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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, 2006
 o
    
    Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period of
 to
 Commission
File Number 0-22891
 GEORGIA-CAROLINA BANCSHARES, INC.
  Georgia
    
    58-2326075(State or other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
  
  (706) 731-6600
  
   þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
  o þ
  Class
    
    Outstanding at May 12, 2006Common Stock, $.001 Par Value
    
    3,368,080 shares




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GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2006
and December 31, 2005
    
    
    2Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II OTHER INFORMATIONItem 6. Exhibits
    
    
    16SIGNATURES
    
    
    17EXHIBIT INDEX
    
    
    18EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATIO 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 31,2006
    
    
    2005ASSETSCash and due from banks
    
    $
    18,912
    
    
    $
    9,498Securities available-for-sale
    
    
    42,258
    
    
    
    38,337Loans, net of allowance for loan losses
    
    
    246,379
    
    
    
    244,555Loans, held for sale
    
    
    43,937
    
    
    
    40,064Bank premises and fixed assets
    
    
    11,035
    
    
    
    10,563Accrued interest receivable
    
    
    1,788
    
    
    
    1,756Foreclosed real estate, net of allowance
    
    
    368
    
    
    
    427Deferred tax asset, net
    
    
    1,389
    
    
    
    1,341Federal Home Loan Bank Stock
    
    
    1,212
    
    
    
    1,025Other assets
    
    
    1,871
    
    
    
    1,915Total assets
    
    $
    369,149
    
    
    $
    349,481LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    41,838
    
    
    $
    36,986Interest-bearing:NOW accounts
    
    
    31,088
    
    
    
    33,090Savings
    
    
    55,972
    
    
    
    58,473Money market accounts
    
    
    23,891
    
    
    
    19,669Time deposits of $100,000, and over
    
    
    104,356
    
    
    
    94,763Other time deposits
    
    
    61,660
    
    
    
    61,459Total deposits
    
    
    318,805
    
    
    
    304,440Borrowings
    
    
    18,204
    
    
    
    14,142Other liabilities, borrowings and retail agreements
    
    
    2,732
    
    
    
    2,290Total liabilities
    
    
    339,741
    
    
    
    320,872Shareholders equity:Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
3,366,936 and 3,354,090 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    14,145
    
    
    
    13,974Retained Earnings
    
    
    15,861
    
    
    
    15,183Accumulated other comprehensive income (loss)
    
    
    (601
    )
    
    
    (552
    )Total shareholders equity
    
    
    29,409
    
    
    
    28,609Total liabilities and shareholders equity
    
    $
    369,149
    
    
    $
    349,481
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Income
 (Unaudited)  (dollars in thousands, except per share amounts)
 Three Months EndedMarch 31,2006
    
    
    2005Interest incomeInterest and fees on loans
    
    $
    5,159
    
    
    $
    4,230Interest on taxable securities
    
    
    391
    
    
    
    363Interest on nontaxable securities
    
    
    35
    
    
    
    29Interest on Federal funds sold and cash in banks
    
    
    26
    
    
    
    11Total interest income
    
    
    5,611
    
    
    
    4,633Interest expenseInterest on time deposits of $100,000 or more
    
    
    917
    
    
    
    501Interest on other deposits
    
    
    1,329
    
    
    
    870Interest on funds purchased and other borrowings
    
    
    167
    
    
    
    247Total interest expense
    
    
    2,413
    
    
    
    1,618Net interest income
    
    
    3,198
    
    
    
    3,015Provision for loan losses
    
    
    183
    
    
    
    320Net interest income after provision for loan losses
    
    
    3,015
    
    
    
    2,695Non-interest incomeService charges on deposits
    
    
    188
    
    
    
    147Other income/loss
    
    
    130
    
    
    
    90Gain on sale of mortgage loans
    
    
    1,890
    
    
    
    2,2402,208
    
    
    
    2,477Non-interest expenseSalaries and employee benefits
    
    
    2,850
    
    
    
    2,557Occupancy expenses
    
    
    367
    
    
    
    322Other expenses
    
    
    1,026
    
    
    
    1,0124,243
    
    
    
    3,891Income before income taxes
    
    
    980
    
    
    
    1,281Income tax expense
    
    
    302
    
    
    
    482Net income
    
    $
    678
    
    
    $
    799Net income per share of common stock:Basic
    
    $
    0.20
    
    
    $
    0.24Diluted
    
    $
    0.19
    
    
    $
    0.23Dividends per share of common stock
    
    $
    
    
    
    $
    
  3




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  (dollars in thousands)
 Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    678
    
    
    $
    799Unrealized holding losses arising during period,
less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    (49
    )
    
    
    (299
    )Comprehensive income
    
    $
    629
    
    
    $
    500
  4




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Three Months Ended March 31,2006
    
    
    2005Cash flows from operating activitiesNet income
    
    $
    678
    
    
    $
    799Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    196
    
    
    
    119Provision for loan losses
    
    
    183
    
    
    
    320SFAS 123R Stock option expense
    
    
    75
    
    
    
    (Gains) losses on sales of foreclosed real estate
    
    
    (10
    )
    
    
    Net origination and proceeds
on loans originated for sale
    
    
    (3,873
    )
    
    
    12,445Increase in accrued interest receivable
    
    
    (32
    )
    
    
    (132
    )Stock compensation
    
    
    36
    
    
    
    36Deferred income tax
    
    
    (21
    )
    
    
    87Net change in other assets and liabilities
    
    
    459
    
    
    
    (5,040
    )Net cash (used in) provided by operating activities
    
    
    (2,309
    )
    
    
    8,634Cash flows from investing activitiesDecrease in federal funds sold
    
    
    
    
    
    
    (8,879
    )Loan originations and collections, net
    
    
    (2,173
    )
    
    
    (9,663
    )Purchases and proceeds of securities
    
    
    (4,184
    )
    
    
    1,072Proceeds from sale of foreclosed real estate
    
    
    235
    
    
    
    Net additions to premises and equipment
    
    
    (642
    )
    
    
    (706
    )Net cash used in investing activities
    
    
    (6,764
    )
    
    
    (18,176
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    18,427
    
    
    
    7,302Proceeds from stock options exercised
    
    
    60
    
    
    
    Net cash provided by financing activities
    
    
    18,487
    
    
    
    7,302Net increase (decrease) in cash and due from banks
    
    
    9,414
    
    
    
    (2,240
    )Cash and due from banks at beginning of period
    
    
    9,498
    
    
    
    7,138Cash and due from banks at end of period
    
    $
    18,912
    
    
    $
    4,898
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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
March 31, 2006
(Unaudited)
 Note 1  Basis of presentation
    Note 2  Stock-Based Compensation
 Share-Based Payments
  Accounting for Stock Issued to Employees (as amended)
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ThreeMonths EndedMarch 31, 2005Net income, as reported
    
    $
    799Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (84
    )Proforma net income including stock-based compensation
cost based on fair-value method
    
    
    715Earnings per share:Basic  as reported
    
    $
    .24Basic  proforma
    
    $
    .22Diluted  as reported
    
    $
    .23Diluted  proforma
    
    $
    .20
 Note 3  Earnings per share
    For the Three Months Ended March 31, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    678,000Basic EPSIncome available to common shareholders
    
    
    678,000
    
    
    
    3,360,841
    
    
    $
    0.20Effect of dilutive securitiesOptions
    
    
    
    
    
    
    120,429Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    678,000
    
    
    
    3,481,270
    
    
    $
    0.19
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For the Three Months Ended March 31, 2005WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    799,000Basic EPSIncome available to common shareholders
    
    
    799,000
    
    
    
    3,318,898
    
    
    $
    0.24Effect of dilutive securitiesOptions
    
    
    
    
    
    
    229,036Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    799,000
    
    
    
    3,547,934
    
    
    $
    0.23
 Note 4  Impact of Recently Issued Accounting Standards
 , Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Statements No. 133 and 140. Accounting for Derivative Instruments and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets
 , Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140. Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement 125,
 Note 5  Commitments and Contingencies
   8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   Critical Accounting Policies
  9




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New Accounting Pronouncements
 , Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Statements No. 133 and 140.
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Accounting for Derivative Instruments and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets
 , Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140. Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement 125,
 Results of Operations
 Overview
   Net Interest Income
   Interest Income
  11




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Interest Expense
  Provision for Loan Losses
  Non-interest Income
  Non-interest Expense
  12




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Income Taxes
  Financial Condition
 Overview
   Asset Quality
   March 31,
    
    
    December 31,2006
    
    
    2005Non-accrual loans
    
    $
    2,342,000
    
    
    $
    1,708,000OREO, net of valuation allowance
    
    
    368,000
    
    
    
    427,000$
    2,710,000
    
    
    $
    2,135,000
  13




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  14




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AtMarch 31,
    
    
    At2006
    
    
    December 31, 2005(In thousands)Commitments to extend credit
    
    $
    64,468
    
    
    $
    66,262Standby letters of credit
    
    
    2,276
    
    
    
    1,947$
    66,744
    
    
    $
    68,209
 Cautionary Note Regarding Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures.
  15




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Part II. OTHER INFORMATION
 
 Item 6. Exhibits
  Exhibit No.
    
    Description3.1    -
    
    Articles of Incorporation of the Company (incorporated herein by reference to Exhibit
3.1 of the Companys Registration Statement on Form SB-2 under the Securities Act of 1933,
as amended, Registration No. 333-69763).3.1.1   -
    
    Articles of Amendment to the Articles of Incorporation of the Company (incorporated
herein by reference to Exhibit 3.1.1 of the Companys Annual Report on Form 10-KSB for the
year ended December 31, 2000).3.2    -
    
    By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 of the
Companys Registration Statement on Form SB-2 under the Securities Act of 1933, as amended,
Registration No. 333-69763).31.1    -
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2    -
    
    Certification of Acting Principal 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
  Georgia-Carolina Bancshares, Inc.
 By:
    
    /s/ Patrick G. Blanchard
    
    May 12, 2006Patrick G. BlanchardPresident and Chief Executive Officer(principal executive officer)By:
    
    /s/ Remer Y. Brinson, III
    
    May 12, 2006Remer Y. Brinson, IIIActing Principal Financial Officer(principal financial and accounting officer)
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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 Acting Principal 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.
 18