##### Table of Contents



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 March 31, 2004 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 
  Issuers Telephone Number (706) 736-2100 Not Applicable 
  Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   o 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 May 11, 2004Common Stock, $.001 Par Value
    
    2,641,594 shares
 Transitional Small Business
Disclosure Format:
YES  o   NO
  x




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GEORGIA-CAROLINA BANCSHARES, INC.
Form 10-QSB Index PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2004 and 2003
    
    
    2Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2004 and 2003
    
    
    3Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 3.
    
    Controls and Procedures
    
    
    10PART II
    
    OTHER INFORMATIONItem 6.
    
    Exhibits and Reports on Form 8-K
    
    
    11SIGNATURES
    
    
    12EXHIBIT INDEXEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO




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Part I. FINANCIAL INFORMATION 
 Item 1. Financial Statements GEORGIA-CAROLINA BANCSHARES, INC. 
 Condensed Consolidated Balance Sheets (Unaudited)(dollars in thousands) March 31,
    
    December 31,2004
    
    2003ASSETSCash and due from banks
    
    $
    9,068
    
    
    $
    6,596Federal funds sold
    
    
    
    
    
    
    8,470Securities available-for-sale
    
    
    37,189
    
    
    
    34,511Loans, net of allowance for loan losses
    
    
    184,112
    
    
    
    173,203Loans, held for sale
    
    
    43,301
    
    
    
    32,419Bank premises and fixed assets
    
    
    7,191
    
    
    
    7,123Accrued interest receivable
    
    
    1,249
    
    
    
    1,126Foreclosed real estate, net of allowance
    
    
    59
    
    
    
    59Deferred tax asset, net
    
    
    619
    
    
    
    806Federal Home Loan Bank Stock
    
    
    804
    
    
    
    1,083Other assets
    
    
    664
    
    
    
    629Total assets
    
    $
    284,256
    
    
    $
    266,025LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    31,653
    
    
    $
    26,326Interest-bearing:NOW accounts
    
    
    36,071
    
    
    
    31,161Savings
    
    
    67,212
    
    
    
    64,001Money market accounts
    
    
    9,293
    
    
    
    9,508Time deposits of $100,000, and over
    
    
    46,833
    
    
    
    39,986Other time deposits
    
    
    49,703
    
    
    
    50,674Total deposits
    
    
    240,765
    
    
    
    221,656Other liabilities, borrowings and retail agreements
    
    
    20,734
    
    
    
    22,505Total liabilities
    
    
    261,499
    
    
    
    244,161Shareholders equity:Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
2,640,974 and 2,636,510 shares
issued and outstanding
    
    
    3
    
    
    
    2Additional paid-in-capital
    
    
    13,522
    
    
    
    13,461Retained Earnings
    
    
    8,928
    
    
    
    8,227Accumulated other comprehensive income (loss)
    
    
    304
    
    
    
    174Total shareholders equity
    
    
    22,757
    
    
    
    21,864Total liabilities and shareholders equity
    
    $
    284,256
    
    
    $
    266,025
 See notes to condensed financial statements. 2




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GEORGIA-CAROLINA BANCSHARES, INC. 
 Condensed Consolidated Statements of Income (Unaudited)(dollars in thousands, except per share amounts) Three Months EndedMarch 31,2004
    
    2003Interest incomeInterest and fees on loans
    
    $
    3,157
    
    
    $
    3,276Interest on taxable securities
    
    
    321
    
    
    
    270Interest on nontaxable securities
    
    
    22
    
    
    
    10Interest on Federal funds sold
    
    
    3
    
    
    
    2Total interest income
    
    
    3,503
    
    
    
    3,558Interest expenseInterest on time deposits of $100,000 or more
    
    
    260
    
    
    
    326Interest on other deposits
    
    
    659
    
    
    
    909Interest on funds purchased and other borrowings
    
    
    39
    
    
    
    83Total interest expense
    
    
    958
    
    
    
    1,318Net interest income
    
    
    2,545
    
    
    
    2,240Provision for loan losses
    
    
    43
    
    
    
    177Net interest income after provision for loan losses
    
    
    2,502
    
    
    
    2,063Noninterest incomeService charges on deposits
    
    
    205
    
    
    
    147Other income/loss
    
    
    94
    
    
    
    43Gain on sale of mortgage loans
    
    
    2,051
    
    
    
    3,0122,350
    
    
    
    3,202Noninterest expenseSalaries and employee benefits
    
    
    2,435
    
    
    
    2,561Occupancy expenses
    
    
    303
    
    
    
    288Other expenses
    
    
    969
    
    
    
    8803,707
    
    
    
    3,729Income before income taxes
    
    
    1,145
    
    
    
    1,536Income tax expense
    
    
    443
    
    
    
    585Net income
    
    $
    702
    
    
    $
    951Net income per share of common stock: (1)Basic
    
    $
    0.27
    
    
    $
    0.36Diluted
    
    $
    0.24
    
    
    $
    0.33Dividends per share of common stock
    
    $
    
    
    
    $
    
 (1)Adjusted for the 2-for-1 common stock split effected January 30, 2004. See notes to condensed financial statements. 3




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GEORGIA-CAROLINA BANCSHARES, INC. 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 (dollars in thousands)
 Three Months Ended March 31,2004
    
    2003Cash flows from operating activitiesNet income
    
    $
    702
    
    
    $
    951Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    121
    
    
    
    123Provision for loan losses
    
    
    43
    
    
    
    177Net origination, proceeds and
gain on loans originated for sale
    
    
    (10,882
    )
    
    
    3,080Stock compensation
    
    
    61
    
    
    
    11Deferred income tax
    
    
    187
    
    
    
    101Net change in other assets and liabilities
    
    
    (163
    )
    
    
    198Net cash provided by
operating activities
    
    
    (9,931
    )
    
    
    4,641Cash flows from investing activitiesDecrease in federal funds sold
    
    
    8,470
    
    
    
    507Loan originations and collections, net
    
    
    (10,952
    )
    
    
    (8,633
    )Purchases, maturities, sales, and calls of
available-for-sale securities, net
    
    
    (2,399
    )
    
    
    (873
    )Net additions to premises and equipment
    
    
    (189
    )
    
    
    (236
    )Net cash (used in)
investing activities
    
    
    (5,070
    )
    
    
    (9,235
    )Cash flows from financing activitiesNet increase (decrease) in deposits and
funds purchased
    
    
    17,743
    
    
    
    3,374Net cash provided by (used in)
financing activities
    
    
    17,743
    
    
    
    3,374Net increase (decrease) in cash and due from banks
    
    
    2,472
    
    
    
    (1,220
    )Cash and due from banks at beginning of period
    
    
    6,596
    
    
    
    7,520Cash and due from banks at end of period
    
    $
    9,068
    
    
    $
    6,300
 See notes to condensed financial statements. 4




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GEORGIA-CAROLINA BANCSHARES, INC. 
 Condensed Consolidated Statements of Comprehensive Income (Unaudited) (dollars in thousands) Three Months EndedMarch 31,2004
    
    2003Net income
    
    $
    702
    
    
    $
    951Unrealized holding gains and (losses) arising
during period, less reclassifications
adjustment
for gains and losses included in net income,
net of tax
    
    
    130
    
    
    
    59Comprehensive income
    
    $
    832
    
    
    $
    1,010
 See notes to condensed financial statements. 5




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GEORGIA-CAROLINA BANCSHARES, INC. 
 Notes to Condensed Consolidated Financial Statements March 31, 2004
 (Unaudited)
 Note 1  Basis of presentation The accompanying condensed consolidated financial statements include the
accounts of Georgia-Carolina Bancshares, Inc. (the Company) and its wholly
owned subsidiary, First Bank of Georgia (the Bank). Significant intercompany
transactions and accounts are eliminated in consolidation. The accompanying financial statements 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 accounting principles
generally accepted in the United States have been condensed or omitted pursuant
to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Companys Annual Report on Form 10-KSB for
the year ended December 31, 2003. 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 of
operations for interim periods. Note 2  Stock-based compensation The Company accounts for stock-based compensation utilizing the intrinsic value
method. Presented below is certain actual financial information of the Company
with comparative pro forma information determined as if the Company had
accounted for the stock-based compensation for the periods presented utilizing
the fair-value method (in thousands, except per share amounts). Three Months
    
    ThreeEnded
    
    Months EndedMarch 31, 2004
    
    March 31, 2003Net income as reported
    
    $
    702
    
    
    $
    951Earnings per share as reportedBasic:
    
    $
    .27
    
    
    $
    .36Diluted:
    
    $
    .24
    
    
    $
    .33Stock-based employee compensation cost
included in net income as reported
    
    $
    
    
    
    $
    Stock-based employee compensation cost
based on fair-value method
    
    $
    39
    
    
    $
    27Pro forma net income including stock-based
compensation cost based on fair-value
method
    
    $
    663
    
    
    $
    930Pro forma earnings per share including
stock-based compensation cost based on
fair-value methodBasic:
    
    $
    .26
    
    
    $
    .35Diluted:
    
    $
    .23
    
    
    $
    .32
 6




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Note 3  Earnings per share Earnings per share are calculated on the basis of the weighted average number
of shares outstanding. As the Company has granted stock options to certain
officers and others with the Company, diluted earnings per share has been
presented in the Statements of Income. The following reconciles the numerators and denominators of the basic and
diluted earnings per share computations: Three Months Ended March 31,2004
    
    2003Basic Earnings Per Share:(Income available to common shareholders)Weighted average common shares outstanding
    
    
    2,636,909
    
    
    
    2,616,775Net income
    
    $
    702,000
    
    
    $
    951,000Basic earnings per share
    
    $
    .27
    
    
    $
    .36Diluted Earnings Per Share:(Income available to common shareholders
and assumed conversions)Weighted average common shares outstanding
    
    
    2,636,909
    
    
    
    2,616,775Effect of dilutive securities (Options)
    
    
    288,512
    
    
    
    265,043Total weighted average common shares and
common stock equivalents
    
    
    2,925,421
    
    
    
    2,881,818Net income
    
    $
    702,000
    
    
    $
    951,000Diluted earnings per share
    
    $
    .24
    
    
    $
    .33
 7




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations. Overview Georgia-Carolina Bancshares, Inc. (the Company) was incorporated under the
laws of the State of Georgia on January 31, 1997 to operate as a bank holding
company pursuant to the Federal Bank Holding Company Act of 1956, as amended.
The Company is a one-bank holding company and owns 100% of the issued and
outstanding stock of First Bank of Georgia (the Bank), an independent,
locally owned state-chartered commercial bank. The Bank operates two offices in
Augusta, Georgia, two offices in Martinez, Georgia and one office in Thomson,
Georgia. The Bank operates as a locally owned bank that targets the banking needs of
individuals and small to medium-sized businesses by emphasizing personal
service. The Bank offers a full range of deposit and lending services and is a
member of an electronic banking network that enables its customers to use the
automated teller machines of other financial institutions. In addition, the
Bank offers commercial and business credit services, as well as various
consumer credit services, including home mortgage loans, automobile loans,
lines of credit, home equity loans and home improvement loans. Critical Accounting Policies The accounting and reporting policies of the Company and Bank are in accordance
with accounting principles generally accepted in the United States and conform
to general practices within the banking industry. Application of these
principles requires management to make estimates or judgments that affect the
amounts reported in the financial statements and the accompanying notes. These
estimates are based on information available as of the date of the financial
statements; accordingly, as this information changes, the financial statements
could reflect different estimates or judgments. Certain policies inherently
have a greater reliance on the use of estimates, and as such have a greater
possibility of producing results that could be materially different than
originally reported. Estimates or judgments are necessary when assets and liabilities are required
to be recorded at fair value, when a decline in the value of an asset not
carried on the financial statements at fair value warrants an impairment
write-down or valuation reserve to be established, or when an asset or
liability needs to be recorded contingent upon a future event. Carrying assets
and liabilities at fair value inherently results in more financial statement
volatility. The fair values and the information used to record the valuation
adjustments for certain assets and liabilities are based either on quoted
market prices or are provided by other third-party sources, when available.
When third-party information is not available, valuation adjustments are
estimated in good faith by management primarily through the use of internal
cash flow modeling techniques. Management views critical accounting policies to be those that are highly
dependent on subjective or complex judgments, estimates and assumptions, and
where changes in those estimates and assumptions could have a significant
impact on the financial statements. Management currently views the
determination of the allowance for loan losses to be the only critical
accounting policy. The allowance for loan losses represents managements estimate of probable
credit losses inherent in the loan portfolio. Estimating the amount of the
allowance for loan losses requires significant judgment and the use of
estimates related to the amount and timing of expected future cash flows on
impaired loans, estimated losses on non-impaired loans based on historical loss
experience, and consideration of current economic trends and conditions, all of
which may be susceptible to significant change. The loan portfolio also
represents the largest asset type on the consolidated balance sheet. Loan
losses are charged off against the allowance, while recoveries of amounts
previously charged off are credited to the allowance. 8




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A provision for loan losses is charged to operations based on managements
periodic evaluation of the factors previously mentioned, as well as other
pertinent factors. The allowance for loan losses consists of an allocated component and an
unallocated component. The components of the allowance for loan losses
represent an estimation made pursuant to either Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies, or SFAS 114,
Accounting by Creditors for Impairment of a Loan. The allocated component of
the allowance for loan losses reflects expected losses resulting from analyses
developed through specific credit allocations for individual loans and
historical loss experience for each loan category. The specific credit
allocations are based on regular analyses of all loans over a fixed-dollar
amount where the internal credit rating is at or below a predetermined
classification. These analyses involve a high degree of judgment in estimating
the amount of loss associated with specific loans, including estimating the
amount and timing of future cash flows and collateral values. The historical
loss element is determined using the average of actual losses incurred over
prior years for each type of loan. The historical loss experience is adjusted
for known changes in economic conditions and credit quality trends such as
changes in the amount of past due and nonperforming loans. The resulting loss
allocation factors are applied to the balance of each type of loan after
removing the balance of impaired loans from each category. There are many factors affecting the allowance for loan losses; some are
quantitative while others require qualitative judgment. Although management
believes its process for determining the allowance adequately considers all the
potential factors that could potentially result in credit losses, the process
includes subjective elements and may be susceptible to significant change. To
the extent actual outcomes differ from management estimates, additional
provision for loan losses could be required that could adversely affect
earnings or financial position in future periods. Results Of Operations Overview The Companys net income was $702,000 for the first quarter of 2004, compared
to $951,000 for the first quarter of 2003, a decrease of 26.2%. Basic earnings
per share were $.27 for the first quarter of 2004, compared to $0.36 for the
first quarter of 2003. The Companys return on average assets was 1.06% (annualized) for the three
months ended March 31, 2004, compared to 1.52% (annualized) for the three
months ended March 31, 2003. The Companys return on average equity for the
three months ended March 31, 2004 was 12.59% (annualized) compared to 21.86%
(annualized) for the three months ended March 31, 2003. 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). Net interest income was $2,545,000 for the quarter ended March 31, 2004, an
increase of $305,000 (13.6%) over net interest income of $2,240,000 for the
quarter ended March 31, 2003. This increase was primarily the result of
investing increased deposit liability funds and other borrowed funds in loans
and a decrease in the interest rates paid by the Bank on deposit liability
funds and other borrowed funds as competitive interest rates continued to
decline. Interest-earning assets were $268,613,000 at March 31, 2004 compared
to $251,766,000 at December 31, 2003 and $246,999,000 at March 31, 2003, an
increase of $16,847,000 (6.7%) and $21,614,000 (8.8%), respectively. Loans,
including loans held for sale, are the highest yielding component of
interest-earning assets. Total loans, net of the allowance for loan 9




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losses, were $227,413,000 at March 31, 2004 compared to $205,622,000 at
December 31, 2003 and $215,928,000 at March 31, 2003, an increase of
$21,791,000 (10.6%) and $11,485,000 (5.3%), respectively. The increase in
deposit liability funds continues to be primarily attributable to the Companys
continuing growth in the Augusta, Georgia and Columbia County, Georgia market
areas. The increase in loans also continues to be primarily attributable to
this growth. Interest Income Interest income for the three months ended March 31, 2004 was $3,503,000, a
decrease of $55,000 (1.5%) from $3,558,000 for the three months ended March 31,
2003. The decrease in interest income primarily resulted from a decrease in
interest and fees on loans. The decrease in interest and fees on loans resulted
from lower yields on the Banks increased investment in the loan portfolio.
Interest income and fees on loans was $3,157,000 for the three months ended
March 31, 2004, a decrease of $119,000 (3.6%) from $3,276,000 for the three
months ended March 31, 2003. This reduced level of interest income and fees on
loans for the first quarter of 2004 resulted from the Banks increased
investment in lower yielding loans. The Banks opportunity to increase the
investment in loans continues to be primarily attributable to the Banks growth
in the Augusta and Columbia County market areas. In addition, the Banks
mortgage lending operation has contributed to the growth in the investment in
loans. Interest Expense Interest expense for the three months ended March 31, 2004 was $958,000, a
decrease of $360,000 (27.3%) from $1,318,000 for the three months ended March
31, 2003. While the Bank has experienced a significant increase in the amount
of interest-bearing deposits from March 31, 2003 to March 31, 2004, interest
expense on these deposits has decreased due to the lower interest rate
environment. Noninterest Income Noninterest income for the three months ended March 31, 2004 was $2,350,000, a
decrease of $852,000 (26.6%) from $3,202,000 for the three months ended March
31, 2003. Service charges on deposit accounts were $205,000 for the three
months ended March 31, 2004, an increase of $58,000 (39.5%) from $147,000 for
the three months ended March 31, 2003. Gain on sale of mortgage loans
originated and sold by the Banks mortgage division was $2,051,000 for the
three months ended March 31, 2004, a decrease of $961,000 (31.9%) from
$3,012,000 for the three months ended March 31, 2003. Substantially all loans
originated by the division are sold in the secondary market with servicing
released. Noninterest Expense Noninterest expense for the three months ended March 31, 2004 was $3,707,000, a
decrease of $22,000 (0.6%) from $3,729,000 for the three months ended March 31,
2003. Salary and employee benefit costs were $2,435,000 for the three months
ended March 31, 2004, a decrease of $126,000 (4.9%) from $2,561,000 for the
three months ended March 31, 2003. These decreases are primarily the result of
the Bank paying reduced incentives to mortgage personnel due to lower loan
volume and normal attrition within the mortgage division. Occupancy expenses
and other noninterest expenses for the three months ended March 31, 2004
increased by $104,000 (8.9%) to $1,272,000 from $1,168,000 during the three
months ended March 31, 2003. This increase was primarily a result of the
continued expansion and growth of the Bank. 10




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Income Taxes The Company recorded income tax expense of $443,000 for the three months ended
March 31, 2004, resulting from net income before taxes of $1,145,000 for the
quarter. Financial Condition Overview Total consolidated assets at March 31, 2004 were $284,256,000, an increase of
$18,231,000 (6.9%) from December 31, 2003 total consolidated assets of
$266,025,000, and an increase of $22,195,000 (8.5%) from March 31, 2003 total
consolidated assets of $262,061,000. At March 31, 2004, loans represented
85.9% of interest-earning assets compared to 82.9% at December 31, 2003, and
88.5% at March 31, 2003. Investments in securities at March 31, 2004 were
$37,189,000, an increase of $2,678,000 (7.8%) from $34,511,000 at December 31,
2003. Interest-bearing deposits at March 31, 2004 were $209,112,000, an
increase of $13,782,000 (7.1%) from the December 31, 2003 balance of
$195,330,000, and an increase of $20,108,000 (10.6%) from the March 31, 2003
balance of $189,004,000. The Banks warehouse line of credit was $5,159,000 at
March 31, 2004, a decrease of $4,841,000 (48.4%) from the December 31, 2003
balance of $10,000,000, and a decrease of $2,385,000 (31.6%) from the March 31,
2003 balance of $7,544,000. The Banks balance of Federal funds purchased was
$3,812,000 at March 31, 2004, which represents an increase of the same amount
from the Banks December 31, 2003 balance of $0 and an increase of $653,000
(20.7%) from the March 31, 2003 balance of $3,159,000. The Banks retail
repurchase agreements were $1,647,000 at March 31, 2004, an increase of
$263,000 (19.0%) from the December 31, 2003 balance of $1,384,000, and a
decrease of $466,000 (22.1%) from the March 31, 2003 balance of $2,113,000. 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 is presented 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. 11




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Non-performing assets were $1,826,000 at March 31, 2004, compared to $1,116,000
at December 31, 2003 and $1,528,000 at March 31, 2003. The composition of
non-performing assets for each date is shown below. March 31,
    
    December 31,
    
    March 31,2004
    
    2003
    
    2003Non-accrual loans
    
    $
    1,767,000
    
    
    $
    1,057,000
    
    
    $
    914,000OREO, net of valuation allowance
    
    
    59,000
    
    
    
    59,000
    
    
    
    614,000$
    1,826,000
    
    
    $
    1,116,000
    
    
    $
    1,528,000
 The ratio of non-performing assets to total loans and other real estate was
0.8% at March 31, 2004, 0.5% at December 31, 2003, and 0.7% at March 31, 2003. The reduction and disposition of non-performing assets is 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, as described above under the heading
Critical Accounting Policies. During the quarter ended March 31, 2004,
management determined that the allowance for loan losses should be increased
through a provision for loan losses of $43,000. The ratio of the allowance for
loan losses to total gross loans was 1.4% at March 31, 2004, 1.5% at December
31, 2003, and 1.2% at March 31, 2003. Excluding the balance of loans held for
sale by the Bank, the ratio of the allowance for loan losses to loans was 1.7%
at March 31, 2004, 1.8% at December 31, 2003, and 1.7% at March 31, 2003.
Management considers the current allowance for loan losses appropriate based
upon its analysis of the potential risk in the portfolio; however, there can be
no assurance that charge-offs in future periods will not exceed the allowance
for loan losses or that additional provisions will not be required. 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, warehouse lines and other funding sources 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 March 31, 2004 was 24.4%,
compared to 25.4% at December 31, 2003, and 36.0% at March 31, 2003. 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 of 4.0% for
Tier 1 risk-based capital, 8.0% for total risk-based capital and 4.0% for the
Tier 1 leverage ratio. At March 31, 2004, the Banks Tier I risk-based
capital was 10.4% and total risk-based capital was 11.6%, compared to 10.7% and
12.0% at December 31, 2003, 12




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respectively. At March 31, 2004, the Banks leverage ratio was 8.8% compared
to 8.7% at December 31, 2003. Off-Balance Sheet Arrangements In the ordinary course of business, the Bank may enter into off-balance sheet
financial instruments which are not reflected in the financial statements.
These instruments include commitments to extend credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when funds are disbursed or the instruments become payable. Following is an analysis of significant off-balance sheet financial instruments
at March 31, 2004 and December 31, 2003. At
    
    AtMarch 31,
    
    December 31,2004
    
    2003(In thousands)Commitments to extend credit
    
    $
    58,626
    
    
    $
    48,485Standby letters of credit
    
    
    300
    
    
    
    223$
    58,926
    
    
    $
    48,708
 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 pursuant to safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. 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. 13




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Item 3. Controls and Procedures. Management has developed and implemented a policy and procedures for reviewing
disclosure controls and procedures and internal controls over financial
reporting on a quarterly basis. Management, including the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the design
and operation of disclosure controls and procedures as of March 31, 2004 and,
based on their evaluation, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that these controls and procedures are
operating effectively. Disclosure controls and procedures are the Companys
controls and other procedures that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files under the Exchange Act is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. There were no significant changes in the Companys internal control over
financial reporting during the Companys last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. Management noted no
significant deficiencies in the design or operation of the Companys internal
control over financial reporting and the Companys auditors were so advised. 14




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Part II
OTHER INFORMATION 
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits. 3.1
    
    -
    
    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 Sarbanes-Oxley
Act of 2002.31.2
    
    -
    
    Certification of Chief Financial Officer
Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    Certifications Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
  (b)
    
    Reports on Form 8-K. The Company furnished a Report on
Form 8-K on February 27, 2004 relating to a press release issued
by the Company reporting its financial results for the three
months and year ended December 31, 2003. 15




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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
    
    May 14, 2004Patrick G. Blanchard
    
    DatePresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ James M. Thomas
    
    May 14, 2004James M. Thomas
    
    DateChief Financial Officer(principal financial and accounting officer)
 16




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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 Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Section
302 of Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certifications Pursuant to Section 906 of Sarbanes-Oxley Act of
2002.
 17