE> 11
GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Non-performing assets were $254,000 at September 30, 1998, compared to $349,000
at December 31, 1997 and $502,000 at September 30, 1997. The composition of
non-performing assets for each date is shown below.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Non-accrual loans $ 1,000 $ 43,000 $ 50,000
OREO, net of valuation allowance 253,000 306,000 452,000
-------- -------- --------
$254,000 $349,000 $502,000
======== ======== ========
</TABLE>
The ratio of non-performing assets to total loans and other real estate was 1.2%
at September 30, 1998, 1.8% at December 31, 1997, and 2.7% at September 30,
1997.
Reduction of non-performing assets continues to be a management priority.
Additions to the allowance for loan losses are made periodically to maintain the
allowance at an appropriate level based upon management's analysis of potential
risk in the loan portfolio. The amount of the loan loss provision is determined
by an evaluation of the level of loans outstanding, the level of non-performing
loans, historical loan loss experience, delinquency trends, the amount of actual
losses charged to the allowance in a given period, and assessment of present and
anticipated economic conditions. From the previously described analysis,
management determined that the allowance for loan losses was at an appropriate
level during the current quarter and that a charge to the provision for loan
losses during the quarter was not necessary. At September 30, 1998, the ratio of
allowance for loan losses to total loans was 4.1%. At December 31, 1997 the
ratio was 3.8% and was 4.7% at September 30, 1997. Management considers the
current allowance for loan losses appropriate based upon its analysis of the
potential risk in the portfolio, although there can be no assurance that the
assumptions underlying such analysis will continue to be correct.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of an organization to meet its financial commitments
and obligations on a timely basis. These commitments and obligations include
credit needs of customers, withdrawals by depositors, and payment of operating
expenses and dividends. The Bank does not anticipate any events which would
require liquidity beyond that which is available through deposit growth, federal
funds balances, or investment portfolio maturities. The Bank actively manages
the levels, types and maturities of earning assets in relation to the sources
available to fund current and future needs to ensure that adequate funding will
be available at all times.
The Bank's liquidity remains adequate to meet operating and loan funding
requirements. The Bank's liquidity ratio at September 30, 1998 was 45.6%,
compared to 57.6% at December 31, 1997, and 56.0% at September 30, 1997.
Management is committed to maintaining capital at a level sufficient to protect
depositors, provide for reasonable growth, and fully comply with all regulatory
requirements. Management's strategy to achieve this goal is to retain sufficient
earnings while providing a reasonable return on equity. Federal banking
regulations establish certain capital adequacy standards required to be
maintained by banks. These regulations set minimum requirements for risk-based
capital of 4% for core capital ("Tier I"), 8% for total
9
<PAGE> 12
GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
risk-based capital and 3% for the leverage ratio. At September 30, 1998, the
Bank's Tier I capital was 27.1% and total risk-based capital was 28.4%, compared
to 30.0% and 31.3% at year-ended December 31, 1997, respectively. At September
30, 1998, the Bank's leverage ratio was 16.7% compared to 18.9% at December 31,
1997.
Since February 1998, the Company has been engaged in the offering of securities
and has incurred approximately $300,000 of costs in the preparation of the
offering. Subsequent to September 30, 1998, the Company determined not to
proceed with the offering and expects to charge substantially all of these costs
to earnings in the fourth quarter of 1998. Management of the Company expects to
fund the charge through a dividend from the Bank as may be permitted by the
Georgia Department of Banking and Finance or through a line of credit at the
Company level. In consideration of the Bank's strong capital position
management of the Bank does not believe that the payment of a dividend to the
Bank to fund the charge will have a material effect on the Bank's liquidity
position or capital position. See Part II, Item 2.
YEAR 2000
A critical issue affecting companies that rely extensively on electronic data
processing systems, such as the Company, is the Year 2000 issue. The Year 2000
issue has arisen due to the widespread use of computer programs that rely on
two-digit date codes to perform computations or decision-making functions. Many
of these programs may fail as a result of their inability to properly interpret
date codes beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition, some
equipment, being controlled by microprocessor chips, may not deal appropriately
with the year "00". This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
The Bank primarily uses a third-party vendor for processing its primary banking
applications. During 1997, the Company formed an internal task force, chaired by
the Executive Vice President, to address the Year 2000 issue, conduct a
comprehensive review of the Company's systems and ensure that the Company takes
any necessary measures. The Company believes that its systems, those of the Bank
and its data processing vendor are currently Year 2000 compliant and does not
believe that material expenditures will be necessary to implement any further
modifications. As of September 30, 1998, the Company had spent approximately
$45,000 to upgrade its software and hardware systems to help ensure that its
systems would be Year 2000 compliant. Further, the Company has issued a
certification request to its data processing vendor seeking assurance that its
systems will be Year 2000 compliant. The vendor has responded that its systems
are Year 2000 compliant now or will be well in advance of the Year 2000.
However, there can be no assurance that unforeseen difficulties or costs will
not arise. In addition, there can be no assurance that the systems of other
companies on which the Company's systems rely, such as the Bank's data
processing vendor, will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively impact the
Company's systems or operations.
The Bank also recognizes the importance of determining that its borrowers are
facing the Year 2000 problem in a timely manner to avoid deterioration of the
loan portfolio solely due to this issue. All material relationships have been
identified to assess the inherent risks. Deposit customers have received
statement stuffers and informational material in this regard. The Bank plans to
work on a one-on-one basis with any borrower who has been identified as having
high Year 2000 risk exposure.
The Bank's contingency plans relative to Year 2000 issues have not been
finalized. Management will develop and modify a "worst case scenario"
contingency plan which will, among other things, anticipate that the Bank's
deposit customers will have increased demands for cash in the latter part of
1999.
10
<PAGE> 13
GEORGIA-CAROLINA BANCSHARES, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The Company may, from time
to time, make written or oral forward-looking statements, including statements
contained in the Company's filings with the Securities and Exchange Commission
(the "Commission") and its reports to stockholders. Such forward-looking
statements are made based on management's belief as well as assumptions made by,
and information currently available to, management. The Company's actual results
may differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including governmental monetary and
fiscal policies, deposit levels, loan demand, loan collateral values, securities
portfolio values and interest rate risk management; the effects of competition
in the banking business from other commercial banks, savings and loan
associations, mortgage banking firms, consumer finance companies, credit unions,
securities brokerage firms, insurance companies, money market mutual funds and
other financial institutions operating in the Company's market area and
elsewhere, including institutions operating through the Internet; changes in
government regulations relating to the banking industry, including regulations
relating to branching and acquisitions; failure of assumptions underlying the
establishment of reserves for loan losses, including the value of collateral
underlying delinquent loans, and other factors. The Company cautions that such
factors are not exclusive. The Company does not undertake to update any
forward-looking statements that may be made from time to time by, or on behalf
of, the Company.
11
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES
On February 19, 1998, the Company commenced a "best efforts" public offering
(the "Best Efforts Offering") of a minimum of 518,519 shares and a maximum of
740,741 shares of its common stock, $.001 par value per share (the "Common
Stock"), at an offering price of $13.50 per share. The 740,741 shares in the
Best Efforts Offering were registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement on Form
SB-2 (File No. 333-41547), which was declared effective by the Securities and
Exchange Commission (the "Commission") on February 19, 1998. The shares in the
Best Efforts Offering were offered by certain directors and executive officers
of the Company who received no commissions for such sales. All subscription
funds tendered in the Best Efforts Offering were deposited in an
interest-bearing escrow account with The Bankers Bank, Atlanta, Georgia (the
"Escrow Agent") pending completion of certain conditions to closing the Best
Efforts Offering.
As of August 18, 1998, the Best Efforts Offering had resulted in the receipt of
subscriptions for 310,000 shares of Common Stock, at $13.50 per share, from
approximately 265 subscribers (the "Initial Subscribers"). Although, by its
terms, the Best Efforts Offering could have been extended without modification
through February 14, 1999, the Company determined to restructure the plan of
distribution prior to that date after Interstate/Johnson Lane Corporation
("IJL"), a firm with extensive experience in raising equity for community banks
and their holding companies, advised the Company that it would underwrite the
sale of up to 740,000 shares of the Common Stock on a firm commitment basis (the
"Firm Commitment Offering"). Accordingly, on August 28, 1998, pursuant to Rule
429 of the Securities Act, the Company filed a second Registration Statement on
Form SB-2 (File No. 333-62493), which included a Prospectus that was amended
from the Prospectus contained in the Company's Registration Statement relating
to the Best Efforts Offering. The amended Prospectus provided (i) updated
financial information; (ii) disclosed the involvement of IJL on a firm
commitment basis for up to 740,000 shares of the Common Stock at the same price
per share ($13.50) as offered in the Best Efforts Offering; and (iii) disclosed
that the Initial Subscribers would be given an opportunity to withdraw their
previously submitted subscriptions. On October 28, 1998, after printing and
distributing the amended Prospectus, IJL informed the Company that it could not
complete the Firm Commitment Offering due to unfavorable market conditions.
Based on such conditions and discussions with the Commission, the Company has
determined not to proceed with either the Firm Commitment Offering or the Best
Efforts Offering. Accordingly, all subscription funds tendered with the Escrow
Agent will be returned to the Initial Subscribers with interest.
The following table sets forth all expenses incurred in connection with the Best
Efforts Offering and the Firm Commitment Offering. All of the amounts shown are
estimated except for the Commission's registration fees.
<TABLE>
<S> <C>
Commission Registration Fee $ 3,390
NASD Filing Fee 1,650
Nasdaq SmallCap Listing Fee 10,500
Blue Sky Fees and Expenses 15,000
Printing and Engraving Expenses 65,000
Legal Fees and Expenses 75,000
Financial Advisor Fees 70,000
Accounting Fees and Expenses 25,000
Miscellaneous 34,460
--------
Total $300,000
========
</TABLE>
12
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
13
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GEORGIA-CAROLINA BANCSHARES, INC.
By: /s/ Patrick G. Blanchard, Sr.
-----------------------------
Patrick G. Blanchard, Sr.
President and Chief Executive Officer
(principal executive officer)
November 13, 1998 By: /s/ J. Harold Ward, Jr.
- ----------------- ----------------------------------------------
Date J. Harold Ward, Jr.
Senior Vice President, Chief Financial Officer
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 10-QSB FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,371
<INT-BEARING-DEPOSITS> 99
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,755
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,842
<ALLOWANCE> 860
<TOTAL-ASSETS> 43,798
<DEPOSITS> 35,823
<SHORT-TERM> 0
<LIABILITIES-OTHER> 497
<LONG-TERM> 0
0
0
<COMMON> 1
<OTHER-SE> 7,477
<TOTAL-LIABILITIES-AND-EQUITY> 43,798
<INTEREST-LOAN> 1,670
<INTEREST-INVEST> 670
<INTEREST-OTHER> 132
<INTEREST-TOTAL> 2,472
<INTEREST-DEPOSIT> 1,039
<INTEREST-EXPENSE> 1,039
<INTEREST-INCOME-NET> 1,433
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,453
<INCOME-PRETAX> 197
<INCOME-PRE-EXTRAORDINARY> 197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
<YIELD-ACTUAL> 8.5
<LOANS-NON> 1
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 752
<CHARGE-OFFS> 12
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 824
<ALLOWANCE-DOMESTIC> 824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 346
</TABLE>
