##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2008
 - or -
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from ______ to ______
 Commission File Number 0-22891
 GEORGIA-CAROLINA BANCSHARES, INC.
  Georgia
    
    58-2326075(State or other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 (Address of principal executive offices, including zip code)
 (Registrants telephone number, including area code)
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  Class
    
    Outstanding at November 13, 2008Common Stock, $.001 Par Value
    
    3,456,816 shares




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2008
and December 31, 2007
    
    
    2Condensed Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended September 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19Item 4T. Controls and Procedures
    
    
    19PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEX
    
    
    22CERTIFICATIONS
    
    
    23EX-31.1EX-31.2EX-32.1




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##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
 (dollars in thousands)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash and due from banks
    
    $
    9,248
    
    
    $
    6,744Federal funds sold
    
    
    
    
    
    
    Securities available-for-sale
    
    
    58,826
    
    
    
    58,906Loans, net of allowance for loan losses
    
    
    323,109
    
    
    
    317,142Loans, held for sale
    
    
    31,864
    
    
    
    39,547Bank premises and fixed assets
    
    
    10,177
    
    
    
    10,432Accrued interest receivable
    
    
    2,074
    
    
    
    2,115Foreclosed real estate, net of allowance
    
    
    2,342
    
    
    
    483Deferred tax asset, net
    
    
    1,597
    
    
    
    1,315Federal Home Loan Bank Stock
    
    
    2,228
    
    
    
    1,487Bank-owned life insurance
    
    
    8,324
    
    
    
    8,086Other assets
    
    
    1,429
    
    
    
    1,612Total assets
    
    $
    451,218
    
    
    $
    447,869LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    33,728
    
    
    $
    30,292Interest-bearing:NOW accounts
    
    
    32,609
    
    
    
    27,706Savings
    
    
    69,454
    
    
    
    73,184Money market accounts
    
    
    8,565
    
    
    
    9,449Time deposits of $100,000, and over
    
    
    143,176
    
    
    
    145,295Other time deposits
    
    
    78,469
    
    
    
    94,040Total deposits
    
    
    366,001
    
    
    
    379,966Borrowings:Other liabilities, borrowings and retail agreements
    
    
    46,510
    
    
    
    31,932Total liabilities
    
    
    412,511
    
    
    
    411,898Shareholders equity:Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
3,455,226 and 3,398,723 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    15,211
    
    
    
    14,948Retained Earnings
    
    
    23,388
    
    
    
    20,804Accumulated other comprehensive income
    
    
    104
    
    
    
    215Total shareholders equity
    
    
    38,707
    
    
    
    35,971Total liabilities and
shareholders equity
    
    $
    451,218
    
    
    $
    447,869
  2




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##### Table of Contents



GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Income
 (Unaudited)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    5,668
    
    
    $
    6,800
    
    
    $
    17,839
    
    
    $
    19,742Interest on taxable securities
    
    
    673
    
    
    
    640
    
    
    
    2,101
    
    
    
    1,800Interest on nontaxable securities
    
    
    84
    
    
    
    72
    
    
    
    232
    
    
    
    197Interest on Federal funds sold
    
    
    20
    
    
    
    57
    
    
    
    76
    
    
    
    224Total interest income
    
    
    6,445
    
    
    
    7,569
    
    
    
    20,248
    
    
    
    21,963Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,447
    
    
    
    1,660
    
    
    
    4,862
    
    
    
    4,965Interest on other deposits
    
    
    1,236
    
    
    
    2,225
    
    
    
    4,518
    
    
    
    6,157Interest on funds purchased and other borrowings
    
    
    304
    
    
    
    175
    
    
    
    811
    
    
    
    565Total interest expense
    
    
    2,987
    
    
    
    4,060
    
    
    
    10,191
    
    
    
    11,687Net interest income
    
    
    3,458
    
    
    
    3,509
    
    
    
    10,057
    
    
    
    10,276Provision for
loan losses
    
    
    518
    
    
    
    103
    
    
    
    726
    
    
    
    473Net interest income
after provision for
loan losses
    
    
    2,940
    
    
    
    3,406
    
    
    
    9,331
    
    
    
    9,803Non-interest incomeService charges on deposits
    
    
    363
    
    
    
    327
    
    
    
    987
    
    
    
    945Other income/loss
    
    
    658
    
    
    
    301
    
    
    
    1,138
    
    
    
    659Gain on sale of mortgage loans
    
    
    1,820
    
    
    
    1,956
    
    
    
    5,557
    
    
    
    6,2112,841
    
    
    
    2,584
    
    
    
    7,682
    
    
    
    7,815Non-interest expenseSalaries and employee benefits
    
    
    2,731
    
    
    
    2,901
    
    
    
    8,316
    
    
    
    8,729Occupancy expenses
    
    
    418
    
    
    
    383
    
    
    
    1,168
    
    
    
    1,133Other expenses
    
    
    1,280
    
    
    
    1,300
    
    
    
    3,790
    
    
    
    3,7734,429
    
    
    
    4,584
    
    
    
    13,274
    
    
    
    13,635Income before income taxes
    
    
    1,352
    
    
    
    1,406
    
    
    
    3,739
    
    
    
    3,983Income tax expense
    
    
    386
    
    
    
    510
    
    
    
    1,155
    
    
    
    1,421Net income
    
    $
    966
    
    
    $
    896
    
    
    $
    2,584
    
    
    $
    2,562Net income per share of common stockBasic
    
    $
    0.29
    
    
    $
    0.26
    
    
    $
    0.76
    
    
    $
    0.76Diluted
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.74
    
    
    $
    0.73Dividends per share of common stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  3




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  (dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    966
    
    
    $
    896
    
    
    $
    2,584
    
    
    $
    2,562Unrealized holding gains and (losses) arising
during period, less reclassifications
adjustment
for gains and losses included in net income,
net of tax
    
    
    531
    
    
    
    579
    
    
    
    (111
    )
    
    
    213Comprehensive income
    
    $
    1,497
    
    
    $
    1,475
    
    
    $
    2,473
    
    
    $
    2,775
  4




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 (dollars in thousands)
 Nine Months Ended September 30,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    2,584
    
    
    $
    2,562Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    549
    
    
    
    568Provision for loan losses
    
    
    726
    
    
    
    473SFAS 123R Stock option expense
    
    
    101
    
    
    
    177Stock compensation
    
    
    141
    
    
    
    172Increase in cash value of bank-owned life insurance
    
    
    (238
    )
    
    
    (22
    )(Gain)/Loss on sales of foreclosed real estate
    
    
    (21
    )
    
    
    3Gain on sales of fixed assets
    
    
    (1
    )
    
    
    (4
    )Net origination & proceeds on loans originated for sale
    
    
    7,683
    
    
    
    30,599(Increase)/decrease in accrued interest receivable
    
    
    41
    
    
    
    (724
    )Decrease in accrued interest payable
    
    
    (592
    )
    
    
    (44
    )Increase in deferred tax asset, net
    
    
    (219
    )
    
    
    (158
    )Net change in other assets and liabilities
    
    
    599
    
    
    
    (7,879
    )Net cash provided by operating activities
    
    
    11,353
    
    
    
    25,723Cash flows from investing activities(Increase)/decrease in federal funds sold
    
    
    
    
    
    
    1,182Loan originations and collections, net
    
    
    (9,957
    )
    
    
    (30,207
    )Purchases of available for sale securities
    
    
    (23,243
    )
    
    
    (11,971
    )Proceeds from maturities, sales & calls of
available-for-sale securities, net
    
    
    23,149
    
    
    
    6,603Purchases of restricted securities
    
    
    (3,925
    )
    
    
    (3,622
    )Proceeds from sales of restricted securities
    
    
    3,184
    
    
    
    4,552Proceeds from sales of foreclosed real estate
    
    
    1,426
    
    
    
    217Net additions to bank premises and fixed assets
    
    
    (214
    )
    
    
    (375
    )Net cash used in investing activities
    
    
    (9,580
    )
    
    
    (33,621
    )Cash flows from financing activitiesIncrease/(decrease) in deposits, funds purchased and other
borrowings
    
    
    (18,451
    )
    
    
    28,613Increase/(decrease) in FHLB borrowings
    
    
    15,257
    
    
    
    (21,828
    )Increase/(decrease) in repurchase agreements
    
    
    3,904
    
    
    
    (537
    )Proceeds from stock options exercised
    
    
    21
    
    
    
    33Net cash provided by financing activities
    
    
    731
    
    
    
    6,281Net increase/(decrease) in cash and due from banks
    
    
    2,504
    
    
    
    (1,617
    )Cash and due from banks at beginning of period
    
    
    6,744
    
    
    
    11,109Cash and due from banks at end of period
    
    $
    9,248
    
    
    $
    9,492
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
September 30, 2008
(Unaudited)
 Note 1  Basis of Presentation
    Note 2  Stock-Based Compensation
 Share-Based Payment
  6




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Note 3  Earnings Per Share
   For the Three Months Ended September 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    966,000Basic EPSIncome available to common shareholders
    
    
    966,000
    
    
    
    3,439,459
    
    
    $
    0.29Effect of dilutive securitiesOptions
    
    
    
    
    
    
    65,189Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    966,000
    
    
    
    3,504,648
    
    
    $
    0.28
 For the Three Months Ended September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    896,000Basic EPSIncome available to common shareholders
    
    
    896,000
    
    
    
    3,397,454
    
    
    $
    0.26Effect of dilutive securitiesOptions
    
    
    
    
    
    
    118,457Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    896,000
    
    
    
    3,515,911
    
    
    $
    0.25
 7




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For the Nine Months Ended September 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    2,584,000Basic EPSIncome available to common shareholders
    
    
    2,584,000
    
    
    
    3,416,802
    
    
    $
    0.76Effect of dilutive securitiesOptions
    
    
    
    
    
    
    87,742Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    2,584,000
    
    
    
    3,504,544
    
    
    $
    0.74
 For the Nine Months Ended September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    2,562,000Basic EPSIncome available to common shareholders
    
    
    2,562,000
    
    
    
    3,391,371
    
    
    $
    0.76Effect of dilutive securitiesOptions
    
    
    
    
    
    
    115,859Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    2,562,000
    
    
    
    3,507,230
    
    
    $
    0.73
 Note 4  Fair Value Measurement
 Fair Value Measurements,
 8




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Level 1
 Level 2
 Level 3
  Investment Securities Available-for-Sale
  Loans Held for Sale
  Loans
  9




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Foreclosed Assets
   Fair Value Measurements atTotal
    
    
    
    
    
    September 30, 2008, Using,Carrying
    
    
    
    
    
    QuotedAmount in
    
    
    
    
    
    Prices inthe
    
    Assets/
    
    Active
    
    Significant
    
    SignificantConsolidated
    
    Liabilities
    
    Markets for
    
    Other
    
    OtherBalance
    
    Measured at
    
    Identical
    
    Observable
    
    UnobservableSheet
    
    Fair Value
    
    Assets
    
    Inputs
    
    InputsDescription
    
    9/30/2008
    
    9/30/2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale
securities
    
    $
    58,826
    
    
    $
    58,826
    
    
    $
    
    
    
    $
    58,826
    
    
    $
    
 Note 5  Impact of Other Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets and Financial Liabilities.
 10




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##### Table of Contents



Fair Value Measurements.
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements.
 Accounting for Purchases of Life Insurance  Determining the Amount That Could Be
Realized in Accordance with FASB Technical Bulletin No. 85-4.
 Accounting for Servicing of
Financial Assets, The Fair Value Option for Financial Assets and Financial
Liabilities,
 11




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Note 6  Commitments and Contingencies
      Recovered legal fees
    
    $
    28,000Interest
    
    
    36,000Non-interest income
    
    
    366,000Total
    
    $
    430,000
 12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   Critical Accounting Policies
     13




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##### Table of Contents



Accounting for Contingencies, Accounting by Creditors for Impairment of a Loan 
  Results of Operations
 Overview
    Net Interest Income
   14




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##### Table of Contents



Interest Income
  Interest Expense
  Provision for Loan Losses
  15




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##### Table of Contents



Non-interest Income
  Non-interest Expense
  Income Taxes
  Financial Condition
 Overview
  16




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Asset Quality
   September 30,
    
    
    December 31,2008
    
    
    2007Non-accrual loans
    
    $
    10,422,000
    
    
    $
    11,558,000OREO, net of valuation allowance
    
    
    2,342,000
    
    
    
    483,000$
    12,764,000
    
    
    $
    12,041,000
    Liquidity and Capital Resources
  17




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Off-Balance Sheet Arrangements
   At
    
    
    AtSeptember 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Commitments to extend credit
    
    $
    69,743
    
    
    $
    40,492Standby letters of credit
    
    
    6,767
    
    
    
    1,912$
    76,510
    
    
    $
    42,404
 Cautionary Note Regarding Forward-Looking Statements
    18




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  
 Item 4T. Controls and Procedures.
    19




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Part II  OTHER INFORMATION
 
 Item 6. Exhibits.
  Exhibit No.
    
    
    
    Description3.1
    
    -
    
    Articles of Incorporation of the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended, Registration No. 333-69763).3.1.1
    
    -
    
    Articles of Amendment to the Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1.1 of the Companys Annual Report on Form 10-KSB for the
year ended December 31, 2000).3.2
    
    -
    
    By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 of the
Companys Registration Statement on Form SB-2 under the Securities Act of 1933, as amended,
Registration No. 333-69763).31.1
    
    -
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    -
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 20




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SIGNATURES
  GEORGIA-CAROLINA BANCSHARES, INC.November 13, 2008
    By:
    /s/ Remer Y. Brinson IIIRemer Y. Brinson IIIPresident and Chief Executive Officer

(principal executive officer)November 13, 2008
    By:
    /s/ Bradley J. Gregory, Sr.Bradley J. Gregory, Sr.Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)




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EXHIBIT INDEX
 Exhibit No.
    
    Description of ExhibitExhibit 31.1
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.Exhibit 32.1
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.