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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 March 31, 2007
 - or -
 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
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 (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 May 15, 2007Common Stock, $.001 Par Value
    
    3,389,672 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, 2007 and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income for the Three Months Months Ended March 31, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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
    
    
    16Item 4. Controls and Procedures
    
    
    16Item 4T. Controls and Procedures
    
    
    17PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    17SIGNATURES
    
    
    18EXHIBIT INDEX
    
    
    19CERTIFICATIONS
    
    
    20EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEO AND CFO




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Part I - FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Balance Sheets
(Unaudited)  (dollars in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    12,281
    
    
    $
    11,109Federal funds sold
    
    
    100
    
    
    
    1,182Securities available-for-sale
    
    
    54,834
    
    
    
    53,273Loans, net of allowance for loan losses
    
    
    295,525
    
    
    
    276,497Loans, held for sale
    
    
    48,652
    
    
    
    56,758Bank premises and fixed assets
    
    
    10,656
    
    
    
    10,655Accrued interest receivable
    
    
    2,047
    
    
    
    1,738Foreclosed real estate, net of allowance
    
    
    529
    
    
    
    599Deferred tax asset, net
    
    
    1,378
    
    
    
    1,360Federal Home Loan Bank Stock
    
    
    823
    
    
    
    2,131Other assets
    
    
    1,848
    
    
    
    2,169Total assets
    
    $
    428,673
    
    
    $
    417,471LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    45,933
    
    
    $
    39,848Interest-bearing:NOW accounts
    
    
    30,566
    
    
    
    28,447Savings
    
    
    66,911
    
    
    
    53,606Money market accounts
    
    
    11,576
    
    
    
    12,722Time deposits of $100,000, and over
    
    
    134,858
    
    
    
    139,369Other time deposits
    
    
    94,994
    
    
    
    67,350Total deposits
    
    
    384,838
    
    
    
    341,342Borrowings:Other liabilities, borrowings and retail agreements
    
    
    10,725
    
    
    
    44,003Total liabilities
    
    
    395,563
    
    
    
    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;
3,388,116 and 3,376,522 shares
issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in-capital
    
    
    14,635
    
    
    
    14,500Retained Earnings
    
    
    18,635
    
    
    
    17,903Accumulated other comprehensive income (loss)
    
    
    (164
    )
    
    
    (281
    )Total shareholders equity
    
    
    33,110
    
    
    
    32,126Total liabilities and shareholders equity
    
    $
    428,673
    
    
    $
    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 EndedMarch 31,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    6,302
    
    
    $
    5,159Interest on taxable securities
    
    
    575
    
    
    
    391Interest on nontaxable securities
    
    
    52
    
    
    
    35Interest on Federal funds sold
    
    
    83
    
    
    
    26Total interest income
    
    
    7,012
    
    
    
    5,611Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,701
    
    
    
    917Interest on other deposits
    
    
    1,763
    
    
    
    1,329Interest on funds purchased and other borrowings
    
    
    283
    
    
    
    167Total interest expense
    
    
    3,747
    
    
    
    2,413Net interest income
    
    
    3,265
    
    
    
    3,198Provision for loan losses
    
    
    268
    
    
    
    183Net interest income after provision for loan losses
    
    
    2,997
    
    
    
    3,015Non-interest incomeService charges on deposits
    
    
    303
    
    
    
    188Other income/loss
    
    
    180
    
    
    
    130Gain on sale of mortgage loans
    
    
    2,036
    
    
    
    1,8902,519
    
    
    
    2,208Non-interest expenseSalaries and employee benefits
    
    
    2,873
    
    
    
    2,895Occupancy expenses
    
    
    356
    
    
    
    367Other expenses
    
    
    1,172
    
    
    
    1,0254,401
    
    
    
    4,287Income before income taxes
    
    
    1,115
    
    
    
    936Income tax expense
    
    
    384
    
    
    
    287Net income
    
    $
    731
    
    
    $
    649Net income per share of common stock (See Note 1)Basic
    
    $
    0.22
    
    
    $
    0.19Diluted
    
    $
    0.21
    
    
    $
    0.19Dividends 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 31,2007
    
    
    2006Net income
    
    $
    731
    
    
    $
    649Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    117
    
    
    
    (49
    )Comprehensive income
    
    $
    848
    
    
    $
    600
  4




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Three Months Ended March 31,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    731
    
    
    $
    649Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    190
    
    
    
    196Provision for loan losses
    
    
    268
    
    
    
    183SFAS 123R Stock option expense
    
    
    58
    
    
    
    75Stock compensation
    
    
    45
    
    
    
    36(Gain)/Loss on sales of other real estate
    
    
    (9
    )
    
    
    (10
    )Net origination & proceeds on loans originated for sale
    
    
    8,106
    
    
    
    (3,873
    )Increase in accrued interest receivable
    
    
    (309
    )
    
    
    (32
    )Increase in accrued interest payable
    
    
    303
    
    
    
    361Increase in deferred tax
    
    
    (83
    )
    
    
    (21
    )Net change in other assets and liabilities
    
    
    (127
    )
    
    
    127Net cash (used in) provided by operating activities
    
    
    9,173
    
    
    
    (2,309
    )Cash flows from investing activitiesIncrease in federal funds sold
    
    
    1,082
    
    
    
    Loan originations and collections, net
    
    
    (19,397
    )
    
    
    (2,173
    )Purchases of available for sale securities
    
    
    (2,479
    )
    
    
    (4,748
    )Proceeds from maturities, sales & calls of
available-for-sale securities, net
    
    
    1,100
    
    
    
    751(Purchases)/sales of restricted securities
    
    
    1,308
    
    
    
    (187
    )Proceeds from sale of foreclosed real estate
    
    
    180
    
    
    
    235Net additions to premises and equipment
    
    
    (165
    )
    
    
    (642
    )Net cash used in investing activities
    
    
    (18,371
    )
    
    
    (6,764
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    10,337
    
    
    
    18,427Proceeds from stock options exercised
    
    
    33
    
    
    
    60Net cash provided by financing activities
    
    
    10,370
    
    
    
    18,487Net increase in cash and due from banks
    
    
    1,172
    
    
    
    9,414Cash and due from banks at beginning of period
    
    
    11,109
    
    
    
    9,498Cash and due from banks at end of period
    
    $
    12,281
    
    
    $
    18,912
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
March 31, 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 March 31, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    731,000Basic EPSIncome available to common shareholders
    
    
    731,000
    
    
    
    3,380,162
    
    
    $
    0.22Effect of dilutive securitiesOptions
    
    
    
    
    
    
    117,331Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    731,000
    
    
    
    3,497,493
    
    
    $
    0.21
 For the Three Months Ended March 31, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    649,000Basic EPSIncome available to common shareholders
    
    
    649,000
    
    
    
    3,360,841
    
    
    $
    0.19Effect of dilutive securitiesOptions
    
    
    
    
    
    
    120,429Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    649,000
    
    
    
    3,481,270
    
    
    $
    0.19
 7




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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,
 Fair Value Measurements
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109
 The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 8




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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
   Critical Accounting Policies
     10




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Accounting for Contingencies Accounting by Creditors for Impairment of a Loan
  New Accounting Pronouncements
 Fair Value Measurement.
  The Fair Value Option for Financial Assets and
Financial Liabilities
 11




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Fair Value
Measurements
 Results of Operations
 Overview
   Net Interest Income
   Interest Income
  12




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Interest Expense
  Provision for Loan Losses
  Non-interest Income
  Non-interest Expense
  Income Taxes
  13




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Financial Condition
 Overview
   Asset Quality
   March 31,
    
    
    December 31,2007
    
    
    2006Non-accrual loans
    
    $
    2,452,000
    
    
    $
    2,286,000OREO, net of valuation allowance
    
    
    529,000
    
    
    
    599,000$
    2,981,000
    
    
    $
    2,885,000
    14




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
   At
    
    
    AtMarch 31,
    
    
    December 31,2007
    
    
    2006(in thousands)Commitments to extend credit
    
    $
    54,925
    
    
    $
    79,828Standby letters of credit
    
    
    1,957
    
    
    
    2,389$
    56,882
    
    
    $
    82,217
 15




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Cautionary Note Regarding Forward-Looking Statements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
    16




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Item 4T. Controls and Procedures.
  
 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 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.
 17




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SIGNATURES
  GEORGIA-CAROLINA BANCSHARES, INC.May 15, 2007
    By:
    /s/ Patrick G. BlanchardPatrick G. BlanchardPresident and Chief Executive Officer
(principal executive officer)May 15, 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.