##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Financial Statements
 For the Years Ended December 31, 2005 and 2004




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Table of Contents
 December 31, 2005 and 2004
 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
    
    7-32




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##### 



Report of Independent Registered Public Accounting Firm
 
    /s/ Cherry, Bekaert & Holland, L.L.P.




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Financial Condition
 December 31, 2005 and 2004  (dollars in thousands, except per share amounts)
 2005
    
    
    2004AssetsCash and due from banks
    
    $
    9,498
    
    
    $
    7,138Securities available-for-sale
    
    
    38,337
    
    
    
    40,955Loans, net of allowance for loan losses
    
    
    244,555
    
    
    
    213,312Loans held for sale
    
    
    40,064
    
    
    
    56,729Bank premises and fixed assets
    
    
    10,563
    
    
    
    8,316Accrued interest receivable
    
    
    1,756
    
    
    
    1,354Foreclosed real estate, net of allowance
    
    
    427
    
    
    
    414Deferred tax asset, net
    
    
    1,341
    
    
    
    939Federal Home Loan Bank Stock
    
    
    1,025
    
    
    
    2,420Other assets
    
    
    1,915
    
    
    
    816Total assets
    
    $
    349,481
    
    
    $
    332,393Liabilities and Shareholders EquityLiabilitiesDepositsNon-interest bearing
    
    $
    36,986
    
    
    $
    33,457Interest-bearing:NOW accounts
    
    
    33,090
    
    
    
    41,412Savings
    
    
    58,473
    
    
    
    54,110Money market accounts
    
    
    19,669
    
    
    
    9,898Time deposits of $100,000 or more
    
    
    94,763
    
    
    
    65,126Other time deposits
    
    
    61,459
    
    
    
    53,777Total deposits
    
    
    304,440
    
    
    
    257,780Other liabilities, borrowings, and retail deposit agreements
    
    
    16,432
    
    
    
    49,245Total liabilities
    
    
    320,872
    
    
    
    307,025Commitments and contingent liabilitiesShareholders equity(1)Preferred stock, par value $.001; 1,000,000 shares
authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares
authorized; 3,354,090 and 3,317,250 shares issued and
outstanding, respectively
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    13,974
    
    
    
    13,677Retained earnings
    
    
    15,183
    
    
    
    11,728Accumulated other comprehensive (loss)
    
    
    (552
    )
    
    
    (41
    )Total shareholders equity
    
    
    28,609
    
    
    
    25,368Total liabilities and shareholders equity
    
    $
    349,481
    
    
    $
    332,393
 
  See notes to consolidated financial statements.
    
    2




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Income
 For the Years Ended December 31, 2005, 2004 and 2003  (dollars in thousands,except per share amounts)
 2005
    
    
    2004
    
    
    2003Interest incomeInterest and fees on loans
    
    $
    19,263
    
    
    $
    14,713
    
    
    $
    13,956Interest on taxable securities
    
    
    1,434
    
    
    
    1,268
    
    
    
    1,144Interest on nontaxable securities
    
    
    115
    
    
    
    100
    
    
    
    55Interest on Federal funds sold and cash in banks
    
    
    64
    
    
    
    7
    
    
    
    4Total interest income
    
    
    20,876
    
    
    
    16,088
    
    
    
    15,159Interest expenseInterest on time deposits of $100,000 or more
    
    
    2,654
    
    
    
    1,175
    
    
    
    1,122Interest on other deposits
    
    
    4,472
    
    
    
    2,664
    
    
    
    3,257Interest on funds purchased and other borrowings
    
    
    1,294
    
    
    
    629
    
    
    
    532Total interest expense
    
    
    8,420
    
    
    
    4,468
    
    
    
    4,911Net interest income
    
    
    12,456
    
    
    
    11,620
    
    
    
    10,248Provision for loan losses
    
    
    1,022
    
    
    
    808
    
    
    
    880Net interest income after
provision for loan losses
    
    
    11,434
    
    
    
    10,812
    
    
    
    9,368Noninterest incomeService charges on deposits
    
    
    675
    
    
    
    773
    
    
    
    733Other income
    
    
    355
    
    
    
    362
    
    
    
    230Gain on sale of mortgage loans
    
    
    9,301
    
    
    
    9,436
    
    
    
    14,577Total noninterest income
    
    
    10,331
    
    
    
    10,571
    
    
    
    15,540Noninterest expenseSalaries and employee benefits
    
    
    10,828
    
    
    
    10,248
    
    
    
    11,270Occupancy expenses
    
    
    1,310
    
    
    
    1,255
    
    
    
    1,165Other expenses
    
    
    4,230
    
    
    
    4,211
    
    
    
    4,068Total noninterest expense
    
    
    16,368
    
    
    
    15,714
    
    
    
    16,503Income before income taxes
    
    
    5,397
    
    
    
    5,669
    
    
    
    8,405Income tax expense
    
    
    1,942
    
    
    
    2,167
    
    
    
    3,373Net income
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032Earnings per share(1)Basic
    
    $
    1.04
    
    
    $
    1.06
    
    
    $
    1.53Diluted
    
    $
    .98
    
    
    $
    0.99
    
    
    $
    1.41
 
  See notes to consolidated financial statements.
    
    3




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Comprehensive Income
 For the Years Ended December 31, 2005, 2004 and 2003  (dollars in thousands)
 2005
    
    
    2004
    
    
    2003Net income
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032Unrealized holding loss arising during the
period, net of tax
    
    
    (511
    )
    
    
    (215
    )
    
    
    (230
    )Comprehensive income
    
    $
    2,944
    
    
    $
    3,287
    
    
    $
    4,802
 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, 2005, 2004 and 2003  (dollars in thousands)
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityBalance at December 31, 2002
    
    
    1,307,790
    
    
    $
    1
    
    
    $
    13,294
    
    
    $
    3,196
    
    
    $
    404
    
    
    $
    16,895Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,032
    
    
    
    
    
    
    
    5,032Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    (230
    )Stock split effected in the form of a stock dividend
    
    
    1,318,255
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    6,000
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    65Issuance of stock for compensation
    
    
    4,465
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    102Balance at December 31, 2003
    
    
    2,636,510
    
    
    
    2
    
    
    
    13,461
    
    
    
    8,227
    
    
    
    174
    
    
    
    21,864Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,502
    
    
    
    
    
    
    
    3,502Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (215
    )
    
    
    (215
    )Stock split effected in the form of a stock dividend
    
    
    664,582
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    8,600
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Issuance of stock for compensation
    
    
    7,558
    
    
    
    1
    
    
    
    176
    
    
    
    
    
    
    
    
    
    
    
    177Balance at December 31, 2004
    
    
    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
    )
    
    $
    28,609
 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, 2005, 2004 and 2003  (dollars in thousands)
 2005
    
    
    2004
    
    
    2003Cash flows from operating activitiesNet income
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    534
    
    
    
    480
    
    
    
    486Provision for loan losses
    
    
    1,022
    
    
    
    808
    
    
    
    880(Gains) losses on sales of foreclosed real estate
    
    
    119
    
    
    
    (9
    )
    
    
    6Stock compensation
    
    
    191
    
    
    
    176
    
    
    
    103Deferred income tax
    
    
    (113
    )
    
    
    (348
    )
    
    
    (225
    )Net originations, proceeds and gain
on loans originated for sale
    
    
    16,665
    
    
    
    (24,310
    )
    
    
    35,508(Increase) decrease in accrued
interest receivable
    
    
    (402
    )
    
    
    (228
    )
    
    
    119(Decrease) increase in accrued interest payable
    
    
    743
    
    
    
    236
    
    
    
    (579
    )Net change in other assets and liabilities
    
    
    (1,036
    )
    
    
    (843
    )
    
    
    (318
    )Net cash provided by (used in)
operating activities
    
    
    21,178
    
    
    
    (20,536
    )
    
    
    41,012Cash flows from investing activities(Increase) decrease in Federal funds sold
    
    
    
    
    
    
    8,470
    
    
    
    (7,963
    )Loan originations and collections, net
    
    
    (32,668
    )
    
    
    (41,272
    )
    
    
    (31,659
    )Purchases of available-for-sale securities
    
    
    (7,077
    )
    
    
    (24,279
    )
    
    
    (22,478
    )Proceeds from maturities, sales, and calls of
available-for-sale securities
    
    
    8,895
    
    
    
    18,050
    
    
    
    14,951Sale (purchase) of restricted securities
    
    
    1,395
    
    
    
    (1,337
    )
    
    
    487Proceeds from sale of foreclosed real estate
    
    
    271
    
    
    
    
    
    
    
    815Net additions to premises and equipment
    
    
    (2,755
    )
    
    
    (1,673
    )
    
    
    (438
    )Net cash used in investing activities
    
    
    (31,939
    )
    
    
    (42,041
    )
    
    
    (46,285
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    13,015
    
    
    
    63,079
    
    
    
    4,284Proceeds from stock options exercised
    
    
    106
    
    
    
    40
    
    
    
    65Net cash provided by financing activities
    
    
    13,121
    
    
    
    63,119
    
    
    
    4,349Net increase (decrease) in cash and
due from banks
    
    
    2,360
    
    
    
    542
    
    
    
    (924
    )Cash and due from banks at beginning of the year
    
    
    7,138
    
    
    
    6,596
    
    
    
    7,520Cash and due from banks at end of the year
    
    $
    9,498
    
    
    $
    7,138
    
    
    $
    6,596
 See notes to consolidated financial statements.
    
    6




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 13⁄4Summary 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, 2005 and 2004
 Note 13⁄4Summary 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, 2005 and 2004
 Note 13⁄4Summary of significant accounting policies
      9




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 13⁄4Summary of significant accounting policies
  Foreclosed real estate
 Bank premises and equipment
 Income taxes
 Earnings per share Earnings per Share
 Fair value of financial instruments
 10




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 13⁄4Summary of significant accounting policies
  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
 Stock-based compensation
 11




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 13⁄4Summary of significant accounting policies
 2005
    
    2004
    
    2003Net income as reported
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032Earnings per share as reportedBasic:
    
    
    1.04
    
    
    
    1.06
    
    
    
    1.53Diluted:
    
    
    0.98
    
    
    
    0.99
    
    
    
    1.41Stock-based employee compensation cost
based on fair-value method
    
    
    251
    
    
    
    396
    
    
    
    240Proforma net income, including stock-based
compensation cost based on fair-value method
    
    
    3,204
    
    
    
    3,106
    
    
    
    4,792Proforma earnings per share, including stock-based
compensation cost based on fair-value methodBasic:
    
    
    0.96
    
    
    
    0.94
    
    
    
    1.46Diluted:
    
    
    0.91
    
    
    
    0.88
    
    
    
    1.34
 New accounting pronouncements Share-Based Payment
 Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions,
 12




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 13⁄4Summary of significant accounting policies
 Accounting Changes and Error Corrections a replacement
of APB Opinion No. 20 and FASB Statement No. 3
 The Meaning of
Other Than Temporary Impairment and Its Application to Certain Investments
 Reclassifications
 Note 23⁄4Investment securities
  2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Available-for-sale securities:U.S. Government and agency
    
    $
    17,057
    
    
    $
    
    
    
    $
    (376
    )
    
    $
    16,681Mortgage-backed
    
    
    17,511
    
    
    
    8
    
    
    
    (478
    )
    
    
    17,041Corporate obligations
    
    
    1,003
    
    
    
    5
    
    
    
    
    
    
    
    1,008State and municipal
    
    
    3,629
    
    
    
    17
    
    
    
    (39
    )
    
    
    3,607$
    39,200
    
    
    $
    30
    
    
    $
    (893
    )
    
    $
    38,337
 13




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 2 3⁄4 Investment securities
 2004Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Available-for-sale securities:U.S. Government and agency
    
    $
    15,913
    
    
    $
    30
    
    
    $
    (56
    )
    
    $
    15,887Mortgage-backed
    
    
    20,360
    
    
    
    25
    
    
    
    (153
    )
    
    
    20,232Corporate obligations
    
    
    1,511
    
    
    
    46
    
    
    
    
    
    
    
    1,557State and municipal
    
    
    3,234
    
    
    
    53
    
    
    
    (8
    )
    
    
    3,279$
    41,018
    
    
    $
    154
    
    
    $
    (217
    )
    
    $
    40,955
  SecuritiesAvailable-for-SaleAmortized
    
    
    FairCost
    
    
    Value(in thousands)One year or less
    
    $
    1,003
    
    
    $
    1,008After one year through five years
    
    
    13,488
    
    
    
    13,169After five years through ten years
    
    
    6,086
    
    
    
    6,025After ten years
    
    
    1,112
    
    
    
    1,094Mortgage backed securities
    
    
    17,511
    
    
    
    17,041$
    39,200
    
    
    $
    38,337
    14




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 2 3⁄4 Investment securities
 2005Less than
    
    
    OverTwelve Months
    
    
    Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities available-for-sale:U. S. agency
    
    $
    105
    
    
    $
    6,219
    
    
    $
    271
    
    
    $
    10,462State and municipal
    
    
    7
    
    
    
    908
    
    
    
    32
    
    
    
    724Mortgage-backed
    
    
    122
    
    
    
    6,205
    
    
    
    356
    
    
    
    10,346$
    234
    
    
    $
    13,332
    
    
    $
    659
    
    
    $
    21,532
 2004Less than
    
    
    OverTwelve Months
    
    
    Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities available-for-sale:U. S. agency
    
    $
    56
    
    
    $
    9,687
    
    
    $
    
    
    
    $
    State and municipal
    
    
    1
    
    
    
    557
    
    
    
    7
    
    
    
    190Mortgage-backed
    
    
    130
    
    
    
    13,431
    
    
    
    23
    
    
    
    2,730$
    187
    
    
    $
    23,675
    
    
    $
    30
    
    
    $
    2,920
   15




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 2 3⁄4 Investment securities
  Note 33⁄4Loans
  2005
    
    
    2004(in thousands)Commercial and industrial
    
    $
    29,945
    
    
    $
    30,820Real estate  construction
    
    
    55,737
    
    
    
    46,581Real estate  residential
    
    
    46,464
    
    
    
    41,111Real estate  commercial
    
    
    106,033
    
    
    
    86,580Consumer
    
    
    10,189
    
    
    
    11,705248,368
    
    
    
    216,797Deferred loan fees
    
    
    (57
    )
    
    
    (69
    )248,311
    
    
    
    216,728Allowance for loan losses
    
    
    (3,756
    )
    
    
    (3,416
    )Loans, net
    
    $
    244,555
    
    
    $
    213,312
  2005
    
    
    2004
    
    
    2003Balance at beginning of the year
    
    $
    3,416
    
    
    $
    3,164
    
    
    $
    2,436Provision charged to operations
    
    
    1,022
    
    
    
    808
    
    
    
    880Recoveries
    
    
    41
    
    
    
    144
    
    
    
    54Loans charged off
    
    
    (723
    )
    
    
    (700
    )
    
    
    (206
    )Balance at end of the year
    
    $
    3,756
    
    
    $
    3,416
    
    
    $
    3,164
  16




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 33⁄4Loans
  2005
    
    
    2004(in thousands)Balance at beginning of the year
    
    $
    3,299
    
    
    $
    3,655Advances
    
    
    6,588
    
    
    
    1,093Repayments
    
    
    1,097
    
    
    
    1,449Balance at end of the year
    
    $
    8,790
    
    
    $
    3,299
 Note 43⁄4Foreclosed real estate
  2005
    
    
    2004
    
    
    2003(in thousands)Carrying amount of property
    
    $
    427
    
    
    $
    414
    
    
    $
    59Less valuation allowance
    
    
    
    
    
    
    
    
    
    
    $
    427
    
    
    $
    414
    
    
    $
    59
  17




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 53⁄4Bank premises and equipment
  2005
    
    
    2004(in thousands)Land
    
    $
    3,097
    
    
    $
    3,092Building and improvements
    
    
    6,151
    
    
    
    3,433Equipment, furniture and fixtures
    
    
    4,613
    
    
    
    3,284Construction in progress
    
    
    
    
    
    
    1,29713,861
    
    
    
    11,106Less accumulated depreciation
    
    
    (3,298
    )
    
    
    (2,790
    )Premises and equipment, net
    
    $
    10,563
    
    
    $
    8,316
  Note 63⁄4Deposits
  (in thousands)2006
    
    $
    88,1742007
    
    
    30,3382008
    
    
    11,9242009
    
    
    10,9272010 and thereafter
    
    
    14,859$
    156,222
  
 18




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 73⁄4Federal Home Loan Bank advances
  Note 83⁄4Line of credit
  Note 93⁄4Employee benefit plan
  19




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
     20




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
  Required to BeWell-CapitalizedRequired for
    
    Under PromptCapital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2005:Total capital (to risk
weighted assets)Bank
    
    $
    33,470
    
    
    
    11.37
    %
    
    $
    23,550
    
    
    
    8.0
    %
    
    $
    29,437
    
    
    
    10.0
    %Consolidated
    
    $
    32,841
    
    
    
    11.16
    %
    
    $
    23,550
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)Bank
    
    $
    29,792
    
    
    
    10.12
    %
    
    $
    11,775
    
    
    
    4.0
    %
    
    $
    17,663
    
    
    
    6.0
    %Consolidated
    
    $
    29,161
    
    
    
    9.91
    %
    
    $
    11,775
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)Bank
    
    $
    29,792
    
    
    
    8.32
    %
    
    $
    14,323
    
    
    
    4.0
    %
    
    $
    17,904
    
    
    
    5.0
    %Consolidated
    
    $
    29,161
    
    
    
    8.14
    %
    
    $
    14,323
    
    
    
    4.0
    %
    
    $
    
    
    
    
    As of December 31, 2004:Total capital (to risk
weighted assets)Bank
    
    $
    29,688
    
    
    
    10.65
    %
    
    $
    22,300
    
    
    
    8.0
    %
    
    $
    27,876
    
    
    
    10.0
    %Consolidated
    
    $
    28,825
    
    
    
    10.34
    %
    
    $
    22,300
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)Bank
    
    $
    26,272
    
    
    
    9.42
    %
    
    $
    11,156
    
    
    
    4.0
    %
    
    $
    16,734
    
    
    
    6.0
    %Consolidated
    
    $
    25,409
    
    
    
    9.11
    %
    
    $
    11,156
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)Bank
    
    $
    26,272
    
    
    
    8.25
    %
    
    $
    12,738
    
    
    
    4.0
    %
    
    $
    15,922
    
    
    
    5.0
    %Consolidated
    
    $
    25,409
    
    
    
    7.98
    %
    
    $
    12,738
    
    
    
    4.0
    %
    
    $
    
    
    
    
    
 21




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
 Required to BeWell-CapitalizedRequired for
    
    Under PromptCapital Adequacy
    
    Corrective ActionActual
    
    Purposes
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2003:Total capital (to risk
weighted assets)Bank
    
    $
    25,215
    
    
    
    11.98
    %
    
    $
    16,844
    
    
    
    8.0
    %
    
    $
    21,055
    
    
    
    10.0
    %Consolidated
    
    $
    24,331
    
    
    
    11.89
    %
    
    $
    16,844
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)Bank
    
    $
    22,577
    
    
    
    10.72
    %
    
    $
    8,422
    
    
    
    4.0
    %
    
    $
    12,633
    
    
    
    6.0
    %Consolidated
    
    $
    21,691
    
    
    
    10.38
    %
    
    $
    8,422
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)Bank
    
    $
    22,577
    
    
    
    8.68
    %
    
    $
    10,406
    
    
    
    4.0
    %
    
    $
    13,008
    
    
    
    5.0
    %Consolidated
    
    $
    21,691
    
    
    
    8.48
    %
    
    $
    10,406
    
    
    
    4.0
    %
    
    $
    
    
    
    
    
     22




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
  Accounting for Stock
Based Compensation Accounting for Stock Issued to Employees
  2005
    
    2004
    
    2003Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    34.3
    %
    
    
    42.2
    %
    
    
    62.5
    %Risk-free rate
    
    
    3.8-4.5
    %
    
    
    3.3-3.7
    %
    
    
    3.6-3.8
    %
     23




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
 2005
    
    
    2004
    
    
    2003Exercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    
    
    
    
    
    Price
    
    
    
    
    
    
    PricePer
    
    
    
    
    
    
    Per
    
    
    
    
    
    
    PerOptions
    
    
    Share
    
    
    Options
    
    
    Share
    
    
    Options
    
    
    ShareOutstanding at
beginning of year
    
    
    301,474
    
    
    $
    5.82
    
    
    
    309,630
    
    
    $
    5.66
    
    
    
    254,393
    
    
    $
    4.12Granted
    
    
    33,890
    
    
    
    16.30
    
    
    
    3,844
    
    
    
    16.07
    
    
    
    60,237
    
    
    
    12.04Exercised
    
    
    (24,795
    )
    
    
    4.29
    
    
    
    (10,750
    )
    
    
    3.71
    
    
    
    (5,000
    )
    
    
    3.51Expired
    
    
    
    
    
    
    
    
    
    
    (1,250
    )
    
    
    14.30
    
    
    
    
    
    
    
    Outstanding at
end of year
    
    
    310,569
    
    
    $
    7.09
    
    
    
    301,474
    
    
    $
    5.82
    
    
    
    309,630
    
    
    $
    5.66
  2005
    
    2004
    
    2003Options
    
    
    238,033
    
    
    
    220,898
    
    
    
    186,738Weighted-average exercise price
    
    $
    5.65
    
    
    $
    4.90
    
    
    $
    4.46
  2005
    
    $
    8.582004
    
    
    9.632003
    
    
    9.12
   24




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
  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
 2004Income
    
    
    Shares
    
    Per(Numerator)
    
    
    (Denominator)
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    3,502
    
    
    $
    3,305,534
    
    
    $
    1.06Effect of stock options outstanding
    
    
    
    
    
    
    216,342
    
    
    
    0.07Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    3,502
    
    
    $
    3,521,876
    
    
    $
    0.99
 25




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 103⁄4Shareholders equity and regulatory requirements
 2003Income
    
    
    Shares
    
    Per(Numerator)
    
    
    (Denominator)
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    5,032
    
    
    $
    3,281,130
    
    
    $
    1.53Effect of stock options outstanding
    
    
    
    
    
    
    279,365
    
    
    
    0.12Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    5,032
    
    
    $
    3,560,495
    
    
    $
    1.41
 Note 113⁄4Income taxes
  2005
    
    
    2004
    
    
    2003Current tax
    
    $
    2,231
    
    
    $
    2,515
    
    
    $
    3,597Deferred tax (benefit)
    
    
    (113
    )
    
    
    (348
    )
    
    
    (224
    )$
    1,942
    
    
    $
    2,167
    
    
    $
    3,373
  2005
    
    
    2004
    
    
    2003Federal statutory rates
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.0
    %Tax exempt income
    
    
    
    
    
    
    
    
    
    
    Nondeductible interest
    
    
    
    
    
    
    
    
    
    
    State tax credits
    
    
    (3.4
    )
    
    
    
    
    
    
    Other, including effect of graduated
rate brackets
    
    
    (0.6
    )
    
    
    (1.8
    )
    
    
    0.136.0
    %
    
    
    38.2
    %
    
    
    40.1
    %
 26




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 113⁄4Income Taxes
  2005
    
    
    2004(in thousands)Deferred tax assetsAllowance for loan losses
    
    $
    1,218
    
    
    $
    1,159Unrealized loss on securities available-for-sale
    
    
    311
    
    
    
    25Deferred income tax assets
    
    
    1,529
    
    
    
    1,184Deferred tax liabilitiesDepreciation
    
    
    188
    
    
    
    245Deferred income tax liabilities
    
    
    188
    
    
    
    245Net deferred income tax assets
    
    $
    1,341
    
    
    $
    939
  Note 123⁄4Commitments and contingencies
    2005
    
    
    2004(in thousands)Commitments to extend credit
    
    $
    66,262
    
    
    $
    47,663Standby letters of credit
    
    
    1,947
    
    
    
    837$
    68,209
    
    
    $
    48,500
 27




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 123⁄4Commitments and contingencies
     28




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 133⁄4Supplemental consolidated cash flow information
 2005
    
    2004
    
    2003(dollars in thousands)Income taxes paid
    
    $
    1,847
    
    
    $
    2,125
    
    
    $
    3,525Interest paid
    
    $
    7,677
    
    
    $
    4,232
    
    
    $
    5,428
 Note 143⁄4Fair value of financial instruments
  2005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueLoans and loans held for
sale, net
    
    $
    284.6
    
    
    $
    294.2
    
    
    $
    270.0
    
    
    $
    273.7Certificates of deposit
    
    $
    156.2
    
    
    $
    160.1
    
    
    $
    118.9
    
    
    $
    121.0
  Note 153⁄4Other expenses
  2005
    
    
    2004
    
    
    2003(dollars in thousands)Data processing
    
    $
    720
    
    
    $
    618
    
    
    $
    536Legal and accounting
    
    
    393
    
    
    
    318
    
    
    
    274Printing and supplies
    
    
    360
    
    
    
    356
    
    
    
    324Advertising
    
    
    295
    
    
    
    295
    
    
    
    631Telephone
    
    
    167
    
    
    
    194
    
    
    
    174Outside services
    
    
    364
    
    
    
    409
    
    
    
    336Other
    
    
    1,931
    
    
    
    2,021
    
    
    
    1,793$
    4,230
    
    
    $
    4,211
    
    
    $
    4,068
 29




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 163⁄4Comprehensive Income
  2005
    
    
    2004
    
    
    2003Unrealized holding losses on
available-for-sale securities
    
    $
    (863
    )
    
    $
    (356
    )
    
    $
    (362
    )Tax effect
    
    
    352
    
    
    
    141
    
    
    
    132Net of tax amount
    
    $
    (511
    )
    
    $
    (215
    )
    
    $
    (230
    )
 Note 173⁄4Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company
only)
 Condensed Balance Sheet
December 31, 2005 and 2004  (dollars in thousands)
 2005
    
    
    2004AssetsCash
    
    $
    81
    
    
    $
    7Investment in subsidiary
    
    
    29,240
    
    
    
    26,232Other assets
    
    
    42
    
    
    
    17Deferred tax benefit
    
    
    88
    
    
    
    117Total assets
    
    $
    29,451
    
    
    $
    26,373LiabilitiesNote payable
    
    $
    800
    
    
    $
    900Other Liabilities
    
    
    42
    
    
    
    105Total liabilities
    
    
    842
    
    
    
    1,005Shareholders equity
    
    
    28,609
    
    
    
    25,368Total liabilities and shareholders equity
    
    $
    29,451
    
    
    $
    26,373
 30




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 173⁄4Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company
only)
 Condensed Statement of Income
Years Ended December 31, 2005 and 2004  (dollars in thousands)
 2005
    
    
    2004
    
    
    2003Income, dividends from subsidiary
    
    $
    85
    
    
    $
    
    
    
    $
    ExpensesDirector compensation
    
    
    (31
    )
    
    
    (112
    )
    
    
    (84
    )Other
    
    
    (206
    )
    
    
    (199
    )
    
    
    (231
    )Total expenses
    
    
    (237
    )
    
    
    (311
    )
    
    
    (315
    )Loss before income tax benefits and equity in
undistributed earnings of subsidiary
    
    
    (152
    )
    
    
    (311
    )
    
    
    (315
    )Income tax benefits
    
    
    88
    
    
    
    117
    
    
    
    127Loss before equity in undistributed earnings of
subsidiary
    
    
    (64
    )
    
    
    (194
    )
    
    
    (188
    )Equity in undistributed earnings of subsidiary
    
    
    3,519
    
    
    
    3,696
    
    
    
    5,220Net income
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032
 31




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2005 and 2004
 Note 173⁄4Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company
only)
 Condensed Statement of Cash Flows
Years Ended December 31, 2005 and 2004  (dollars in thousands)
 2005
    
    
    2004
    
    
    2003Cash flows from operating activitiesNet income
    
    $
    3,455
    
    
    $
    3,502
    
    
    $
    5,032Adjustments to reconcile net income to net cash
provided by operating activities:Stock compensation
    
    
    191
    
    
    
    176
    
    
    
    102Equity in undistributed earnings of subsidiary
    
    
    (3,519
    )
    
    
    (3,696
    )
    
    
    (5,220
    )Other assets and liabilities
    
    
    (59
    )
    
    
    42
    
    
    
    39Total adjustments
    
    
    (3,387
    )
    
    
    (3,478
    )
    
    
    (5,079
    )Net cash provided by (used in) operating activities
    
    
    68
    
    
    
    24
    
    
    
    (47
    )Cash flows from financing activitiesPayments on borrowed funds
    
    
    (100
    )
    
    
    (100
    )
    
    
    Proceeds from issuance of common stock, and
exercise of stock options
    
    
    106
    
    
    
    40
    
    
    
    65Net cash provided by (used in) financing activities
    
    
    6
    
    
    
    (60
    )
    
    
    65Net change in cash
    
    
    74
    
    
    
    (36
    )
    
    
    18Cash at beginning of the year
    
    
    7
    
    
    
    43
    
    
    
    25Cash at end of the year
    
    $
    81
    
    
    $
    7
    
    
    $
    43
 32