##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 0-22891
 GEORGIA-CAROLINA BANCSHARES, INC.
  Georgia
    
    58-2326075(State or other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
  Address of principal executive offices, including zip code)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ
  Class
    
    Outstanding at August 13, 2007Common Stock, $.001 Par Value
    
    3,397,518 shares




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of June 30, 2007
and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income for the Six Months
Months Ended June 30, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Comprehensive Income
for the Six Months Ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17Item 4T.
    
    Controls and Procedures
    
    
    18PART II.
    
    OTHER INFORMATIONItem 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 6.
    
    Exhibits
    
    
    18SIGNATURES
    
    
    20EXHIBIT INDEX
    
    
    21CERTIFICATIONS
    
    
    22EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO




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##### Table of Contents



Part
I - FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Balance Sheets
(Unaudited)  (dollars in thousands)
 June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    12,573
    
    
    $
    11,109Federal funds sold
    
    
    
    
    
    
    1,182Securities available-for-sale
    
    
    56,482
    
    
    
    53,273Loans, net of allowance for loan losses
    
    
    300,427
    
    
    
    276,497Loans, held for sale
    
    
    45,354
    
    
    
    56,758Bank premises and fixed assets
    
    
    10,622
    
    
    
    10,655Accrued interest receivable
    
    
    2,112
    
    
    
    1,738Foreclosed real estate, net of allowance
    
    
    1,122
    
    
    
    599Deferred tax asset, net
    
    
    1,672
    
    
    
    1,360Federal Home Loan Bank Stock
    
    
    1,291
    
    
    
    2,131Other assets
    
    
    1,847
    
    
    
    2,169Total assets
    
    $
    433,502
    
    
    $
    417,471LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    41,213
    
    
    $
    39,848Interest-bearing:NOW accounts
    
    
    29,066
    
    
    
    28,447Savings
    
    
    69,230
    
    
    
    53,606Money market accounts
    
    
    12,779
    
    
    
    12,722Time deposits of $100,000, and over
    
    
    126,510
    
    
    
    139,369Other time deposits
    
    
    95,799
    
    
    
    67,350Total deposits
    
    
    374,597
    
    
    
    341,342Borrowings:Other liabilities, borrowings and retail agreements
    
    
    25,175
    
    
    
    44,003Total liabilities
    
    
    399,772
    
    
    
    385,345Shareholders equity:Preferred stock, par value $.001; 1,000,000 shares authorized;
none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares authorized;
3,396,040 and 3,376,522 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    14,804
    
    
    
    14,500Retained Earnings
    
    
    19,569
    
    
    
    17,903Accumulated other comprehensive income (loss)
    
    
    (647
    )
    
    
    (281
    )Total shareholders equity
    
    
    33,730
    
    
    
    32,126Total liabilities and shareholders equity
    
    $
    433,502
    
    
    $
    417,471
  2




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Income
(Unaudited)
 (dollars in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    6,640
    
    
    $
    5,541
    
    
    $
    12,942
    
    
    $
    10,700Interest on taxable securities
    
    
    585
    
    
    
    326
    
    
    
    1,160
    
    
    
    717Interest on nontaxable securities
    
    
    73
    
    
    
    142
    
    
    
    125
    
    
    
    177Interest on Federal funds sold
    
    
    84
    
    
    
    48
    
    
    
    167
    
    
    
    74Total interest income
    
    
    7,382
    
    
    
    6,057
    
    
    
    14,394
    
    
    
    11,668Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,604
    
    
    
    1,100
    
    
    
    3,305
    
    
    
    2,017Interest on other deposits
    
    
    2,169
    
    
    
    1,399
    
    
    
    3,932
    
    
    
    2,728Interest on funds purchased and other borrowings
    
    
    107
    
    
    
    152
    
    
    
    390
    
    
    
    319Total interest expense
    
    
    3,880
    
    
    
    2,651
    
    
    
    7,627
    
    
    
    5,064Net interest income
    
    
    3,502
    
    
    
    3,406
    
    
    
    6,767
    
    
    
    6,604Provision for loan losses
    
    
    102
    
    
    
    275
    
    
    
    370
    
    
    
    458Net interest income after provision for loan losses
    
    
    3,400
    
    
    
    3,131
    
    
    
    6,397
    
    
    
    6,146Non-interest incomeService charges on deposits
    
    
    315
    
    
    
    202
    
    
    
    618
    
    
    
    390Other income/loss
    
    
    178
    
    
    
    122
    
    
    
    358
    
    
    
    252Gain on sale of mortgage loans
    
    
    2,219
    
    
    
    2,018
    
    
    
    4,255
    
    
    
    3,9082,712
    
    
    
    2,342
    
    
    
    5,231
    
    
    
    4,550Non-interest expenseSalaries and employee benefits
    
    
    2,955
    
    
    
    2,961
    
    
    
    5,828
    
    
    
    5,811Occupancy expenses
    
    
    394
    
    
    
    358
    
    
    
    750
    
    
    
    725Other expenses
    
    
    1,301
    
    
    
    1,225
    
    
    
    2,473
    
    
    
    2,2954,650
    
    
    
    4,544
    
    
    
    9,051
    
    
    
    8,831Income before income taxes
    
    
    1,462
    
    
    
    929
    
    
    
    2,577
    
    
    
    1,865Income tax expense
    
    
    527
    
    
    
    296
    
    
    
    911
    
    
    
    583Net income
    
    $
    935
    
    
    $
    633
    
    
    $
    1,666
    
    
    $
    1,282Net income per share of common stock (See Note 1)Basic
    
    $
    0.28
    
    
    $
    0.19
    
    
    $
    0.49
    
    
    $
    0.38Diluted
    
    $
    0.27
    
    
    $
    0.18
    
    
    $
    0.48
    
    
    $
    0.37Dividends per share of common stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  
 (1)
    
    Adjusted for the 5-for-4 common stock split on April 1, 2005 3




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Comprehensive Income
(Unaudited)  (dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    935
    
    
    $
    633
    
    
    $
    1,666
    
    
    $
    1,282Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    (483
    )
    
    
    (170
    )
    
    
    (367
    )
    
    
    (219
    )Comprehensive income
    
    $
    452
    
    
    $
    463
    
    
    $
    1,299
    
    
    $
    1,063
  4




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Six Months Ended June 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    1,666
    
    
    $
    1,282Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    378
    
    
    
    391Provision for loan losses
    
    
    370
    
    
    
    458SFAS 123R Stock option expense
    
    
    118
    
    
    
    149Stock compensation
    
    
    153
    
    
    
    52(Gain)/Loss on sales of other real estate
    
    
    (14
    )
    
    
    Net origination & proceeds on loans originated for sale
    
    
    11,404
    
    
    
    (11,731
    )Increase in accrued interest receivable
    
    
    (374
    )
    
    
    (57
    )Increase in accrued interest payable
    
    
    500
    
    
    
    390Increase in deferred tax asset, net
    
    
    (106
    )
    
    
    (46
    )Net change in other assets and liabilities
    
    
    (356
    )
    
    
    (203
    )Net cash provided by (used in) operating activities
    
    
    13,739
    
    
    
    (9,315
    )Cash flows from investing activitiesIncrease in federal funds sold
    
    
    1,182
    
    
    
    Loan originations and collections, net
    
    
    (25,009
    )
    
    
    (2,283
    )Purchases of available for sale securities
    
    
    (6,977
    )
    
    
    (10,780
    )Proceeds from maturities, sales & calls of
available-for-sale securities, net
    
    
    3,196
    
    
    
    2,195(Purchases)/sales of restricted securities
    
    
    840
    
    
    
    (169
    )Proceeds from sale of foreclosed real estate
    
    
    200
    
    
    
    391Net additions to premises and equipment
    
    
    (293
    )
    
    
    (706
    )Net cash used in investing activities
    
    
    (26,861
    )
    
    
    (11,352
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    14,553
    
    
    
    21,173Proceeds from stock options exercised
    
    
    33
    
    
    
    60Net cash provided by financing activities
    
    
    14,586
    
    
    
    21,233Net increase in cash and due from banks
    
    
    1,464
    
    
    
    566Cash and due from banks at beginning of period
    
    
    11,109
    
    
    
    9,498Cash and due from banks at end of period
    
    $
    12,573
    
    
    $
    10,064
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
June 30, 2007
(Unaudited)
 Note 1  Basis of Presentation
    Note 2  Stock-Based Compensation
 Share-Based Payment
  Accounting for Stock Issued to Employees (as amended)
 6




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Note 3  Earnings Per Share
    For the Three Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    935,000Basic EPSIncome available to common shareholders
    
    
    935,000
    
    
    
    3,392,403
    
    
    $
    0.28Effect of dilutive securitiesOptions
    
    
    
    
    
    
    113,720Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    935,000
    
    
    
    3,506,123
    
    
    $
    0.27
 For the Three Months Ended June 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    633,000Basic EPSIncome available to common shareholders
    
    
    633,000
    
    
    
    3,368,055
    
    
    $
    0.19Effect of dilutive securitiesOptions
    
    
    
    
    
    
    113,588Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    633,000
    
    
    
    3,481,643
    
    
    $
    0.18
 7




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##### Table of Contents



For the Six Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    1,666,000Basic EPSIncome available to common shareholders
    
    
    1,666,000
    
    
    
    3,388,279
    
    
    $
    0.49Effect of dilutive securitiesOptions
    
    
    
    
    
    
    114,601Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    1,666,000
    
    
    
    3,502,880
    
    
    $
    0.48
 For the Six Months Ended June 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    1,282,000Basic EPSIncome available to common shareholders
    
    
    1,282,000
    
    
    
    3,364,468
    
    
    $
    0.38Effect of dilutive securitiesOptions
    
    
    
    
    
    
    116,163Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    1,282,000
    
    
    
    3,480,631
    
    
    $
    0.37
 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,
 8




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Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 Note 5  Commitments and Contingencies
   9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
   10




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Critical Accounting Policies
     Accounting for Contingencies Accounting by Creditors for Impairment of a Loan
  11




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New Accounting Pronouncements
 Fair Value Measurement.
  The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 Results of Operations
 Overview
   12




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Net Interest Income
   Interest Income
  Interest Expense
  13




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Provision for Loan Losses
  Non-interest Income
  Non-interest Expense
  Income Taxes
  14




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Financial Condition
 Overview
   Asset Quality
   June 30,
    
    
    December 31,2007
    
    
    2006Non-accrual loans
    
    $
    2,251,000
    
    
    $
    2,286,000OREO, net of valuation allowance
    
    
    1,122,000
    
    
    
    599,000$
    3,373,000
    
    
    $
    2,885,000
    15




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
   At
    
    
    AtJune 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Commitments to extend credit
    
    $
    81,595
    
    
    $
    79,828Standby letters of credit
    
    
    1,608
    
    
    
    2,389$
    83,203
    
    
    $
    82,217
 16




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Cautionary Note Regarding Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
    17




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Item 4T. Controls and Procedures.
  
 Part II  OTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders.
   Votes
    
    VotesFOR
    
    WITHHELDPhillip G. Farr
    
    
    2,486,815
    
    
    
    117,314Samuel A. Fowler, Jr.
    
    
    2,479,895
    
    
    
    124,234Arthur J. Gay, Jr.
    
    
    2,488,195
    
    
    
    115,934Joseph D. Greene
    
    
    2,496,327
    
    
    
    107,802Hugh L. Hamilton, Jr.
    
    
    2,488,195
    
    
    
    115,934Remer Y. Brinson, III
    
    
    2,488,195
    
    
    
    115,934
  
 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.
 18




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Exhibit No.
    
    
    
    Description31.2
    
    -
    
    Certification of Senior Vice President and Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    -
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 19




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SIGNATURES
  GEORGIA-CAROLINA BANCSHARES, INC.August 13, 2007
    By:
    /s/ Patrick G. BlanchardPatrick G. BlanchardPresident and Chief Executive Officer

(principal executive officer)August 13, 2007
    By:
    /s/ Bradley J. Gregory, Sr.Bradley J. Gregory, Sr.Senior Vice President and Chief 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 Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.Exhibit 32.1
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.