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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 March 31, 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
Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 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 þ NO o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ 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 12, 2005Common Stock, $.001 Par Value
    
    3,337,147 shares




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GEORGIA-CAROLINA BANCSHARES, INC.
Form 10-Q Index PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2005
and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4. Controls and Procedures
    
    
    13PART II OTHER INFORMATIONItem 6. Exhibits
    
    
    14SIGNATURES
    
    
    15EXHIBIT INDEX
    
    
    16EX-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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Part I. FINANCIAL INFORMATION 
 Item 1. Financial Statements GEORGIA-CAROLINA BANCSHARES, INC.  
 Condensed Consolidated Balance Sheets
 (Unaudited)  (dollars in thousands)
 March 31,
    
    
    December 31,2005
    
    
    2004ASSETSCash and due from banks
    
    $
    4,898
    
    
    $
    7,138Federal funds sold
    
    
    8,879
    
    
    
    Securities available-for-sale
    
    
    39,409
    
    
    
    40,955Loans, net of allowance for loan losses
    
    
    222,420
    
    
    
    213,312Loans, held for sale
    
    
    44,284
    
    
    
    56,729Bank premises and fixed assets
    
    
    8,901
    
    
    
    8,316Accrued interest receivable
    
    
    1,486
    
    
    
    1,354Foreclosed real estate, net of allowance
    
    
    649
    
    
    
    414Deferred tax asset, net
    
    
    1,027
    
    
    
    939Federal Home Loan Bank Stock
    
    
    2,330
    
    
    
    2,420Other assets
    
    
    943
    
    
    
    816Total assets
    
    $
    335,226
    
    
    $
    332,393LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    39,908
    
    
    $
    33,457Interest-bearing:NOW accounts
    
    
    31,751
    
    
    
    41,412Savings
    
    
    60,552
    
    
    
    54,110Money market accounts
    
    
    7,644
    
    
    
    9,898Time deposits of $100,000, and over
    
    
    83,157
    
    
    
    65,126Other time deposits
    
    
    50,569
    
    
    
    53,777Total deposits
    
    
    273,581
    
    
    
    257,780Other liabilities, borrowings and retail agreements
    
    
    35,741
    
    
    
    49,245Total liabilities
    
    
    309,322
    
    
    
    307,025Shareholders equity: (1)Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
3,319,507 and 3,317,250 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    13,713
    
    
    
    13,677Retained Earnings
    
    
    12,527
    
    
    
    11,728Accumulated other comprehensive income (loss)
    
    
    (340
    )
    
    
    (41
    )Total shareholders equity
    
    
    25,904
    
    
    
    25,368Total liabilities and shareholders equity
    
    $
    335,226
    
    
    $
    332,393
   (1)
    
    Adjusted to reflect the 5-for-4 common stock split effected April 1, 2005 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 31,2005
    
    
    2004Interest incomeInterest and fees on loans
    
    $
    4,230
    
    
    $
    3,157Interest on taxable securities
    
    
    363
    
    
    
    321Interest on nontaxable securities
    
    
    29
    
    
    
    22Interest on Federal funds sold
    
    
    11
    
    
    
    3Total interest income
    
    
    4,633
    
    
    
    3,503Interest expenseInterest on time deposits of $100,000 or more
    
    
    501
    
    
    
    260Interest on other deposits
    
    
    870
    
    
    
    659Interest on funds purchased and other borrowings
    
    
    247
    
    
    
    39Total interest expense
    
    
    1,618
    
    
    
    958Net interest income
    
    
    3,015
    
    
    
    2,545Provision for loan losses
    
    
    320
    
    
    
    43Net interest income after
provision for loan losses
    
    
    2,695
    
    
    
    2,502Non-interest incomeService charges on deposits
    
    
    147
    
    
    
    205Other income/loss
    
    
    90
    
    
    
    94Gain on sale of mortgage loans
    
    
    2,240
    
    
    
    2,0512,477
    
    
    
    2,350Non-interest expenseSalaries and employee benefits
    
    
    2,557
    
    
    
    2,435Occupancy expenses
    
    
    322
    
    
    
    303Other expenses
    
    
    1,012
    
    
    
    9693,891
    
    
    
    3,707Income before income taxes
    
    
    1,281
    
    
    
    1,145Income tax expense
    
    
    482
    
    
    
    443Net income
    
    $
    799
    
    
    $
    702Net income per share of common stock: (1)Basic
    
    $
    0.24
    
    
    $
    0.21Diluted
    
    $
    0.23
    
    
    $
    0.19Dividends per share of common stock
    
    $
    
    
    
    $
    
   (1)
    
    Adjusted to reflect the 5-for-4 common stock split effected April 1, 2005 See notes to condensed financial statements. 3




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GEORGIA-CAROLINA BANCSHARES, INC.  
 Condensed Consolidated Statements of Comprehensive Income
  (Unaudited)  (dollars in thousands)
 Three Months EndedMarch 31,2005
    
    
    2004Net income
    
    $
    799
    
    
    $
    702Unrealized holding gains and (losses) arising
during period, less reclassifications
adjustment
for gains and losses included in net income,
net of tax
    
    
    (299
    )
    
    
    130Comprehensive income
    
    $
    500
    
    
    $
    832
 See notes to condensed financial statements. 4




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GEORGIA-CAROLINA BANCSHARES, INC.  
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)  (dollars in thousands)
 Three Months Ended March 31,2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    799
    
    
    $
    702Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization
    
    
    119
    
    
    
    121Provision for loan losses
    
    
    320
    
    
    
    43Net origination, proceeds and
gain on loans originated for sale
    
    
    12,445
    
    
    
    (10,882
    )Stock compensation
    
    
    36
    
    
    
    61Deferred income tax
    
    
    87
    
    
    
    187Net change in other assets and liabilities
    
    
    (5,172
    )
    
    
    (163
    )Net cash provided by (used in)
operating activities
    
    
    8,634
    
    
    
    (9,931
    )Cash flows from investing activitiesDecrease in federal funds sold
    
    
    (8,879
    )
    
    
    8,470Loan originations and collections, net
    
    
    (9,663
    )
    
    
    (10,952
    )Purchases, maturities, sales, and calls of
available-for-sale securities, net
    
    
    1,072
    
    
    
    (2,399
    )Net additions to premises and equipment
    
    
    (706
    )
    
    
    (189
    )Net cash (used in)
investing activities
    
    
    (18,176
    )
    
    
    (5,070
    )Cash flows from financing activitiesNet increase (decrease) in deposits and
funds purchased
    
    
    7,302
    
    
    
    17,743Net cash provided by
financing activities
    
    
    7,302
    
    
    
    17,743Net increase (decrease) in cash and due from banks
    
    
    (2,240
    )
    
    
    2,472Cash and due from banks at beginning of period
    
    
    7,138
    
    
    
    6,596Cash and due from banks at end of period
    
    $
    4,898
    
    
    $
    9,068
 See notes to condensed financial statements. 5




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GEORGIA-CAROLINA BANCSHARES, INC. 
 Notes to Condensed Consolidated Financial Statements
March 31, 2005
(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, 2004. 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, 2005
    
    
    March 31, 2004Net income as reported
    
    $
    799
    
    
    $
    702Earnings per share as reportedBasic:
    
    $
    .24
    
    
    $
    .21Diluted:
    
    $
    .23
    
    
    $
    .19Stock-based employee compensation cost
included in net income as reported
    
    $
    
    
    
    $
    Stock-based employee compensation cost
based on fair-value method
    
    $
    84
    
    
    $
    39Pro forma net income including
stock-based compensation cost based on
fair-value method
    
    $
    715
    
    
    $
    663Pro forma earnings per share including
stock-based compensation cost based on
fair-value methodBasic:
    
    $
    .22
    
    
    $
    .20Diluted:
    
    $
    .20
    
    
    $
    .18
 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 Company
utilizes the Treasury Stock Method in determining the effect of options to be included in the
calculation. The following reconciles the numerators and denominators of the basic and diluted earnings per
share computations: Three Months Ended March 31,2005
    
    
    2004Basic Earnings Per Share:(Income available to
common shareholders)Weighted average common shares outstanding
    
    
    3,318,898
    
    
    
    3,299,887Net income
    
    $
    799,000
    
    
    $
    702,000Basic earnings per share
    
    $
    .24
    
    
    $
    .21Diluted Earnings Per Share:(Income available
to common shareholders and assumed
conversions)Weighted average common shares outstanding
    
    
    3,318,898
    
    
    
    3,299,887Effect of dilutive securities (Options)
    
    
    229,036
    
    
    
    314,042Total weighted average common shares and
common stock equivalents
    
    
    3,547,934
    
    
    
    3,613,929Net income
    
    $
    799,000
    
    
    $
    702,000Diluted earnings per share
    
    $
    .23
    
    
    $
    .19
 Note 4  Impact of Recently Issued Accounting Standards In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment(SFAS No.
122(R)). SFAS No. 123(R) will require companies to measure all employee stock-based compensation
awards using a fair value method and record such expense in its financial statements. In addition,
the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income
tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is
effective beginning as of the first annual reporting period beginning after December 15, 2005. The
Company is currently evaluating the impact that the adoption of SFAS No. 123(R) will have on its
financial position, results of operations and cash flows. The cumulative effect of adoption, if
any, will be measured and recognized in the statement of operations on the date of adoption. In April 2005, the Securities and Exchange Commissions Office of the Chief Accountant and its
Division of Corporation Finance released Staff Accounting Bulletin (SAB) No. 107 to provide
guidance regarding the application of FASB Statement No. 123 (revised 2004), Share-Based Payment.
Statement 7




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No. 123(R) covers a wide range of share-based compensation arrangements including share
options,
restricted share plans, performance-based awards, share appreciation rights, and employee share
purchase plans. SAB 107 also reminds public companies of the importance of including disclosures
within filings made with the SEC relating to the accounting for share-based payment transactions,
particularly during the transition to Statement No. 123(R). 
 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, 8




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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. 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 $799,000 for the first quarter of 2005, compared to $702,000 for the
first quarter of 2004, an increase of 13.8%. Basic earnings per share were $0.24 for the first
quarter of 2005, compared to $0.21 for the first quarter of 2004. The Companys return on average assets was 0.99% (annualized) for the three months ended March 31,
2005, compared to 1.06% (annualized) for the three months ended March 31, 2004. The Companys
return on average equity for the three months ended March 31, 2005 was 12.47% (annualized) compared
to 12.59% (annualized) for the three months ended March 31, 2004. 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 $3,015,000 for the quarter ended March 31, 2005, an increase of $470,000
(18.5%) over net interest income of $2,545,000 for the quarter ended March 31, 2004. This increase
was primarily the result of investing increased deposit liability funds and other borrowed funds in
higher yielding loans offset by higher interest rates paid by the Bank on deposit liability funds
and other borrowed funds as competitive interest rates continued to rise. Interest-earning assets
were $321,053,000 9




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at March 31, 2005 compared to $316,832,000 at December 31, 2004 and $268,613,000
at March 31,
2004, an increase of $4,221,000 (1.3%) and $52,440,000 (19.5%), respectively. Loans, including
loans held for sale, are the highest yielding component of interest-earning assets. Total loans,
net of the allowance for loan losses, were $266,704,000 at March 31, 2005 compared to $270,041,000
at December 31, 2004 and $227,413,000 at March 31, 2004, a decrease of $3,337,000 (1.2%) and an
increase of $39,291,000 (17.3%) 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 from March 31, 2004 to March 31, 2005 also
continues to be primarily attributable to this growth. Interest Income Interest income for the three months ended March 31, 2005 was $4,633,000, an increase of $1,130,000
(32.3%) from $3,503,000 for the three months ended March 31, 2004. The increase in interest income
primarily resulted from an increase in interest and fees on loans. The increase in interest and
fees on loans resulted from higher yields on the Banks increased investment in the loan portfolio.
Interest income and fees on loans was $4,230,000 for the three months ended March 31, 2005, an
increase of $1,073,000 (34.0%) from $3,157,000 for the three months ended March 31, 2004. 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. Interest Expense Interest expense for the three months ended March 31, 2005 was $1,618,000, an increase of $660,000
(68.9%) from $958,000 for the three months ended March 31, 2004. While the Bank has experienced a
significant increase in the amount of interest-bearing deposits from March 31, 2004 to March 31,
2005, interest expense on these deposits has also increased due to the higher interest rate
environment. Provision for Loan Losses The provision for loan losses was $320,000 for the three months ended March 31, 2005, compared to
$43,000 for the three months ended March 31, 2004, representing an increase of $277,000 (644.0%).
This increase is the result of managements analysis of the adequacy of the allowance for loan
losses and the continued growth of the loan portfolio. Non-interest Income Non-interest income for the three months ended March 31, 2005 was $2,477,000, an increase of
$127,000 (5.4%) from $2,350,000 for the three months ended March 31, 2004. Service charges on
deposit accounts were $147,000 for the three months ended March 31, 2005, a decrease of $58,000
(28.3%) from $205,000 for the three months ended March 31, 2004. Gain on sale of mortgage loans
originated and sold by the Banks mortgage division was $2,240,000 for the three months ended March
31, 2005, an increase of $189,000 (9.2%) from $2,051,000 for the three months ended March 31, 2004.
Substantially all loans originated by the division are sold in the secondary market with servicing
released. Non-interest Expense Non-interest expense for the three months ended March 31, 2005 was $3,891,000, an increase of
$184,000 (5.0%) from $3,707,000 for the three months ended March 31, 2004. Salary and employee
benefit costs were $2,557,000 for the three months ended March 31, 2005, an increase of $122,000
(5.0%) from $2,435,000 for the three months ended March 31, 2004. These increases are the result
of normal additions to Bank staff and the Bank paying increased incentives to mortgage personnel
due to slightly higher loan volume. Occupancy expenses and other non-interest expenses for the
three months 10




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ended March 31, 2005 increased by $62,000 (4.9%) to $1,334,000 from $1,272,000 during
the three
months ended March 31, 2004. This increase was primarily a result of the continued expansion and
growth of the Bank. Income Taxes The Company recorded income tax expense of $482,000 for the three months ended March 31, 2005,
resulting from net income before taxes of $1,281,000 for the quarter. Financial Condition Overview Total consolidated assets at March 31, 2005 were $335,226,000, an increase of $2,833,000 (0.8%)
from December 31, 2004 total consolidated assets of $332,393,000, and an increase of $50,970,000
(17.9%) from March 31, 2004 total consolidated assets of $284,256,000. At March 31, 2005, loans
represented 84.2% of interest-earning assets compared to 86.3% at December 31, 2004, and 85.9% at
March 31, 2004. Investments in securities at March 31, 2005 were $39,409,000, a decrease of
$1,546,000 (3.8%) from $40,955,000 at December 31, 2004. Interest-bearing deposits at March 31,
2005 were $233,673,000, an increase of $9,350,000 (4.2%) from the December 31, 2004 balance of
$224,323,000, and an increase of $24,561,000 (11.7%) from the March 31, 2004 balance of
$209,112,000. The amount outstanding under the Banks warehouse line of credit was $26,780,000 at
March 31, 2005, a decrease of $3,222,000 (10.7%) from the December 31, 2004 balance of $30,002,000
and an increase of $21,621,000 (419.1%) from the March 31, 2004 balance of $5,159,000. The amount
outstanding under the Banks 1-4 family line of credit was $10,235,000 at March 31, 2005, which is
unchanged from December 31, 2004, and represents an increase of $2,501,000 (32.3%) from the March
31, 2004 balance of $7,734,000. The Banks balance of Federal funds purchased was $0 at March 31,
2005, as compared to $5,570,000 at December 31, 2004 and $3,812,000 at March 31, 2004. The Banks
retail repurchase agreements were $1,473,000 at March 31, 2005, an increase of $293,000 (24.8%)
from the December 31, 2004 balance of $1,180,000, and a decrease of $174,000 (10.6%) from the March
31, 2004 balance of $1,647,000. 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 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 $2,438,000 at March 31, 2005, compared to $2,079,000 at December 31,
2004 and $1,826,000 at March 31, 2004. The composition of non-performing assets for each date is
shown below. March 31,
    
    
    December 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2004Non-accrual loans
    
    $
    1,789,000
    
    
    $
    1,665,000
    
    
    $
    1,767,000OREO, net of valuation allowance
    
    
    649,000
    
    
    
    414,000
    
    
    
    59,000$
    2,438,000
    
    
    $
    2,079,000
    
    
    $
    1,826,000
 The ratio of non-performing assets to total loans and other real estate was 0.9% at March 31, 2005,
0.8% at December 31, 2004, and 0.8% at March 31, 2004. 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, 2005, management determined that the allowance for loan losses should be increased through a
provision for loan losses of $320,000. The allowance for loan losses was $3,731,000 at March 31,
2005. The ratio of the allowance for loan losses to total gross loans was 1.4% at March 31, 2005,
1.3% at December 31, 2004, and 1.4% at March 31, 2004. 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, 2005,
1.6% at December 31, 2004, and 1.7% at March 31, 2004. 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, 2005 was 15.7%, compared to 16.9% at December 31, 2004, and 24.4% at
March 31, 2004. 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, 2005, the
Banks Tier I risk-based capital
ratio was 10.32% and the total risk-based capital ratio was 11.57%, compared to 9.11% and 10.34% at
December 31, 2004, respectively. At March 31, 2005, the Banks leverage ratio was 8.34% compared
to 7.98% at December 31, 2004. 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. 12




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Following is an analysis of significant off-balance sheet financial instruments at March 31, 2005
and December 31, 2004. At
    
    
    AtMarch 31,
    
    
    December 31,2005
    
    
    2004(In thousands)Commitments to extend credit
    
    $
    52,214
    
    
    $
    47,663Standby letters of credit
    
    
    1,045
    
    
    
    837$
    53,259
    
    
    $
    48,500
 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. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Companys quantitative and qualitative disclosures about
market risk as of March 31, 2005 from that presented under the heading Liquidity and Interest Rate
Sensitivity in Item 6 of the Companys Annual Report on Form 10-KSB for the year ended December
31, 2004. 
 Item 4. 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, 2005 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 13




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##### Table of Contents



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 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. 
 Part II. OTHER INFORMATION 
 Item  6. Exhibits The following exhibits are filed with this Report: 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 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 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 12, 2005Patrick G. BlanchardPresident and Chief Executive Officer(principal executive officer)By:
    
    /s/James M. Thomas
    
    May 12, 2005James M. ThomasChief Financial Officer(principal financial and accounting officer)
 15




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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.
 16