##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 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
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 
 
 
  þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ
  Class
    
    Outstanding at May 15, 2008Common Stock, $.001 Par Value
    
    3,407,155 shares




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007
    
    2Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2008 and 2007
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2008 and 2007
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    18Item 4.
    
    Controls and Procedures
    
    18Item 4T.
    
    Controls and Procedures
    
    18PART II.
    
    OTHER INFORMATIONItem 6.
    
    Exhibits
    
    19SIGNATURES
    
    20EXHIBIT INDEX
    
    21EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATIONS




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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 31,2008
    
    
    2007ASSETSCash and due from banks
    
    $
    8,015
    
    
    $
    6,744Federal funds sold
    
    
    2,518
    
    
    
    Securities available-for-sale
    
    
    61,052
    
    
    
    58,906Loans, net of allowance for loan losses
    
    
    329,983
    
    
    
    317,142Loans, held for sale
    
    
    33,269
    
    
    
    39,547Bank premises and fixed assets
    
    
    10,324
    
    
    
    10,432Accrued interest receivable
    
    
    2,192
    
    
    
    2,115Foreclosed real estate, net of allowance
    
    
    486
    
    
    
    483Deferred tax asset, net
    
    
    1,200
    
    
    
    1,315Federal Home Loan Bank Stock
    
    
    1,661
    
    
    
    1,487Bank-owned life insurance
    
    
    8,167
    
    
    
    8,086Other assets
    
    
    1,699
    
    
    
    1,612Total assets
    
    $
    460,566
    
    
    $
    447,869LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    36,461
    
    
    $
    30,292Interest-bearing:NOW accounts
    
    
    31,582
    
    
    
    27,706Savings
    
    
    73,433
    
    
    
    73,184Money market accounts
    
    
    7,954
    
    
    
    9,449Time deposits of $100,000, and over
    
    
    154,466
    
    
    
    145,295Other time deposits
    
    
    86,412
    
    
    
    94,040Total deposits
    
    
    390,308
    
    
    
    379,966Borrowings:Other liabilities, borrowings and retail agreements
    
    
    33,045
    
    
    
    31,932Total liabilities
    
    
    423,353
    
    
    
    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;
3,402,649 and 3,398,723 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    15,025
    
    
    
    14,948Retained Earnings
    
    
    21,556
    
    
    
    20,804Accumulated other comprehensive income
    
    
    628
    
    
    
    215Total shareholders equity
    
    
    37,213
    
    
    
    35,971Total liabilities and shareholders equity
    
    $
    460,566
    
    
    $
    447,869
  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 31,2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    6,277
    
    
    $
    6,302Interest on taxable securities
    
    
    715
    
    
    
    575Interest on nontaxable securities
    
    
    73
    
    
    
    52Interest on Federal funds sold
    
    
    38
    
    
    
    83Total interest income
    
    
    7,103
    
    
    
    7,012Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,821
    
    
    
    1,701Interest on other deposits
    
    
    1,846
    
    
    
    1,763Interest on funds purchased and other borrowings
    
    
    238
    
    
    
    283Total interest expense
    
    
    3,905
    
    
    
    3,747Net interest income
    
    
    3,198
    
    
    
    3,265Provision for loan losses
    
    
    237
    
    
    
    268Net interest income after provision for loan losses
    
    
    2,961
    
    
    
    2,997Non-interest incomeService charges on deposits
    
    
    300
    
    
    
    303Other income/loss
    
    
    233
    
    
    
    180Gain on sale of mortgage loans
    
    
    1,919
    
    
    
    2,0362,452
    
    
    
    2,519Non-interest expenseSalaries and employee benefits
    
    
    2,761
    
    
    
    2,873Occupancy expenses
    
    
    380
    
    
    
    356Other expenses
    
    
    1,165
    
    
    
    1,1724,306
    
    
    
    4,401Income before income taxes
    
    
    1,107
    
    
    
    1,115Income tax expense
    
    
    355
    
    
    
    384Net income
    
    $
    752
    
    
    $
    731Net income per share of common stockBasic
    
    $
    0.22
    
    
    $
    0.22Diluted
    
    $
    0.21
    
    
    $
    0.21Dividends per share of common stock
    
    $
    
    
    
    $
    
  3




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GEORGIA-CAROLINA BANCSHARES, INC.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  (dollars in thousands)
 Three Months EndedMarch 31,2008
    
    
    2007Net income
    
    $
    752
    
    
    $
    731Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    413
    
    
    
    117Comprehensive income
    
    $
    1,165
    
    
    $
    848
  4




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GEORGIA-CAROLINA BANCSHARES, INC.  Condensed Consolidated Statements of Cash Flows  (Unaudited)  (dollars in thousands)


Three Months Ended March 31,2008
    
    
    2007Cash flows from operating activitiesNet income
    
    $
    752
    
    
    $
    731Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    176
    
    
    
    190Provision for loan losses
    
    
    237
    
    
    
    268SFAS 123R Stock option expense
    
    
    33
    
    
    
    58Stock compensation
    
    
    44
    
    
    
    45Increase in cash value of bank-owned life insurance
    
    
    (81
    )
    
    
    (Gain)/Loss on sales of foreclosed real estate
    
    
    23
    
    
    
    (9
    )Gain on sales of fixed assets
    
    
    (1
    )
    
    
    Net origination & proceeds on loans originated for sale
    
    
    6,278
    
    
    
    8,106Increase in accrued interest receivable
    
    
    (77
    )
    
    
    (309
    )Increase in accrued interest payable
    
    
    508
    
    
    
    303Increase in deferred tax asset, net
    
    
    (117
    )
    
    
    (83
    )Net change in other assets and liabilities
    
    
    (225
    )
    
    
    (127
    )Net cash provided by operating activities
    
    
    7,550
    
    
    
    9,173Cash flows from investing activities(Increase)/decrease in federal funds sold
    
    
    (2,518
    )
    
    
    1,082Loan originations and collections, net
    
    
    (13,133
    )
    
    
    (19,397
    )Purchases of available for sale securities
    
    
    (11,063
    )
    
    
    (2,479
    )Proceeds from maturities, sales & calls of available-for-sale securities, net
    
    
    9,563
    
    
    
    1,100Purchases of restricted securities
    
    
    (1,308
    )
    
    
    (1,368
    )Proceeds from sales of restricted securities
    
    
    1,134
    
    
    
    2,676Proceeds from sales of foreclosed real estate
    
    
    29
    
    
    
    180Net additions to premises and equipment
    
    
    (41
    )
    
    
    (165
    )Net cash used in investing activities
    
    
    (17,337
    )
    
    
    (18,371
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    11,058
    
    
    
    10,337Proceeds from stock options exercised
    
    
    
    
    
    
    33Net cash provided by financing activities
    
    
    11,058
    
    
    
    10,370Net increase in cash and due from banks
    
    
    1,271
    
    
    
    1,172Cash and due from banks at beginning of period
    
    
    6,744
    
    
    
    11,109Cash and due from banks at end of period
    
    $
    8,015
    
    
    $
    12,281




5



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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    752,000Basic EPSIncome available to common shareholders
    
    
    752,000
    
    
    
    3,401,766
    
    
    $
    0.22Effect of dilutive securitiesOptions
    
    
    
    
    
    
    95,702Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    752,000
    
    
    
    3,497,468
    
    
    $
    0.21
 For the Three Months Ended March 31, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    731,000Basic EPSIncome available to common shareholders
    
    
    731,000
    
    
    
    3,380,162
    
    
    $
    0.22Effect of dilutive securitiesOptions
    
    
    
    
    
    
    117,331Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    731,000
    
    
    
    3,497,493
    
    
    $
    0.21
 7




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Note 4  Fair Value Measurement
 Fair Value Measurements,
    Level 1
 Level 2
 Level 3
 8




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Investment Securities Available-for-Sale
  Loans Held for Sale
  Loans
  Foreclosed Assets
   9




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Fair Value Measurements atMarch 31, 2008, Using,Total CarryingAmount 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
    
    3/31/2008
    
    3/31/2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale
securities
    
    $
    61,052
    
    
    $
    61,052
    
    
    $
    
    
    
    $
    61,052
    
    
    $
    
 Note 5  Impact of Other Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets and Financial Liabilities 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.
 10




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Accounting for Servicing of
Financial Assets The Fair Value Option for Financial Assets and Financial
Liabilities
 Note 6  Commitments and Contingencies
    11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   Critical Accounting Policies
   12




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Accounting for Contingencies Accounting by Creditors for Impairment of a Loan
  Results of Operations
 Overview
   13




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Net Interest Income
   Interest Income
  Interest Expense
  Provision for Loan Losses
  14




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Non-interest Income
  Non-interest Expense
  Income Taxes
  Financial Condition
 Overview
   15




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Asset Quality
   March 31,
    
    
    December 31,2008
    
    
    2007Non-accrual loans
    
    $
    10,961,000
    
    
    $
    11,558,000OREO, net of valuation allowance
    
    
    486,000
    
    
    
    483,000$
    11,447,000
    
    
    $
    12,041,000
    Liquidity and Capital Resources
    16




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Off-Balance Sheet Arrangements
   At
    
    
    AtMarch 31,
    
    
    December 31,2008
    
    
    2007(in thousands)Commitments to extend credit
    
    $
    65,493
    
    
    $
    40,492Standby letters of credit
    
    
    1,117
    
    
    
    1,912$
    66,610
    
    
    $
    42,404
 Cautionary Note Regarding Forward-Looking Statements
   17




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  
 Item 4T. Controls and Procedures.
    18




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Part II  OTHER INFORMATION
 
 Item 6. Exhibits.
  Exhibit No.
    
    
    
    Description3.1
    
    
    
    Articles of Incorporation of the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended, Registration No. 333-69763).3.1.1
    
    
    
    Articles of Amendment to the Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1.1 of the Companys Annual Report on Form 10-KSB for the
year ended December 31, 2000).3.2
    
    
    
    By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 of the
Companys Registration Statement on Form SB-2 under the Securities Act of 1933, as amended,
Registration No. 333-69763).31.1
    
    
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




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SIGNATURES
  GEORGIA-CAROLINA BANCSHARES, INC.May 15, 2008
    By:
    /s/ Patrick G. BlanchardPatrick G. BlanchardPresident and Chief Executive Officer
(principal executive officer)May 15, 2008
    By:
    /s/ Bradley J. Gregory, Sr.Bradley J. Gregory, Sr.Senior Vice President and Chief Financial Officer
(principal financial and accounting officer) 20




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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.
 21