##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the quarterly period ended June 30, 2005
 o
    
    Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period of to
 Commission File Number 0-22891.
 GEORGIA-CAROLINA BANCSHARES, INC.
  Georgia
    
    58-2326075(State or other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 2805 Wrightsboro Road, Augusta, Georgia 30909
 (706) 736-2100
  
  þ o
  o þ
  Class
    
    Outstanding at August 10, 2005Common Stock, $.001 Par Value
    
    3,344,590 shares
 o þ




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GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2005
and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    10Item 3.
    
    Quantitative and
Qualitative Disclosures About Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    16PART II
    
    OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Item 6.
    
    Exhibits
    
    
    17SIGNATURES
    
    
    19EXHIBIT INDEXEX-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 31,2005
    
    2004ASSETSCash and due from banks
    
    $
    8,709
    
    
    $
    7,138Securities available-for-sale
    
    
    38,641
    
    
    
    40,955Loans, net of allowance for loan losses
    
    
    236,215
    
    
    
    213,312Loans, held for sale
    
    
    53,563
    
    
    
    56,729Bank premises and fixed assets
    
    
    9,593
    
    
    
    8,316Accrued interest receivable
    
    
    1,614
    
    
    
    1,354Foreclosed real estate, net of allowance
    
    
    593
    
    
    
    414Deferred tax asset, net
    
    
    991
    
    
    
    939Federal Home Loan Bank Stock
    
    
    2,124
    
    
    
    2,420Other assets
    
    
    953
    
    
    
    816Total assets
    
    $
    352,996
    
    
    $
    332,393LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    39,146
    
    
    $
    33,457Interest-bearing:NOW accounts
    
    
    31,457
    
    
    
    41,412Savings
    
    
    57,632
    
    
    
    54,110Money market accounts
    
    
    11,272
    
    
    
    9,898Time deposits of $100,000, and over
    
    
    87,780
    
    
    
    65,126Other time deposits
    
    
    59,459
    
    
    
    53,777Total deposits
    
    
    286,746
    
    
    
    257,780Other liabilities, borrowings and retail agreements
    
    
    39,508
    
    
    
    49,245Total liabilities
    
    
    326,254
    
    
    
    307,025Shareholders equity: (See Note 1)Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
3,337,147 and 3,317,250 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    13,801
    
    
    
    13,677Retained Earnings
    
    
    13,179
    
    
    
    11,728Accumulated other comprehensive income (loss)
    
    
    (242
    )
    
    
    (41
    )Total shareholders equity
    
    
    26,742
    
    
    
    25,368Total liabilities and shareholders equity
    
    $
    352,996
    
    
    $
    332,393
   (1)
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##### Table of Contents



GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Income
(Unaudited)
 (dollars in thousands, except per share amounts)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Interest incomeInterest and fees on loans
    
    $
    4,564
    
    
    $
    3,484
    
    
    $
    8,794
    
    
    $
    6,641Interest on taxable securities
    
    
    367
    
    
    
    296
    
    
    
    730
    
    
    
    617Interest on nontaxable securities
    
    
    19
    
    
    
    22
    
    
    
    48
    
    
    
    44Interest on Federal funds sold
    
    
    17
    
    
    
    
    
    
    
    28
    
    
    
    3Total interest income
    
    
    4,967
    
    
    
    3,802
    
    
    
    9,600
    
    
    
    7,305Interest expenseInterest on time deposits of $100,000 or more
    
    
    600
    
    
    
    266
    
    
    
    1,101
    
    
    
    526Interest on other deposits
    
    
    1,082
    
    
    
    625
    
    
    
    1,952
    
    
    
    1,284Interest on funds purchased and other borrowings
    
    
    233
    
    
    
    108
    
    
    
    480
    
    
    
    147Total interest expense
    
    
    1,915
    
    
    
    999
    
    
    
    3,533
    
    
    
    1,957Net interest income
    
    
    3,052
    
    
    
    2,803
    
    
    
    6,067
    
    
    
    5,348Provision for loan losses
    
    
    427
    
    
    
    352
    
    
    
    747
    
    
    
    395Net interest income after provision for loan losses
    
    
    2,625
    
    
    
    2,451
    
    
    
    5,320
    
    
    
    4,953Non-interest incomeService charges on deposits
    
    
    166
    
    
    
    199
    
    
    
    313
    
    
    
    404Other income/loss
    
    
    44
    
    
    
    80
    
    
    
    134
    
    
    
    174Gain on sale of mortgage loans
    
    
    2,114
    
    
    
    2,733
    
    
    
    4,354
    
    
    
    4,7842,324
    
    
    
    3,012
    
    
    
    4,801
    
    
    
    5,362Non-interest expenseSalaries and employee benefits
    
    
    2,594
    
    
    
    2,674
    
    
    
    5,151
    
    
    
    5,109Occupancy expenses
    
    
    300
    
    
    
    318
    
    
    
    622
    
    
    
    621Other expenses
    
    
    1,022
    
    
    
    1,096
    
    
    
    2,034
    
    
    
    2,0653,916
    
    
    
    4,088
    
    
    
    7,807
    
    
    
    7,795Income before income taxes
    
    
    1,033
    
    
    
    1,375
    
    
    
    2,314
    
    
    
    2,520Income tax expense
    
    
    378
    
    
    
    525
    
    
    
    860
    
    
    
    968Net income
    
    $
    655
    
    
    $
    850
    
    
    $
    1,454
    
    
    $
    1,552Net income per share of common stock (See Note 1)Basic
    
    $
    0.20
    
    
    $
    0.26
    
    
    $
    0.44
    
    
    $
    0.47Diluted
    
    $
    0.19
    
    
    $
    0.24
    
    
    $
    0.41
    
    
    $
    0.43Dividends per share of common stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   (1)
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  (dollars in thousands)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    655
    
    
    $
    850
    
    
    $
    1,454
    
    
    $
    1,552Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    98
    
    
    
    (625
    )
    
    
    (201
    )
    
    
    (495
    )Comprehensive income
    
    $
    753
    
    
    $
    225
    
    
    $
    1,253
    
    
    $
    1,057
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Six Months Ended June 30,2005
    
    2004Cash flows from operating activitiesNet income
    
    $
    1,454
    
    
    $
    1,552Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    233
    
    
    
    242Provision for loan losses
    
    
    747
    
    
    
    395Net origination and proceeds on loans originated for sale
    
    
    3,166
    
    
    
    (1,120
    )Gain on sale of other real estate
    
    
    65Stock compensation
    
    
    56
    
    
    
    156Net change in other assets and liabilities
    
    
    278
    
    
    
    (786
    )Net cash provided by
operating activities
    
    
    5,999
    
    
    
    439Cash flows from investing activitiesDecrease in federal funds sold
    
    
    
    
    
    
    8,470Loan originations and collections, net
    
    
    (24,013
    )
    
    
    (23,718
    )Purchases and proceeds of securities
    
    
    2,292
    
    
    
    (304
    )Proceeds from sale of foreclosed real estate
    
    
    119
    
    
    
    Net additions to premises and equipment
    
    
    (1,512
    )
    
    
    (390
    )Net cash used in
investing activities
    
    
    (23,114
    )
    
    
    (15,942
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    18,621
    
    
    
    17,841Proceeds from option exercise
    
    
    65
    
    
    
    Net cash provided by
financing activities
    
    
    18,686
    
    
    
    17,841Net increase in cash and due from banks
    
    
    1,571
    
    
    
    2,338Cash and due from banks at beginning of period
    
    
    7,138
    
    
    
    6,596Cash and due from banks at end of period
    
    $
    8,709
    
    
    $
    8,934
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
June 30, 2005
(Unaudited)
 Note 1  Basis of presentation
    6




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Note 2  Stock-based compensation
  Three
    
    Three
    
    Six
    
    SixMonths
    
    Months
    
    Months
    
    MonthsEnded
    
    Ended
    
    Ended
    
    EndedJune 30,
    
    June 30,
    
    June 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income as reported
    
    $
    655
    
    
    $
    850
    
    
    $
    1,454
    
    
    $
    1,552Earnings per share as reportedBasic:
    
    $
    .20
    
    
    $
    .26
    
    
    $
    .44
    
    
    $
    .47Diluted:
    
    $
    .19
    
    
    $
    .24
    
    
    $
    .41
    
    
    $
    .43Stock-based employee compensation cost
included in net income as reported
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stock-based employee compensation cost
based on fair-value method
    
    $
    68
    
    
    $
    62
    
    
    $
    152
    
    
    $
    101Pro forma net income including
stock-based compensation cost based on
fair-value method
    
    $
    587
    
    
    $
    788
    
    
    $
    1,302
    
    
    $
    1,451Pro forma earnings per share including
stock-based compensation cost based on
fair-value methodBasic:
    
    $
    .18
    
    
    $
    .24
    
    
    $
    .39
    
    
    $
    .44Diluted:
    
    $
    .17
    
    
    $
    .22
    
    
    $
    .37
    
    
    $
    .40
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Note 3  Earnings per share
    For the Three Months Ended June 30, 2005WeightedAverage Shares-
    
    Per-ShareNumerator
    
    Denominator
    
    AmountNet income
    
    $
    655,000Basic EPSIncome available to common shareholders
    
    
    655,000
    
    
    
    3,335,827
    
    
    $
    .20Effect of dilutive securitiesOptions
    
    
    
    
    
    
    181,635Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    655,000
    
    
    
    3,517,462
    
    
    $
    .19
 For the Three Months Ended June 30, 2004WeightedAverage Shares-
    
    Per-ShareNumerator
    
    Denominator
    
    AmountNet income
    
    $
    850,000Basic EPSIncome available to common shareholders
    
    
    850,000
    
    
    
    3,302,734
    
    
    $
    .26Effect of dilutive securitiesOptions
    
    
    
    
    
    
    310,724Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    850,000
    
    
    
    3,613,458
    
    
    $
    .24
 For the Six Months Ended June 30, 2005WeightedAverage Shares-
    
    Per-ShareNumerator
    
    Denominator
    
    AmountNet income
    
    $
    1,454,000Basic EPSIncome available to common shareholders
    
    
    1,454,000
    
    
    
    3,327,410
    
    
    $
    .44Effect of dilutive securities
    
    
    
    
    
    
    205,335OptionsDiluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    1,454,000
    
    
    
    3,532,745
    
    
    $
    .41
 8




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Note 3  Earnings per share (continued)
 For the Six Months Ended June 30, 2004WeightedAverage Shares-
    
    Per-ShareNumerator
    
    Denominator
    
    AmountNet income
    
    $
    1,552,000Basic EPSIncome available to common shareholders
    
    
    1,552,000
    
    
    
    3,301,310
    
    
    $
    .47Effect of dilutive securitiesOptions
    
    
    
    
    
    
    312,481Diluted EPSIncome available to common
shareholders and assumed conversions
    
    $
    1,552,000
    
    
    
    3,613,791
    
    
    $
    .43
 Note 4  Impact of Recently Issued Accounting Standards
 Share-Based Payment
 Share-Based Payment
 Note 5  Commitments and Contingencies
    9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Critical Accounting Policies
     10




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New Accounting Pronouncements
   11




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Results of Operations
 Overview
    Net Interest Income
   Interest Income
  12




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Interest Expense
  Provision for Loan Losses
  Non-interest Income
  Non-interest Expense
  13




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Income Taxes
  Financial Condition
 Overview
   Asset Quality
   June 30,
    
    December 31,2005
    
    2004Non-accrual loans
    
    $
    2,000,000
    
    
    $
    1,665,000OREO, net of valuation allowance
    
    
    593,000
    
    
    
    414,000$
    2,593,000
    
    
    $
    2,079,000
   14




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  15




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At
    
    AtJune 30,
    
    December 31,2005
    
    2004(In thousands)Commitments to extend credit
    
    $
    57,835
    
    
    $
    47,663Standby letters of credit
    
    
    683
    
    
    
    837$
    58,518
    
    
    $
    48,500
 Cautionary Note Regarding Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  
 Item 4. Controls and Procedures.
  16




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17




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Part II. OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
   Votes
    
    VotesFOR
    
    WITHHELDLarry DeMeyers
    
    
    2,249,853
    
    
    
    690J. Randal Hall
    
    
    2,237,141
    
    
    
    13,402George H. Inman
    
    
    2,249,853
    
    
    
    690James L. Lemley, M.D.
    
    
    2,236,796
    
    
    
    13,747Julian W. Osbon
    
    
    2,249,853
    
    
    
    690
  
 Item 6.Exhibits
  Exhibit No.
    
    Description of Exhibit3.1 -
    
    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 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.
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SIGNATURES
  Georgia-Carolina Bancshares, Inc.
 By:
    
    /s/ Patrick G. Blanchard
    
    August 15, 2005Patrick G. Blanchard
    
    DatePresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ James M. Thomas
    
    August 15, 2005James M. Thomas
    
    DateChief 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 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.
 20