##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Financial Statements
 For the Years Ended December 31, 2007 and 2006




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Table of Contents
 December 31, 2007 and 2006
 PageReport of Independent Registered Public Accounting Firm
    
    
    1Consolidated Statements of Financial Condition
    
    
    2Consolidated Statements of Income
    
    
    3Consolidated Statements of Comprehensive Income
    
    
    4Consolidated Statements of Shareholders Equity
    
    
    5Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7-36




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##### 



Report
of Independent Registered Public Accounting Firm




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Financial Condition
December 31, 2007 and 2006  (dollars in thousands, except per share amounts)
 2007
    
    
    2006AssetsCash and due from banks
    
    $
    6,744
    
    
    $
    11,109Federal funds sold
    
    
    
    
    
    
    1,182Securities available-for-sale
    
    
    58,906
    
    
    
    53,273Loans, net of allowance for loan losses
    
    
    317,142
    
    
    
    276,497Loans held for sale
    
    
    39,547
    
    
    
    56,758Bank premises and fixed assets
    
    
    10,432
    
    
    
    10,655Accrued interest receivable
    
    
    2,115
    
    
    
    1,738Foreclosed real estate, net of allowance
    
    
    483
    
    
    
    599Deferred tax asset, net
    
    
    1,315
    
    
    
    1,360Federal Home Loan Bank Stock
    
    
    1,487
    
    
    
    2,131Bank-owned life insurance
    
    
    8,086
    
    
    
    Other assets
    
    
    1,612
    
    
    
    2,169Total assets
    
    $
    447,869
    
    
    $
    417,471Liabilities and Shareholders EquityLiabilitiesDepositsNon-interest bearing
    
    $
    30,292
    
    
    $
    39,848Interest-bearing:NOW accounts
    
    
    27,706
    
    
    
    28,447Savings
    
    
    73,184
    
    
    
    53,606Money market accounts
    
    
    9,449
    
    
    
    12,722Time deposits of $100,000 or more
    
    
    145,295
    
    
    
    139,369Other time deposits
    
    
    94,040
    
    
    
    67,350Total deposits
    
    
    379,966
    
    
    
    341,342Federal funds purchased
    
    
    5,037
    
    
    
    Federal Home Loan Bank borrowings
    
    
    6,343
    
    
    
    31,828Retail deposit agreements
    
    
    5,993
    
    
    
    6,733Long-term debt
    
    
    10,600
    
    
    
    700Other liabilities
    
    
    3,959
    
    
    
    4,742Total liabilities
    
    
    411,898
    
    
    
    385,345Shareholders equityPreferred stock, par value $.001; 1,000,000 shares
authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares
authorized; 3,398,723 and 3,376,522 shares issued and
outstanding, respectively
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    14,948
    
    
    
    14,500Retained earnings
    
    
    20,804
    
    
    
    17,903Accumulated other comprehensive income (loss)
    
    
    215
    
    
    
    (281
    )Total shareholders equity
    
    
    35,971
    
    
    
    32,126Total liabilities and shareholders equity
    
    $
    447,869
    
    
    $
    417,471
  2




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Income
 For the Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands, except per share amounts)
 2007
    
    
    2006
    
    
    2005Interest incomeInterest and fees on loans
    
    $
    25,998
    
    
    $
    23,144
    
    
    $
    19,263Interest on taxable securities
    
    
    2,490
    
    
    
    1,541
    
    
    
    1,434Interest on nontaxable securities
    
    
    270
    
    
    
    512
    
    
    
    115Interest on Federal funds sold and cash in banks
    
    
    261
    
    
    
    138
    
    
    
    64Total interest income
    
    
    29,019
    
    
    
    25,335
    
    
    
    20,876Interest expenseInterest on time deposits of $100,000 or more
    
    
    6,687
    
    
    
    4,976
    
    
    
    2,654Interest on other deposits
    
    
    8,227
    
    
    
    5,830
    
    
    
    4,472Interest on funds purchased and other borrowings
    
    
    792
    
    
    
    1,163
    
    
    
    1,294Total interest expense
    
    
    15,706
    
    
    
    11,969
    
    
    
    8,420Net interest income
    
    
    13,313
    
    
    
    13,366
    
    
    
    12,456Provision for loan losses
    
    
    909
    
    
    
    898
    
    
    
    1,022Net interest income after
provision for loan losses
    
    
    12,404
    
    
    
    12,468
    
    
    
    11,434Noninterest incomeService charges on deposits
    
    
    1,273
    
    
    
    928
    
    
    
    675Other income
    
    
    897
    
    
    
    560
    
    
    
    355Gain on sale of mortgage loans
    
    
    7,762
    
    
    
    8,312
    
    
    
    9,301Total noninterest income
    
    
    9,932
    
    
    
    9,800
    
    
    
    10,331Noninterest expenseSalaries and employee benefits
    
    
    11,131
    
    
    
    11,801
    
    
    
    10,828Occupancy expenses
    
    
    1,523
    
    
    
    1,467
    
    
    
    1,310Other expenses
    
    
    5,162
    
    
    
    4,643
    
    
    
    4,230Total noninterest expense
    
    
    17,816
    
    
    
    17,911
    
    
    
    16,368Income before income taxes
    
    
    4,520
    
    
    
    4,357
    
    
    
    5,397Income tax expense
    
    
    1,619
    
    
    
    1,460
    
    
    
    1,942Net income
    
    $
    2,901
    
    
    $
    2,897
    
    
    $
    3,455Earnings per share(1)Basic
    
    $
    .85
    
    
    $
    .86
    
    
    $
    1.04Diluted
    
    $
    .83
    
    
    $
    .83
    
    
    $
    0.98
 
 (1)
    
    Adjusted to reflect the 5-for-4 common stock split effected April 1,
2005.  3




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Comprehensive Income
 For the Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands)
 2007
    
    
    2006
    
    
    2005Net income
    
    $
    2,901
    
    
    $
    2,897
    
    
    $
    3,455Unrealized holding gain (loss) arising during the
period, net of tax
    
    
    496
    
    
    
    271
    
    
    
    (511
    )Comprehensive income
    
    $
    3,397
    
    
    $
    3,168
    
    
    $
    2,944
 See notes to consolidated financial statements.
    
    4




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Shareholders Equity
 For the Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands)
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2005
    
    
    3,317,250
    
    
    
    4
    
    
    
    13,677
    
    
    
    11,728
    
    
    
    (41
    )
    
    
    25,368Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,455
    
    
    
    
    
    
    
    3,455Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511
    )
    
    
    (511
    )Stock split effected in the form of a stock dividend
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    24,795
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    106Issuance of stock for compensation
    
    
    11,677
    
    
    
    
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    191Balance at December 31, 2005
    
    
    3,354,090
    
    
    
    4
    
    
    
    13,974
    
    
    
    15,183
    
    
    
    (552
    )
    
    
    28,609SAB 108 adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    
    
    
    
    (177
    )Balance at January 1, 2006(2)
    
    
    3,354,090
    
    
    
    4
    
    
    
    13,974
    
    
    
    15,006
    
    
    
    (552
    )
    
    
    28,432Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,897
    
    
    
    
    
    
    
    2,897Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271
    
    
    
    271Proceeds from exercise of stock options
    
    
    10,400
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    59Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295Issuance of stock for compensation
    
    
    12,032
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Balance at December 31, 2006
    
    
    3,376,522
    
    
    $
    4
    
    
    $
    14,500
    
    
    $
    17,903
    
    
    $
    (281
    )
    
    $
    32,126Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,901
    
    
    
    
    
    
    
    2,901Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    496
    
    
    
    496Proceeds from exercise of stock options
    
    
    8,500
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    34Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    
    
    
    
    226Issuance of stock for compensation
    
    
    13,701
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    
    
    
    
    188Balance at December 31, 2007
    
    
    3,398,723
    
    
    $
    4
    
    
    $
    14,948
    
    
    $
    20,804
    
    
    $
    215
    
    
    $
    35,971
 
 (2)
    
    See Note 1  Recent accounting standards See notes to consolidated financial statements.
    
    5




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Cash Flows
 For the Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands)
 2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    2,901
    
    
    $
    2,897
    
    
    $
    3,455Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    752
    
    
    
    764
    
    
    
    534Provision for loan losses
    
    
    909
    
    
    
    898
    
    
    
    1,022(Gains) losses on sales of foreclosed real estate
    
    
    (33
    )
    
    
    (21
    )
    
    
    119Losses on sales of premises and equipment
    
    
    32
    
    
    
    
    
    
    
    Increase in cash value of bank-owned life insurance
    
    
    (86
    )
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    226
    
    
    
    295
    
    
    
    Stock compensation
    
    
    189
    
    
    
    172
    
    
    
    191Deferred income tax
    
    
    (234
    )
    
    
    (172
    )
    
    
    (289
    )Net originations, proceeds and gain
on loans held for sale
    
    
    17,211
    
    
    
    (16,694
    )
    
    
    16,665(Increase) decrease in accrued interest receivable
    
    
    (377
    )
    
    
    18
    
    
    
    (402
    )Increase in accrued interest payable
    
    
    54
    
    
    
    1,674
    
    
    
    743Net change in other assets and liabilities
    
    
    (8,384
    )
    
    
    241
    
    
    
    (860
    )Net cash provided by (used in)
operating activities
    
    
    13,160
    
    
    
    (9,928
    )
    
    
    21,178Cash flows from investing activities(Increase) decrease in Federal funds sold
    
    
    1,182
    
    
    
    (1,182
    )
    
    
    Loan originations and collections, net
    
    
    (42,690
    )
    
    
    (33,619
    )
    
    
    (32,668
    )Purchases of available-for-sale securities
    
    
    (18,876
    )
    
    
    (21,003
    )
    
    
    (7,077
    )Proceeds from maturities and calls of
available-for-sale securities
    
    
    14,017
    
    
    
    6,492
    
    
    
    8,895Purchases of restricted securities
    
    
    (4,248
    )
    
    
    (6,946
    )
    
    
    Proceeds from sales of restricted securities
    
    
    4,892
    
    
    
    5,840
    
    
    
    1,395Proceeds from sale of foreclosed real estate
    
    
    1,285
    
    
    
    628
    
    
    
    271Net additions to premises and equipment
    
    
    (456
    )
    
    
    (751
    )
    
    
    (2,755
    )Net cash used in investing activities
    
    
    (44,894
    )
    
    
    (50,541
    )
    
    
    (31,939
    )Cash flows from financing activitiesNet increase in deposits, funds purchased,
and other borrowings
    
    
    43,561
    
    
    
    33,346
    
    
    
    44,546Increase (decrease) in FHLB borrowings
    
    
    (15,485
    )
    
    
    23,828
    
    
    
    (32,237
    )Increase (decrease) in repurchase agreements
    
    
    (740
    )
    
    
    4,847
    
    
    
    706Proceeds from stock options exercised
    
    
    33
    
    
    
    59
    
    
    
    106Net cash provided by financing activities
    
    
    27,369
    
    
    
    62,080
    
    
    
    13,121Net increase (decrease) in cash and due from banks
    
    
    (4,365
    )
    
    
    1,611
    
    
    
    2,360Cash and due from banks at beginning of the year
    
    
    11,109
    
    
    
    9,498
    
    
    
    7,138Cash and due from banks at end of the year
    
    $
    6,744
    
    
    $
    11,109
    
    
    $
    9,498
 See notes to consolidated financial statements.
    
    6




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Nature of business
    Significant accounting policies
 Basis of presentation
 Estimates
 Significant group concentrations of credit risk
 7




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Cash and due from banks
 Investment securities
 Securities available-for-sale
 Securities held-to-maturity
    Loans and allowance for loan losses
  8




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
       9




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
  Foreclosed real estate
 Bank premises and equipment
 Financial instruments
 Bank-owned life insurance (BOLI)
 Advertising
 Income taxes
 Earnings per share Earnings per Share
 10




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Fair value of financial instruments
  Cash and due from banks, Federal funds sold, and interest-bearing deposits in banks
 Available-for-sale and held-to-maturity securities
 Loans
 Deposit liabilities, other borrowings, and retail agreements
  Comprehensive income
 11




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Stock-based compensation Share-Based Payment Accounting for Stock Issued to Employees (as amended)
  2005Net income as reported
    
    $
    3,455Earnings per share as reportedBasic:
    
    
    1.04Diluted:
    
    
    0.98Stock-based employee compensation cost
based on fair-value method
    
    
    251Proforma net income, including stock-based
compensation cost based on fair-value method
    
    
    3,204Proforma earnings per share, including stock-based
compensation cost based on fair-value methodBasic:
    
    
    0.96Diluted:
    
    
    0.91
 12




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Recently Issued Accounting Standards
 Accounting for Certain Hybrid Financial Instruments Accounting for Derivative Instruments and Hedging Activities, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement 109, Accounting for Income Taxes.
  13




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 1Summary of significant accounting policies
 Fair Value Measurements.
 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.
 14




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
  Accounting for Servicing of
Financial Assets The Fair Value Option for Financial Assets and Financial
Liabilities
 Note 2Investment securities
  2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Available-for-sale securities:U.S. Government and agency
    
    $
    31,671
    
    
    $
    485
    
    
    $
    (8
    )
    
    $
    32,148Mortgage-backed
    
    
    19,431
    
    
    
    48
    
    
    
    (147
    )
    
    
    19,332Corporate obligations
    
    
    194
    
    
    
    
    
    
    
    (11
    )
    
    
    183State and municipal
    
    
    7,271
    
    
    
    41
    
    
    
    (69
    )
    
    
    7,243$
    58,567
    
    
    $
    574
    
    
    $
    (235
    )
    
    $
    58,906
 15




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 2Investment securities
 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Available-for-sale securities:U.S. Government and agency
    
    $
    26,312
    
    
    $
    95
    
    
    $
    (230
    )
    
    $
    26,177Mortgage-backed
    
    
    21,729
    
    
    
    41
    
    
    
    (355
    )
    
    
    21,415Corporate obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and municipal
    
    
    5,670
    
    
    
    44
    
    
    
    (33
    )
    
    
    5,681$
    53,711
    
    
    $
    180
    
    
    $
    (618
    )
    
    $
    53,273
  SecuritiesAvailable-for-SaleAmortized
    
    
    FairCost
    
    
    Value(in thousands)One year or less
    
    $
    1,749
    
    
    $
    1,745After one year through five years
    
    
    5,633
    
    
    
    5,625After five years through ten years
    
    
    16,064
    
    
    
    16,313After ten years
    
    
    15,690
    
    
    
    15,891Mortgage-backed securities
    
    
    19,431
    
    
    
    19,332$
    58,567
    
    
    $
    58,906
    16




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 2Investment securities
 2007Less than
    
    
    OverTwelve Months
    
    
    Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities available-for-sale:U. S. agency
    
    $
    
    
    
    $
    1,245
    
    
    $
    8
    
    
    $
    4,867State and municipal
    
    
    21
    
    
    
    1,546
    
    
    
    48
    
    
    
    1,406Corporate obligations
    
    
    11
    
    
    
    183
    
    
    
    
    
    
    
    Mortgage-backed
    
    
    4
    
    
    
    2,254
    
    
    
    143
    
    
    
    12,081$
    36
    
    
    $
    5,228
    
    
    $
    199
    
    
    $
    18,354
 2006Less than
    
    
    OverTwelve Months
    
    
    Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities available-for-sale:U. S. agency
    
    $
    7
    
    
    $
    2,991
    
    
    $
    224
    
    
    $
    15,033State and municipal
    
    
    6
    
    
    
    1,153
    
    
    
    26
    
    
    
    731Mortgage-backed
    
    
    8
    
    
    
    2,096
    
    
    
    347
    
    
    
    14,265$
    21
    
    
    $
    6,240
    
    
    $
    597
    
    
    $
    30,029
   17




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 2Investment securities
   Note 3Loans
  2007
    
    
    2006(in thousands)Commercial and industrial
    
    $
    29,582
    
    
    $
    27,692Real estate  construction
    
    
    89,580
    
    
    
    73,502Real estate  residential
    
    
    53,557
    
    
    
    47,319Real estate  commercial
    
    
    139,111
    
    
    
    121,822Consumer
    
    
    10,487
    
    
    
    10,609322,317
    
    
    
    280,944Deferred loan fees
    
    
    (116
    )
    
    
    (61
    )322,201
    
    
    
    280,883Allowance for loan losses
    
    
    (5,059
    )
    
    
    (4,386
    )Loans, net
    
    $
    317,142
    
    
    $
    276,497
  2007
    
    
    2006
    
    
    2005Balance at beginning of the year
    
    $
    4,386
    
    
    $
    3,756
    
    
    $
    3,416Provision charged to operations
    
    
    909
    
    
    
    898
    
    
    
    1,022Recoveries
    
    
    52
    
    
    
    31
    
    
    
    41Loans charged off
    
    
    (288
    )
    
    
    (299
    )
    
    
    (723
    )Balance at end of the year
    
    $
    5,059
    
    
    $
    4,386
    
    
    $
    3,756
 18




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 3Loans
    2007
    
    
    2006(in thousands)Balance at beginning of the year
    
    $
    4,508
    
    
    $
    8,790Advances
    
    
    1,690
    
    
    
    1,217Repayments
    
    
    2,137
    
    
    
    5,499Balance at end of the year
    
    $
    4,061
    
    
    $
    4,508
 19




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 4Foreclosed real estate
  2007
    
    
    2006
    
    
    2005(in thousands)Carrying amount of property
    
    $
    483
    
    
    $
    599
    
    
    $
    427Less valuation allowance
    
    
    
    
    
    
    
    
    
    
    $
    483
    
    
    $
    599
    
    
    $
    427
  Note 5Bank premises and equipment
  2007
    
    
    2006(in thousands)Land and improvements
    
    $
    3,836
    
    
    $
    3,851Building and improvements
    
    
    6,245
    
    
    
    6,020Equipment, furniture and fixtures
    
    
    4,431
    
    
    
    4,72914,512
    
    
    
    14,600Less accumulated depreciation
    
    
    (4,080
    )
    
    
    (3,945
    )Premises and equipment, net
    
    $
    10,432
    
    
    $
    10,655
  20




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 6Deposits
  (in thousands)2008
    
    
    212,4092009
    
    
    14,5232010
    
    
    11,6402011
    
    
    3542012 and thereafter
    
    
    409$
    239,335
  Note 7Federal home loan bank advances
  Note 8Line of credit
  21




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 8Line of credit (continued)
  Note 9Employee benefit plan
  Note 10Shareholders equity and regulatory requirements
    22




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
   Required to BeWell-CapitalizedRequired for
    
    Under PromptCapital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007:Total capital (to risk
weighted assets)
Bank
    
    $
    40,867
    
    
    
    10.74
    %
    
    $
    30,454
    
    
    
    8.0
    %
    
    $
    38,067
    
    
    
    10.0
    %Consolidated
    
    $
    40,814
    
    
    
    10.72
    %
    
    $
    30,454
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)
Bank
    
    $
    35,808
    
    
    
    9.41
    %
    
    $
    15,227
    
    
    
    4.0
    %
    
    $
    22,840
    
    
    
    6.0
    %Consolidated
    
    $
    35,755
    
    
    
    9.39
    %
    
    $
    15,227
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)
Bank
    
    $
    35,808
    
    
    
    8.51
    %
    
    $
    16,833
    
    
    
    4.0
    %
    
    $
    21,042
    
    
    
    5.0
    %Consolidated
    
    $
    35,755
    
    
    
    8.18
    %
    
    $
    16,833
    
    
    
    4.0
    %
    
    $
    
    
    
    
    As of December 31, 2006:Total capital (to risk
weighted assets)Bank
    
    $
    36,981
    
    
    
    10.68
    %
    
    $
    28,033
    
    
    
    8.0
    %
    
    $
    35,041
    
    
    
    10.0
    %Consolidated
    
    $
    36,734
    
    
    
    10.61
    %
    
    $
    28,033
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)Bank
    
    $
    32,653
    
    
    
    9.43
    %
    
    $
    14,016
    
    
    
    4.0
    %
    
    $
    21,025
    
    
    
    6.0
    %Consolidated
    
    $
    32,407
    
    
    
    9.36
    %
    
    $
    14,016
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)
Bank
    
    $
    32,653
    
    
    
    8.08
    %
    
    $
    14,901
    
    
    
    4.0
    %
    
    $
    18,626
    
    
    
    5.0
    %Consolidated
    
    $
    32,407
    
    
    
    7.85
    %
    
    $
    14,901
    
    
    
    4.0
    %
    
    $
    
    
    
    
    
 23




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
     Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation Accounting Principles Board Opinion 25
 24




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
    2007
    
    2006
    
    2005Expected volatility
    
    
    40.8%  40.8
    %
    
    
    41.3%  42.0
    %
    
    
    34.3%  34.3
    %Weighted-average volatility
    
    
    40.75
    %
    
    
    41.69
    %
    
    
    34.33
    %Expected dividends
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected term (in years)
    
    
    7.0  7.0
    
    
    
    6.0  7.0
    
    
    
    6.0  6.0Risk-free rate
    
    
    4.73
    %
    
    
    4.53
    %
    
    
    3.97
    %
    25




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
  Wtd. Avg. Exercise
    
    
    Wtd. Avg. Remaining
    
    
    Aggregate IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    330,560
    
    
    $
    7.85Granted
    
    
    3,881
    
    
    
    13.70Exercised
    
    
    8,500
    
    
    
    3.91Forfeited or expired
    
    
    1,500
    
    
    
    14.87Outstanding at December 31, 2007
    
    
    324,441
    
    
    $
    7.99
    
    
    $
    4.56
    
    
    $
    1,420,773Exercisable at December 31, 2007
    
    
    283,986
    
    
    $
    6.97
    
    
    $
    4.09
    
    
    $
    1,420,773
   2007
    
    2006
    
    2005Weighted-average grant date fair value
    
    $
    7.30
    
    
    $
    7.13
    
    
    $
    8.58Total intrinsic value of options exercised
    
    $
    60,265
    
    
    $
    86,624
    
    
    $
    246,876
 26




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
  Wtd. Avg. Grant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    60,885
    
    
    $
    7.85Granted
    
    
    3,881
    
    
    
    13.70Vested
    
    
    (23,712
    )
    
    
    3.91Forfeited
    
    
    (600
    )
    
    
    14.87Nonvested at December 31, 2007
    
    
    40,455
    
    
    $
    7.99
   2007Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    2,901
    
    
    
    3,393,224
    
    
    $
    0.85Effect of stock options outstanding
    
    
    
    
    
    
    115,382
    
    
    
    0.02Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    2,901
    
    
    
    3,508,606
    
    
    $
    0.83
 27




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 10Shareholders equity and regulatory requirements
 2006Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    2,897
    
    
    
    3,370,277
    
    
    $
    0.86Effect of stock options outstanding
    
    
    
    
    
    
    119,287
    
    
    
    0.03Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    2,897
    
    
    
    3,489,564
    
    
    $
    0.83
 2005Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    3,455
    
    
    
    3,336,834
    
    
    $
    1.04Effect of stock options outstanding
    
    
    
    
    
    
    187,460
    
    
    
    0.06Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    3,455
    
    
    
    3,524,294
    
    
    $
    0.98
 Note 11Income taxes
  2007
    
    
    2006
    
    
    2005Current tax
    
    $
    1,853
    
    
    $
    1,632
    
    
    $
    2,231Deferred tax (benefit)
    
    
    (234
    )
    
    
    (172
    )
    
    
    (289
    )$
    1,619
    
    
    $
    1,460
    
    
    $
    1,942
 28




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 11Income Taxes
  2007
    
    
    2006
    
    
    2005Federal statutory rates
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.0Tax exempt income
    
    
    (1.2
    )
    
    
    (2.0
    )
    
    
    Nondeductible interest
    
    
    0.3
    
    
    
    0.5
    
    
    
    State tax credits
    
    
    (3.0
    )
    
    
    (4.7
    )
    
    
    (3.4
    )Other, including effect of graduated
rate brackets
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (0.6
    )35.8
    %
    
    
    33.5
    %
    
    
    36.0
    %
  2007
    
    
    2006(in thousands)Deferred tax assetsAllowance for loan losses
    
    $
    1,641
    
    
    $
    1,406Unrealized loss on securities available-for-sale
    
    
    
    
    
    
    158Amortization of GA low-income housing tax credits
    
    
    46
    
    
    
    38Executive compensation plans
    
    
    2
    
    
    
    Valuation allowance on GA low-income housing tax credits
    
    
    (84
    )
    
    
    (47
    )Deferred income tax assets
    
    
    1,605
    
    
    
    1,555Deferred tax liabilitiesUnrealized gain on securities available-for-sale
    
    
    121
    
    
    
    Depreciation
    
    
    169
    
    
    
    195Deferred income tax liabilities
    
    
    290
    
    
    
    195Net deferred income tax assets
    
    $
    1,315
    
    
    $
    1,360
  29




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 12Commitments and contingencies
    2007
    
    
    2006(in thousands)Commitments to extend credit
    
    $
    40,492
    
    
    $
    79,828Standby letters of credit
    
    
    1,912
    
    
    
    2,389$
    42,404
    
    
    $
    82,217
   30




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 12Commitments and contingencies
   Note 13Supplemental consolidated cash flow information
 2007
    
    
    2006
    
    
    2005(dollars in thousands)Income taxes paid
    
    $
    2,354
    
    
    $
    1,396
    
    
    $
    1,847Interest paid
    
    $
    15,598
    
    
    $
    10,295
    
    
    $
    7,677Real estate acquired by foreclosure (noncash)
    
    $
    1,136
    
    
    $
    822
    
    
    $
    403Unrealized gain/(loss) on securities (noncash)
    
    $
    775
    
    
    $
    424
    
    
    $
    (796
    )
 Note 14Fair value of financial instruments
  2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueLoans and loans held for
sale, net of allowance
    
    $
    356.7
    
    
    $
    442.5
    
    
    $
    333.3
    
    
    $
    384.1Certificates of deposit
    
    $
    239.3
    
    
    $
    234.3
    
    
    $
    206.7
    
    
    $
    208.3
  31




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 15Bank-owned life insurance (BOLI)
  Note 16Other expenses
  2007
    
    
    2006
    
    
    2005(dollars in thousands)Data processing
    
    $
    906
    
    
    $
    759
    
    
    $
    720Legal and accounting
    
    
    475
    
    
    
    367
    
    
    
    393Printing and supplies
    
    
    291
    
    
    
    319
    
    
    
    360Advertising
    
    
    309
    
    
    
    303
    
    
    
    295Telephone
    
    
    142
    
    
    
    174
    
    
    
    167Outside services
    
    
    415
    
    
    
    458
    
    
    
    364Other
    
    
    2,624
    
    
    
    2,263
    
    
    
    1,931$
    5,162
    
    
    $
    4,643
    
    
    $
    4,230
 Note 17Comprehensive Income
  2007
    
    
    2006
    
    
    2005Unrealized holding losses on
available-for-sale securities
    
    $
    775
    
    
    $
    424
    
    
    $
    (863
    )Tax effect
    
    
    (279
    )
    
    
    (153
    )
    
    
    352Net of tax amount
    
    $
    496
    
    
    $
    271
    
    
    $
    (511
    )
 32




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 18  Quarterly Financial Data (Unaudited)
  
 2007
    
    
    20064Q
    
    
    3Q
    
    
    2Q
    
    
    1Q
    
    
    4Q
    
    
    3Q
    
    
    2Q
    
    
    1QInterest income
    
    $
    7,056
    
    
    $
    7,569
    
    
    $
    7,382
    
    
    $
    7,012
    
    
    $
    7,230
    
    
    $
    6,437
    
    
    $
    6,057
    
    
    $
    5,611Interest expense
    
    
    4,019
    
    
    
    4,060
    
    
    
    3,880
    
    
    
    3,747
    
    
    
    3,693
    
    
    
    3,212
    
    
    
    2,651
    
    
    
    2,413Net interest income
    
    
    3,037
    
    
    
    3,509
    
    
    
    3,502
    
    
    
    3,265
    
    
    
    3,537
    
    
    
    3,225
    
    
    
    3,406
    
    
    
    3,198Provision for loan losses
    
    
    436
    
    
    
    103
    
    
    
    102
    
    
    
    268
    
    
    
    198
    
    
    
    242
    
    
    
    275
    
    
    
    183Net interest income after
Provision for loan losses
    
    
    2,601
    
    
    
    3,406
    
    
    
    3,400
    
    
    
    2,997
    
    
    
    3,339
    
    
    
    2,983
    
    
    
    3,131
    
    
    
    3,015Non-interest income
    
    
    2,117
    
    
    
    2,584
    
    
    
    2,712
    
    
    
    2,519
    
    
    
    2,815
    
    
    
    2,435
    
    
    
    2,342
    
    
    
    2,208Securities gain (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-interest expenses
    
    
    4,181
    
    
    
    4,584
    
    
    
    4,650
    
    
    
    4,401
    
    
    
    4,606
    
    
    
    4,474
    
    
    
    4,544
    
    
    
    4,287Income before income tax
expense
    
    
    537
    
    
    
    1,406
    
    
    
    1,462
    
    
    
    1,115
    
    
    
    1,548
    
    
    
    944
    
    
    
    929
    
    
    
    936Income tax expense
    
    
    198
    
    
    
    510
    
    
    
    527
    
    
    
    384
    
    
    
    602
    
    
    
    275
    
    
    
    296
    
    
    
    287Net income
    
    $
    339
    
    
    $
    896
    
    
    $
    935
    
    
    $
    731
    
    
    $
    946
    
    
    $
    669
    
    
    $
    633
    
    
    $
    649Basic earnings per common
share
    
    $
    0.10
    
    
    $
    0.26
    
    
    $
    0.28
    
    
    $
    0.22
    
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.19
    
    
    $
    0.19Diluted earnings per
common share
    
    $
    0.10
    
    
    $
    0.25
    
    
    $
    0.27
    
    
    $
    0.21
    
    
    $
    0.27
    
    
    $
    0.19
    
    
    $
    0.18
    
    
    $
    0.19
 33




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 19Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company only)
 Condensed Balance Sheet
December 31, 2007and 2006  (dollars in thousands)
 2007
    
    
    2006AssetsCash
    
    $
    434
    
    
    $
    112Investment in subsidiary
    
    
    36,024
    
    
    
    32,373Other assets
    
    
    33
    
    
    
    404Deferred tax benefit
    
    
    0
    
    
    
    0Total assets
    
    $
    36,491
    
    
    $
    32,889LiabilitiesNote payable
    
    $
    600
    
    
    $
    700Other Liabilities
    
    
    (80
    )
    
    
    63Total liabilities
    
    
    520
    
    
    
    763Shareholders equity
    
    
    35,971
    
    
    
    32,126Total liabilities and shareholders equity
    
    $
    36,491
    
    
    $
    32,889
 34




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 19Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company only)
 Condensed Statement of Income
Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands)
 2007
    
    
    2006
    
    
    2005Income, dividends from subsidiary
    
    $
    
    
    
    $
    
    
    
    $
    85ExpensesDirector compensation
    
    
    (53
    )
    
    
    (48
    )
    
    
    (31
    )Other
    
    
    (344
    )
    
    
    (282
    )
    
    
    (206
    )Total expenses
    
    
    (397
    )
    
    
    (330
    )
    
    
    (237
    )Loss before income tax benefits and equity in
undistributed earnings of subsidiary
    
    
    (397
    )
    
    
    (330
    )
    
    
    (152
    )Income tax benefits
    
    
    143
    
    
    
    187
    
    
    
    88Loss before equity in undistributed earnings of
subsidiary
    
    
    (254
    )
    
    
    (143
    )
    
    
    (64
    )Equity in undistributed earnings of subsidiary
    
    
    3,155
    
    
    
    3,040
    
    
    
    3,519Net income
    
    $
    2,901
    
    
    $
    2,897
    
    
    $
    3,455
 35




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2007 and 2006
 Note 19Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company only)
 Condensed Statement of Cash Flows
Years Ended December 31, 2007, 2006 and 2005  (dollars in thousands)
 2007
    
    
    2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    2,901
    
    
    $
    2,897
    
    
    $
    3,455Adjustments to reconcile net income to net cash
provided by operating activities:Stock-based compensation expense
    
    
    226
    
    
    
    295
    
    
    
    Stock compensation
    
    
    189
    
    
    
    172
    
    
    
    191Equity in undistributed earnings of subsidiary
    
    
    (3,155
    )
    
    
    (3,040
    )
    
    
    (3,519
    )Net change in other assets and liabilities
    
    
    228
    
    
    
    (252
    )
    
    
    (59
    )Total adjustments
    
    
    (2,512
    )
    
    
    (2,825
    )
    
    
    (3,387
    )Net cash provided by operating activities
    
    
    389
    
    
    
    72
    
    
    
    68Cash flows from financing activitiesPayments on borrowed funds
    
    
    (100
    )
    
    
    (100
    )
    
    
    (100
    )Proceeds from issuance of common stock, and
exercise of stock options
    
    
    33
    
    
    
    59
    
    
    
    106Net cash provided by (used in) financing activities
    
    
    (67
    )
    
    
    (41
    )
    
    
    6Net change in cash
    
    
    322
    
    
    
    31
    
    
    
    74Cash at beginning of the year
    
    
    112
    
    
    
    81
    
    
    
    7Cash at end of the year
    
    $
    434
    
    
    $
    112
    
    
    $
    81
 36