##### 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 September 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)
 3527 Wheeler Road, Augusta, Georgia 30909
 (706) 731-6600
  
   þ o
  o þ
  o þ
  Class
    
    Outstanding at November 10, 2005Common Stock, $.001 Par Value
    
    3,345,740 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 September 30, 2005 and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004 and the Nine Months Ended September 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2005 and 2004 and the Nine Months Ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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
    
    
    17PART II
    
    OTHER INFORMATIONItem 5.
    
    Other Information
    
    
    18Item 6.
    
    Exhibits
    
    
    18SIGNATURES
    
    
    19EXHIBIT INDEX
    
    
    20EX-31.1 CERTIFICATION OF PRESIDENT AND CEOEX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32.1 CERTIFICATIONS PURSUANT TO SECTION 906




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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 31,2005
    
    
    2004ASSETSCash and due from banks
    
    $
    11,617
    
    
    $
    7,138Securities available-for-sale
    
    
    38,208
    
    
    
    40,955Loans, net of allowance for loan losses
    
    
    244,387
    
    
    
    213,312Loans, held for sale
    
    
    61,693
    
    
    
    56,729Bank premises and fixed assets
    
    
    10,523
    
    
    
    8,316Accrued interest receivable
    
    
    2,107
    
    
    
    1,354Foreclosed real estate, net of allowance
    
    
    540
    
    
    
    414Deferred tax asset, net
    
    
    1,028
    
    
    
    939Federal Home Loan Bank Stock
    
    
    2,216
    
    
    
    2,420Other assets
    
    
    1,964
    
    
    
    816Total assets
    
    $
    374,283
    
    
    $
    332,393LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    43,257
    
    
    $
    33,457Interest-bearing:NOW accounts
    
    
    27,900
    
    
    
    41,412Savings
    
    
    56,055
    
    
    
    54,110Money market accounts
    
    
    17,600
    
    
    
    9,898Time deposits of $100,000, and over
    
    
    96,379
    
    
    
    65,126Other time deposits
    
    
    60,950
    
    
    
    53,777Total deposits
    
    
    302,141
    
    
    
    257,780Other liabilities, borrowings and retail agreements
    
    
    44,364
    
    
    
    49,245Total liabilities
    
    
    346,505
    
    
    
    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;
3,344,590 and 3,317,250 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    13,919
    
    
    
    13,677Retained Earnings
    
    
    14,130
    
    
    
    11,728Accumulated other comprehensive income (loss)
    
    
    (275
    )
    
    
    (41
    )Total shareholders equity
    
    
    27,778
    
    
    
    25,368Total liabilities and shareholders equity
    
    $
    374,283
    
    
    $
    332,393
  Note 1:
 2




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Income
 (Unaudited)
 (dollars in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Interest incomeInterest and fees on loans
    
    $
    5,149
    
    
    $
    3,913
    
    
    $
    13,943
    
    
    $
    10,554Interest on taxable securities
    
    
    330
    
    
    
    303
    
    
    
    1,060
    
    
    
    920Interest on nontaxable securities
    
    
    41
    
    
    
    27
    
    
    
    89
    
    
    
    71Interest on Federal funds sold
    
    
    18
    
    
    
    0
    
    
    
    46
    
    
    
    3Total interest income
    
    
    5,538
    
    
    
    4,243
    
    
    
    15,138
    
    
    
    11,548Interest expenseInterest on time deposits of $100,000 or more
    
    
    724
    
    
    
    270
    
    
    
    1,825
    
    
    
    796Interest on other deposits
    
    
    1,253
    
    
    
    648
    
    
    
    3,205
    
    
    
    1,932Interest on funds purchased and other borrowings
    
    
    455
    
    
    
    218
    
    
    
    935
    
    
    
    365Total interest expense
    
    
    2,432
    
    
    
    1,136
    
    
    
    5,965
    
    
    
    3,093Net interest income
    
    
    3,106
    
    
    
    3,107
    
    
    
    9,173
    
    
    
    8,455Provision for loan losses
    
    
    356
    
    
    
    347
    
    
    
    1,103
    
    
    
    742Net interest income after provision for loan losses
    
    
    2,750
    
    
    
    2,760
    
    
    
    8,070
    
    
    
    7,713Non-interest incomeService charges on deposits
    
    
    186
    
    
    
    192
    
    
    
    499
    
    
    
    596Other income/loss
    
    
    133
    
    
    
    112
    
    
    
    267
    
    
    
    286Gain on sale of mortgage loans
    
    
    2,658
    
    
    
    2,498
    
    
    
    7,012
    
    
    
    7,2822,977
    
    
    
    2,802
    
    
    
    7,778
    
    
    
    8,164Non-interest expenseSalaries and employee benefits
    
    
    2,896
    
    
    
    2,652
    
    
    
    8,047
    
    
    
    7,761Occupancy expenses
    
    
    301
    
    
    
    318
    
    
    
    923
    
    
    
    939Other expenses
    
    
    1,032
    
    
    
    1,084
    
    
    
    3,066
    
    
    
    3,1494,229
    
    
    
    4,054
    
    
    
    12,036
    
    
    
    11,849Income before income taxes
    
    
    1,498
    
    
    
    1,508
    
    
    
    3,812
    
    
    
    4,028Income tax expense
    
    
    546
    
    
    
    573
    
    
    
    1,406
    
    
    
    1,541Net income
    
    $
    952
    
    
    $
    935
    
    
    $
    2,406
    
    
    $
    2,487Net income per share of common stock (See Note 1)Basic
    
    $
    0.28
    
    
    $
    0.28
    
    
    $
    0.72
    
    
    $
    0.75Diluted
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.68
    
    
    $
    0.69Dividends per share of common stock
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
  Note 1:
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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    952
    
    
    $
    935
    
    
    $
    2,406
    
    
    $
    2,487Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    (33
    )
    
    
    355
    
    
    
    (234
    )
    
    
    (138
    )Comprehensive income
    
    $
    919
    
    
    $
    1,290
    
    
    $
    2,172
    
    
    $
    2,349
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 (dollars in thousands)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    2,406
    
    
    $
    2,487Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:Depreciation and amortization
    
    
    355
    
    
    
    368Provision for loan losses
    
    
    1,103
    
    
    
    742Net origination and proceeds on loans originated for sale
    
    
    (4,964
    )
    
    
    (8,968
    )Stock compensation
    
    
    173
    
    
    
    172Net change in other assets and liabilities
    
    
    (732
    )
    
    
    (581
    )Net cash used in
operating activities
    
    
    (1,659
    )
    
    
    (5,780
    )Cash flows from investing activitiesDecrease in federal funds sold
    
    
    0
    
    
    
    8,470Loan originations and collections, net
    
    
    (32,541
    )
    
    
    (37,937
    )Purchases and proceeds of securities
    
    
    2,581
    
    
    
    (2,622
    )Proceeds from sale of foreclosed real estate
    
    
    185
    
    
    
    0Net additions to premises and equipment
    
    
    (2,562
    )
    
    
    (580
    )Net cash used in
investing activities
    
    
    (32,337
    )
    
    
    (32,669
    )Cash flows from financing activitiesNet increase (decrease) in deposits and funds purchased
    
    
    38,410
    
    
    
    36,453Issuance of common stock
    
    
    65
    
    
    
    0Net cash provided by
financing activities
    
    
    38,475
    
    
    
    36,453Net increase (decrease) in cash and due from banks
    
    
    4,479
    
    
    
    (1,906
    )Cash and due from banks at beginning of period
    
    
    7,138
    
    
    
    6,596Cash and due from banks at end of period
    
    $
    11,617
    
    
    $
    4,690
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
 September 30, 2005
 (Unaudited)
 Note 1  Basis of presentation
    6




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Note 2
 Stock-based compensation
  Three
    
    Three
    
    Nine
    
    NineMonths
    
    Months
    
    Months
    
    MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember
    
    September
    
    September
    
    September30,
    
    30,
    
    30,
    
    30,2005
    
    2004
    
    2005
    
    2004Net income as reported
    
    $
    952
    
    
    $
    935
    
    
    $
    2,406
    
    
    $
    2,487Earnings per share as reportedBasic:
    
    $
    0.28
    
    
    $
    0.28
    
    
    $
    0.72
    
    
    $
    0.75Diluted:
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.68
    
    
    $
    0.69Stock-based employee compensation cost
included in net income as reported
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Stock-based employee compensation cost
based on fair-value method
    
    $
    53
    
    
    $
    69
    
    
    $
    205
    
    
    $
    170Pro forma net income including stock-based
compensation cost based on fair-value
method
    
    $
    899
    
    
    $
    866
    
    
    $
    2,201
    
    
    $
    2,317Pro forma earnings per share including
stock-based compensation cost based on
fair-value methodBasic:
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    0.66
    
    
    $
    0.70Diluted:
    
    $
    0.26
    
    
    $
    0.24
    
    
    $
    0.62
    
    
    $
    0.64
 7




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Note 3  Earnings per share
    For the Three Months Ended September 30, 2005WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    952,000Basic EPSIncome available to common shareholders
    
    
    952,000
    
    
    
    3,343,891
    
    
    $
    0.28Effect of dilutive securitiesOptions
    
    
    
    
    
    
    177,715Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    952,000
    
    
    
    3,521,606
    
    
    $
    0.27
 For the Three Months Ended September 30, 2004WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    935,000Basic EPSIncome available to common shareholders
    
    
    935,000
    
    
    
    3,308,251
    
    
    $
    0.28Effect of dilutive securitiesOptions
    
    
    
    
    
    
    310,724Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    935,000
    
    
    
    3,618,975
    
    
    $
    0.26
 For the Nine Months Ended September 30, 2005WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    2,406,000Basic EPS
    
    
    2,406,000Income available to common shareholders
    
    
    
    
    
    
    3,332,964
    
    
    $
    0.72Effect of dilutive securitiesOptions
    
    
    
    
    
    
    196,129Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    2,406,000
    
    
    
    3,529,093
    
    
    $
    0.68
 8




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Note 3  Earnings per share (continued)
 For the Nine Months Ended September 30, 2004WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    2,487,000Basic EPSIncome available to common shareholders
    
    
    2,487,000
    
    
    
    3,303,641
    
    
    $
    0.75Effect of dilutive securitiesOptions
    
    
    
    
    
    
    311,891Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    2,487,000
    
    
    
    3,615,532
    
    
    $
    0.69
 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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##### Table of Contents



Results of Operations
 Overview
    Net Interest Income
   Interest Income
  12




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##### Table of Contents



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




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Income Taxes
  Financial Condition
 Overview
   Asset Quality
   September 30,
    
    
    December 31,2005
    
    
    2004Non-accrual loans
    
    $
    2,626,000
    
    
    $
    1,665,000OREO, net of valuation allowance
    
    
    540,000
    
    
    
    414,000$
    3,166,000
    
    
    $
    2,079,000
  14




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  15




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At
    
    
    AtSeptember 30,
    
    
    December 31,2005
    
    
    2004(In thousands)Commitments to extend credit
    
    $
    64,524
    
    
    $
    47,663Standby letters of credit
    
    
    1,337
    
    
    
    837$
    65,861
    
    
    $
    48,500
 Cautionary Note Regarding Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
  16




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Item 4. Controls and Procedures.
   17




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Part II. OTHER INFORMATION
 
 Item 5. Other Information
  
 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.
 18




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SIGNATURES
  Georgia-Carolina Bancshares, Inc.
 By:
    
    /s/ Patrick G. Blanchard
    
    November 14, 2005Patrick G. Blanchard
    
    DatePresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ James M. Thomas
    
    November 14, 2005James M. Thomas
    
    DateChief Financial Officer(principal financial and accounting officer)
 19




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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