##### 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 September 30, 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)
 3527 Wheeler Road, Augusta, Georgia 30909
 (706) 731-6600
 
  þ o
  o o þ
  o þ
  Class
    
    Outstanding at November 13, 2007Common Stock, $.001 Par Value
    
    3,398,723 shares




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
  PagePART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed
Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006
    
    
    2Condensed
Consolidated Statements of Income for the Three and Nine Months Months Ended September 30, 2007 and 2006
    
    
    3Condensed
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006
    
    
    4Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September 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 6.
    
    Exhibits
    
    
    18SIGNATURES
    
    
    19EXHIBIT INDEX
    
    
    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 & 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)
 September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    9,492
    
    
    $
    11,109Federal funds sold
    
    
    
    
    
    
    1,182Securities available-for-sale
    
    
    58,974
    
    
    
    53,273Loans, net of allowance for loan losses
    
    
    305,150
    
    
    
    276,497Loans, held for sale
    
    
    26,159
    
    
    
    56,758Bank premises and fixed assets
    
    
    10,541
    
    
    
    10,655Accrued interest receivable
    
    
    2,462
    
    
    
    1,738Foreclosed real estate, net of allowance
    
    
    1,460
    
    
    
    599Deferred tax asset, net
    
    
    1,398
    
    
    
    1,360Federal Home Loan Bank Stock
    
    
    1,201
    
    
    
    2,131Bank-owned life insurance
    
    
    8,022
    
    
    
    Other assets
    
    
    1,761
    
    
    
    2,169Total assets
    
    $
    426,620
    
    
    $
    417,471LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    34,530
    
    
    $
    39,848Interest-bearing:NOW accounts
    
    
    26,905
    
    
    
    28,447Savings
    
    
    81,684
    
    
    
    53,606Money market accounts
    
    
    9,814
    
    
    
    12,722Time deposits of $100,000, and over
    
    
    123,216
    
    
    
    139,369Other time deposits
    
    
    91,003
    
    
    
    67,350Total deposits
    
    
    367,152
    
    
    
    341,342Borrowings:Other liabilities, borrowings and retail agreements
    
    
    24,185
    
    
    
    44,003Total liabilities
    
    
    391,337
    
    
    
    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
    
    
    14,882
    
    
    
    14,500Retained Earnings
    
    
    20,465
    
    
    
    17,903Accumulated other comprehensive income (loss)
    
    
    (68
    )
    
    
    (281
    )Total shareholders equity
    
    
    35,283
    
    
    
    32,126Total liabilities and shareholders equity
    
    $
    426,620
    
    
    $
    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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    6,800
    
    
    $
    5,874
    
    
    $
    19,742
    
    
    $
    16,575Interest on taxable securities
    
    
    640
    
    
    
    380
    
    
    
    1,800
    
    
    
    1,097Interest on nontaxable securities
    
    
    72
    
    
    
    155
    
    
    
    197
    
    
    
    332Interest on Federal funds sold
    
    
    57
    
    
    
    28
    
    
    
    224
    
    
    
    101Total interest income
    
    
    7,569
    
    
    
    6,437
    
    
    
    21,963
    
    
    
    18,105Interest expenseInterest on time deposits of $100,000 or more
    
    
    1,660
    
    
    
    1,286
    
    
    
    4,965
    
    
    
    3,304Interest on other deposits
    
    
    2,225
    
    
    
    1,502
    
    
    
    6,157
    
    
    
    4,230Interest on funds purchased and other borrowings
    
    
    175
    
    
    
    424
    
    
    
    565
    
    
    
    742Total interest expense
    
    
    4,060
    
    
    
    3,212
    
    
    
    11,687
    
    
    
    8,276Net interest income
    
    
    3,509
    
    
    
    3,225
    
    
    
    10,276
    
    
    
    9,829Provision for loan losses
    
    
    103
    
    
    
    242
    
    
    
    473
    
    
    
    700Net interest income
after provision for
loan losses
    
    
    3,406
    
    
    
    2,983
    
    
    
    9,803
    
    
    
    9,129Non-interest incomeService charges on deposits
    
    
    327
    
    
    
    209
    
    
    
    945
    
    
    
    599Other income/loss
    
    
    301
    
    
    
    129
    
    
    
    659
    
    
    
    381Gain on sale of mortgage loans
    
    
    1,956
    
    
    
    2,097
    
    
    
    6,211
    
    
    
    6,0052,584
    
    
    
    2,435
    
    
    
    7,815
    
    
    
    6,985Non-interest expenseSalaries and employee benefits
    
    
    2,901
    
    
    
    3,011
    
    
    
    8,729
    
    
    
    8,845Occupancy expenses
    
    
    383
    
    
    
    367
    
    
    
    1,133
    
    
    
    1,092Other expenses
    
    
    1,300
    
    
    
    1,096
    
    
    
    3,773
    
    
    
    3,3684,584
    
    
    
    4,474
    
    
    
    13,635
    
    
    
    13,305Income before income taxes
    
    
    1,406
    
    
    
    944
    
    
    
    3,983
    
    
    
    2,809Income tax expense
    
    
    510
    
    
    
    275
    
    
    
    1,421
    
    
    
    858Net income
    
    $
    896
    
    
    $
    669
    
    
    $
    2,562
    
    
    $
    1,951Net income per share of common stock(1)Basic
    
    $
    0.26
    
    
    $
    0.20
    
    
    $
    0.76
    
    
    $
    0.58Diluted
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.73
    
    
    $
    0.56Dividends 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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    896
    
    
    $
    669
    
    
    $
    2,562
    
    
    $
    1,951Unrealized holding gains and (losses) arising
during period, less reclassifications adjustment
for gains and losses included in net income,
net of tax
    
    
    579
    
    
    
    286
    
    
    
    213
    
    
    
    68Comprehensive income
    
    $
    1,475
    
    
    $
    955
    
    
    $
    2,775
    
    
    $
    2,019
  4




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GEORGIA-CAROLINA
BANCSHARES, INC.
 Condensed Consolidated Statements of Cash Flows
(Unaudited)  (dollars in thousands)
 Nine Months Ended September 30,2007
    
    
    2006Cash flows from operating activitiesNet income
    
    $
    2,562
    
    
    $
    1,951Adjustments to reconcile net income
to net cash used in operating activities:Depreciation and amortization
    
    
    568
    
    
    
    582Provision for loan losses
    
    
    473
    
    
    
    700SFAS 123R Stock option expense
    
    
    177
    
    
    
    223Stock compensation
    
    
    172
    
    
    
    159Increase in cash value of bank-owned life insurance
    
    
    (22
    )
    
    
    (Gain)/Loss on sales of other real estate
    
    
    3
    
    
    
    (39
    )Net origination & proceeds on loans originated for sale
    
    
    30,599
    
    
    
    (22,061
    )Increase in accrued interest receivable
    
    
    (724
    )
    
    
    (267
    )Increase/(decrease) in accrued interest payable
    
    
    (44
    )
    
    
    1,129Increase in deferred tax asset, net
    
    
    (158
    )
    
    
    (109
    )Net change in other assets and liabilities
    
    
    (7,883
    )
    
    
    94Net cash provided by (used in) operating activities
    
    
    25,723
    
    
    
    (17,638
    )Cash flows from investing activities(Increase)/decrease in federal funds sold
    
    
    1,182
    
    
    
    (4,360
    )Loan originations and collections, net
    
    
    (30,207
    )
    
    
    (20,575
    )Purchases of available for sale securities
    
    
    (11,971
    )
    
    
    (16,860
    )Proceeds from maturities, sales & calls of
available-for-sale securities, net
    
    
    6,603
    
    
    
    3,961(Purchases)/sales of restricted securities
    
    
    930
    
    
    
    (1,146
    )Proceeds from sale of foreclosed real estate
    
    
    217
    
    
    
    580Net additions to premises and equipment
    
    
    (375
    )
    
    
    (735
    )Net cash used in investing activities
    
    
    (33,621
    )
    
    
    (39,135
    )Cash flows from financing activitiesNet increase in deposits and funds purchased
    
    
    6,248
    
    
    
    54,293Proceeds from stock options exercised
    
    
    33
    
    
    
    60Net cash provided by financing activities
    
    
    6,281
    
    
    
    54,353Net decrease in cash and due from banks
    
    
    (1,617
    )
    
    
    (2,420
    )Cash and due from banks at beginning of period
    
    
    11,109
    
    
    
    9,498Cash and due from banks at end of period
    
    $
    9,492
    
    
    $
    7,078
  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 
 Notes to Condensed Consolidated Financial Statements
September 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 September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    896,000Basic EPSIncome available to common shareholders
    
    
    896,000
    
    
    
    3,397,454
    
    
    $
    0.26Effect of dilutive securitiesOptions
    
    
    
    
    
    
    118,457Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    896,000
    
    
    
    3,515,911
    
    
    $
    0.25
 For the Three Months Ended September 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    669,000Basic EPSIncome available to common shareholders
    
    
    669,000
    
    
    
    3,375,324
    
    
    $
    0.20Effect of dilutive securitiesOptions
    
    
    
    
    
    
    125,273Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    669,000
    
    
    
    3,500,597
    
    
    $
    0.19
 7




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##### Table of Contents



For the Nine Months Ended September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    2,562,000Basic EPSIncome available to common shareholders
    
    
    2,562,000
    
    
    
    3,391,371
    
    
    $
    0.76Effect of dilutive securitiesOptions
    
    
    
    
    
    
    115,859Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    2,562,000
    
    
    
    3,507,230
    
    
    $
    0.73
 For the Nine Months Ended September 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    1,951,000Basic EPSIncome available to common shareholders
    
    
    1,951,000
    
    
    
    3,368,126
    
    
    $
    0.58Effect of dilutive securitiesOptions
    
    
    
    
    
    
    117,412Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    1,951,000
    
    
    
    3,485,538
    
    
    $
    0.56
 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
  14




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Income Taxes
  Financial Condition
 Overview
   Asset Quality
   September 30,
    
    
    December 31,2007
    
    
    2006Non-accrual loans
    
    $
    2,175,000
    
    
    $
    2,286,000OREO, net of valuation allowance
    
    
    1,460,000
    
    
    
    599,000$
    3,635,000
    
    
    $
    2,885,000
  15




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  16




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At
    
    
    AtSeptember 30,
    
    
    December 31,2007
    
    
    2006(in thousands)Commitments to extend credit
    
    $
    85,431
    
    
    $
    79,828Standby letters of credit
    
    
    1,656
    
    
    
    2,389$
    87,087
    
    
    $
    82,217
 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 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.
 18




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SIGNATURES
  GEORGIA-CAROLINA BANCSHARES, INC.November 13, 2007
    By:
    /s/ Patrick G. BlanchardPatrick G. BlanchardPresident and Chief Executive Officer
(principal executive officer) November 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.