##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 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 June 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)
 
 
 
  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 August 14, 2008Common Stock, $.001 Par Value
    
    3,454,916 shares




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    2Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Comprehensive Income/(Loss) for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 6.
    
    Exhibits
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEX
    
    
    22EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO




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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)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash and due from banks
    
    $
    9,728
    
    
    $
    6,744Federal funds sold
    
    
    414
    
    
    
    Securities available-for-sale
    
    
    57,862
    
    
    
    58,906Loans, net of allowance for loan losses
    
    
    321,567
    
    
    
    317,142Loans, held for sale
    
    
    39,058
    
    
    
    39,547Bank premises and fixed assets
    
    
    10,229
    
    
    
    10,432Accrued interest receivable
    
    
    1,990
    
    
    
    2,115Foreclosed real estate, net of allowance
    
    
    1,694
    
    
    
    483Deferred tax asset, net
    
    
    1,742
    
    
    
    1,315Federal Home Loan Bank Stock
    
    
    2,210
    
    
    
    1,487Bank-owned life insurance
    
    
    8,247
    
    
    
    8,086Other assets
    
    
    1,617
    
    
    
    1,612Total assets
    
    $
    456,358
    
    
    $
    447,869LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    34,757
    
    
    $
    30,292Interest-bearing:NOW accounts
    
    
    32,551
    
    
    
    27,706Savings
    
    
    72,499
    
    
    
    73,184Money market accounts
    
    
    7,414
    
    
    
    9,449Time deposits of $100,000, and over
    
    
    143,088
    
    
    
    145,295Other time deposits
    
    
    82,334
    
    
    
    94,040Total deposits
    
    
    372,643
    
    
    
    379,966Borrowings:Other liabilities, borrowings and retail agreements
    
    
    46,570
    
    
    
    31,932Total liabilities
    
    
    419,213
    
    
    
    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;
3,412,337 and 3,376,522 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    15,147
    
    
    
    14,948Retained Earnings
    
    
    22,421
    
    
    
    20,804Accumulated other comprehensive income (loss)
    
    
    (427
    )
    
    
    215Total shareholders equity
    
    
    37,145
    
    
    
    35,971Total liabilities and shareholders equity
    
    $
    456,358
    
    
    $
    447,869
  2




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##### Table of Contents



GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    5,894
    
    
    $
    6,640
    
    
    $
    12,171
    
    
    $
    12,942Interest on taxable securities
    
    
    713
    
    
    
    585
    
    
    
    1,428
    
    
    
    1,160Interest on nontaxable securities
    
    
    75
    
    
    
    73
    
    
    
    148
    
    
    
    125Interest on Federal funds sold
    
    
    18
    
    
    
    84
    
    
    
    56
    
    
    
    167Total interest income
    
    
    6,700
    
    
    
    7,382
    
    
    
    13,803
    
    
    
    14,394Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,594
    
    
    
    1,604
    
    
    
    3,415
    
    
    
    3,305Interest on other deposits
    
    
    1,436
    
    
    
    2,169
    
    
    
    3,282
    
    
    
    3,932Interest on funds purchased and other borrowings
    
    
    269
    
    
    
    107
    
    
    
    507
    
    
    
    390Total interest expense
    
    
    3,299
    
    
    
    3,880
    
    
    
    7,204
    
    
    
    7,627Net interest income
    
    
    3,401
    
    
    
    3,502
    
    
    
    6,599
    
    
    
    6,767Provision for loan losses
    
    
    (29
    )
    
    
    102
    
    
    
    208
    
    
    
    370Net interest income after provision for loan losses
    
    
    3,430
    
    
    
    3,400
    
    
    
    6,391
    
    
    
    6,397Non-interest incomeService charges on deposits
    
    
    324
    
    
    
    315
    
    
    
    624
    
    
    
    618Other income/loss
    
    
    247
    
    
    
    178
    
    
    
    480
    
    
    
    358Gain on sale of mortgage loans
    
    
    1,818
    
    
    
    2,219
    
    
    
    3,737
    
    
    
    4,2552,389
    
    
    
    2,712
    
    
    
    4,841
    
    
    
    5,231Non-interest expenseSalaries and employee benefits
    
    
    2,824
    
    
    
    2,955
    
    
    
    5,585
    
    
    
    5,828Occupancy expenses
    
    
    370
    
    
    
    394
    
    
    
    750
    
    
    
    750Other expenses
    
    
    1,345
    
    
    
    1,301
    
    
    
    2,510
    
    
    
    2,4734,539
    
    
    
    4,650
    
    
    
    8,845
    
    
    
    9,051Income before income taxes
    
    
    1,280
    
    
    
    1,462
    
    
    
    2,387
    
    
    
    2,577Income tax expense
    
    
    414
    
    
    
    527
    
    
    
    769
    
    
    
    911Net income
    
    $
    866
    
    
    $
    935
    
    
    $
    1,618
    
    
    $
    1,666Net income per share of common stockBasic
    
    $
    0.25
    
    
    $
    0.28
    
    
    $
    0.47
    
    
    $
    0.49Diluted
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.46
    
    
    $
    0.48Dividends per share of common stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  3




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Comprehensive Income/(Loss)
(Unaudited)  (dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    866
    
    
    $
    935
    
    
    $
    1,618
    
    
    $
    1,666Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    (1,055
    )
    
    
    (483
    )
    
    
    (642
    )
    
    
    (367
    )Comprehensive income/(loss)
    
    $
    (189
    )
    
    $
    452
    
    
    $
    976
    
    
    $
    1,299
  4




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GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    1,618
    
    
    $
    1,666Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    351
    
    
    
    378Provision for loan losses
    
    
    208
    
    
    
    370SFAS 123R Stock option expense
    
    
    67
    
    
    
    118Stock compensation
    
    
    124
    
    
    
    153Increase in cash value of bank-owned life insurance
    
    
    (161
    )
    
    
    (Gain)/Loss on sales of other real estate
    
    
    23
    
    
    
    (14
    )Gain on sales of fixed assets
    
    
    (1
    )
    
    
    Net origination & proceeds on loans originated for sale
    
    
    489
    
    
    
    11,404(Increase)/decrease in accrued interest receivable
    
    
    125
    
    
    
    (374
    )Increase in accrued interest payable
    
    
    272
    
    
    
    500Increase in deferred tax asset, net
    
    
    (66
    )
    
    
    (106
    )Net change in other assets and liabilities
    
    
    238
    
    
    
    (356
    )Net cash provided by operating activities
    
    
    3,287
    
    
    
    13,739Cash flows from investing activities(Increase)/decrease in federal funds sold
    
    
    (414
    )
    
    
    1,182Loan originations and collections, net
    
    
    (5,895
    )
    
    
    (25,009
    )Purchases of available for sale securities
    
    
    (19,548
    )
    
    
    (6,977
    )Proceeds from maturities, sales & calls of
available-for-sale securities, net
    
    
    19,589
    
    
    
    3,196Purchases of restricted securities
    
    
    (2,953
    )
    
    
    (2,704
    )Proceeds from sales of restricted securities
    
    
    2,230
    
    
    
    3,544Proceeds from sales of foreclosed real estate
    
    
    28
    
    
    
    200Net additions to premises and equipment
    
    
    (94
    )
    
    
    (293
    )Net cash used in investing activities
    
    
    (7,057
    )
    
    
    (26,861
    )Cash flows from financing activitiesIncrease (decrease) in deposits, funds purchased and other
borrowings
    
    
    (12,360
    )
    
    
    35,196Increase (decrease) in FHLB borrowings
    
    
    14,857
    
    
    
    (20,828
    )Increase in repurchase agreements
    
    
    4,250
    
    
    
    185Proceeds from stock options exercised
    
    
    7
    
    
    
    33Net cash provided by financing activities
    
    
    6,754
    
    
    
    14,586Net increase in cash and due from banks
    
    
    2,984
    
    
    
    1,464Cash and due from banks at beginning of period
    
    
    6,744
    
    
    
    11,109Cash and due from banks at end of period
    
    $
    9,728
    
    
    $
    12,573
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
June 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 June 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    866,000Basic EPSIncome available to common shareholders
    
    
    866,000
    
    
    
    3,408,932
    
    
    $
    0.25Effect of dilutive securitiesOptions
    
    
    
    
    
    
    91,346Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    866,000
    
    
    
    3,500,278
    
    
    $
    0.25
 For the Three Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    935,000Basic EPSIncome available to common shareholders
    
    
    935,000
    
    
    
    3,392,403
    
    
    $
    0.28Effect of dilutive securitiesOptions
    
    
    
    
    
    
    113,720Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    935,000
    
    
    
    3,506,123
    
    
    $
    0.27
 7




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##### Table of Contents



For the Six Months Ended June 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    1,618,000Basic EPSIncome available to common shareholders
    
    
    1,618,000
    
    
    
    3,405,349
    
    
    $
    0.47Effect of dilutive securitiesOptions
    
    
    
    
    
    
    96,381Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    1,618,000
    
    
    
    3,501,730
    
    
    $
    0.46
 For the Six Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    1,666,000Basic EPSIncome available to common shareholders
    
    
    1,666,000
    
    
    
    3,388,279
    
    
    $
    0.49Effect of dilutive securitiesOptions
    
    
    
    
    
    
    114,601Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    1,666,000
    
    
    
    3,502,880
    
    
    $
    0.48
 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
   Total
    
    
    
    
    
    Fair Value Measurements atCarrying
    
    
    
    
    
    June 30, 2008, Using,Amount in the
    
    Assets/Liabilities
    
    Quoted Prices inConsolidated
    
    Measured at Fair
    
    Active Markets for
    
    Significant Other
    
    Significant OtherBalance Sheet
    
    Value
    
    Identical Assets
    
    Observable Inputs
    
    Unobservable InputsDescription
    
    6/30/2008
    
    6/30/2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale
securities
    
    $
    57,862
    
    
    $
    57,862
    
    
    $
    
    
    
    $
    57,862
    
    
    $
    
 Note 5  Impact of Other Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets and Financial Liabilities
 10




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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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##### Table of Contents



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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##### Table of Contents



Asset Quality
   June 30,
    
    
    December 31,2008
    
    
    2007Non-accrual loans
    
    $
    12,046,000
    
    
    $
    11,558,000OREO, net of valuation allowance
    
    
    1,694,000
    
    
    
    483,000$
    13,740,000
    
    
    $
    12,041,000
    Liquidity and Capital Resources
   17




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##### Table of Contents



Off-Balance Sheet Arrangements
   At
    
    
    AtJune 30,
    
    
    December 31,2008
    
    
    2007(in thousands)Commitments to extend credit
    
    $
    75,496
    
    
    $
    40,492Standby letters of credit
    
    
    1,117
    
    
    
    1,912$
    76,613
    
    
    $
    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 4. Submission of Matters to a Vote of Security Holders.
   Votes
    
    VotesFOR
    
    WITHHELDMac A. Bowman, M.D.
    
    
    2,420,485
    
    
    
    6,555J. Randal Hall
    
    
    2,409,461
    
    
    
    17,579George H. Inman
    
    
    2,424,280
    
    
    
    2,760James L. Lemley, M.D.
    
    
    2,409,461
    
    
    
    17,579Julian W. Osbon
    
    
    2,424,280
    
    
    
    2,760
  
 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.August 14, 2008
    By:
    /s/ Remer Y. Brinson IIIRemer Y. Brinson IIIPresident and Chief Executive Officer
(principal executive officer)August 14, 2008
    By:
    /s/ Bradley J. Gregory, Sr.Bradley J. Gregory, Sr.Senior Vice President and Chief Financial Officer
(principal financial and accounting officer) 21




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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.
 22