##### 



EXHIBIT 99.1
 FINANCIAL STATEMENTS
 GEORGIA-CAROLINA BANCSHARES, INC.
 Financial Statements
 For the Years Ended December 31, 2006 and 2005




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Table of Contents
 December 31, 2006 and 2005
 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
    
    
    7-34




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##### 



Report of Independent Registered Public Accounting Firm




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated
Statements of Financial Condition
 December 31,
2006 and 2005  (dollars in thousands, except per share amounts)
 2006
    
    
    2005AssetsCash and due from banks
    
    $
    11,109
    
    
    $
    9,498Federal funds sold
    
    
    1,182
    
    
    
    Securities available-for-sale
    
    
    53,273
    
    
    
    38,337Loans, net of allowance for loan losses
    
    
    276,497
    
    
    
    244,555Loans held for sale
    
    
    56,758
    
    
    
    40,064Bank premises and fixed assets
    
    
    10,655
    
    
    
    10,563Accrued interest receivable
    
    
    1,738
    
    
    
    1,756Foreclosed real estate, net of allowance
    
    
    599
    
    
    
    427Deferred tax asset, net
    
    
    1,360
    
    
    
    1,341Federal Home Loan Bank Stock
    
    
    2,131
    
    
    
    1,025Other assets
    
    
    2,169
    
    
    
    1,915Total assets
    
    $
    417,471
    
    
    $
    349,481Liabilities and Shareholders EquityLiabilitiesDepositsNon-interest bearing
    
    $
    39,848
    
    
    $
    36,986Interest-bearing:NOW accounts
    
    
    28,447
    
    
    
    33,090Savings
    
    
    53,606
    
    
    
    58,473Money market accounts
    
    
    12,722
    
    
    
    19,669Time deposits of $100,000 or more
    
    
    139,369
    
    
    
    94,763Other time deposits
    
    
    67,350
    
    
    
    61,459Total deposits
    
    
    341,342
    
    
    
    304,440Federal funds purchased
    
    
    
    
    
    
    3,456Federal Home Loan Bank borrowings
    
    
    31,828
    
    
    
    8,000Retail deposit agreements
    
    
    6,733
    
    
    
    1,886Other liabilities
    
    
    5,442
    
    
    
    3,090Total liabilities
    
    
    385,345
    
    
    
    320,872Shareholders equity(1)Preferred stock, par value $.001; 1,000,000 shares
authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.001; 9,000,000 shares
authorized; 3,376,522 and 3,354,090 shares issued and
outstanding, respectively
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    14,500
    
    
    
    13,974Retained earnings
    
    
    17,903
    
    
    
    15,183Accumulated other comprehensive (loss)
    
    
    (281
    )
    
    
    (552
    )Total shareholders equity
    
    
    32,126
    
    
    
    28,609Total liabilities and shareholders equity
    
    $
    417,471
    
    
    $
    349,481
 
 (1)
    
    Adjusted to reflect the 5-for-4 common stock split effected April 1,
2005.  2




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Income
 For the Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands, except per share amounts)
 2006
    
    
    2005
    
    
    2004Interest incomeInterest and fees on loans
    
    $
    23,144
    
    
    $
    19,263
    
    
    $
    14,713Interest on taxable securities
    
    
    1,541
    
    
    
    1,434
    
    
    
    1,268Interest on nontaxable securities
    
    
    512
    
    
    
    115
    
    
    
    100Interest on Federal funds sold and cash in banks
    
    
    138
    
    
    
    64
    
    
    
    7Total interest income
    
    
    25,335
    
    
    
    20,876
    
    
    
    16,088Interest expenseInterest on time deposits of $100,000 or more
    
    
    4,976
    
    
    
    2,654
    
    
    
    1,175Interest on other deposits
    
    
    5,830
    
    
    
    4,472
    
    
    
    2,664Interest on funds purchased and other borrowings
    
    
    1,163
    
    
    
    1,294
    
    
    
    629Total interest expense
    
    
    11,969
    
    
    
    8,420
    
    
    
    4,468Net interest income
    
    
    13,366
    
    
    
    12,456
    
    
    
    11,620Provision for loan losses
    
    
    898
    
    
    
    1,022
    
    
    
    808Net interest income after
provision for loan losses
    
    
    12,468
    
    
    
    11,434
    
    
    
    10,812Noninterest incomeService charges on deposits
    
    
    928
    
    
    
    675
    
    
    
    773Other income
    
    
    560
    
    
    
    355
    
    
    
    362Gain on sale of mortgage loans
    
    
    8,312
    
    
    
    9,301
    
    
    
    9,436Total noninterest income
    
    
    9,800
    
    
    
    10,331
    
    
    
    10,571Noninterest expenseSalaries and employee benefits
    
    
    11,801
    
    
    
    10,828
    
    
    
    10,248Occupancy expenses
    
    
    1,467
    
    
    
    1,310
    
    
    
    1,255Other expenses
    
    
    4,643
    
    
    
    4,230
    
    
    
    4,211Total noninterest expense
    
    
    17,911
    
    
    
    16,368
    
    
    
    15,714Income before income taxes
    
    
    4,357
    
    
    
    5,397
    
    
    
    5,669Income tax expense
    
    
    1,460
    
    
    
    1,942
    
    
    
    2,167Net income
    
    $
    2,897
    
    
    $
    3,455
    
    
    $
    3,502Earnings per share(1)Basic
    
    $
    .86
    
    
    $
    1.04
    
    
    $
    1.06Diluted
    
    $
    .83
    
    
    $
    0.98
    
    
    $
    0.99
 
 (1)
    
    Adjusted to reflect the 5-for-4 common stock split effected April 1,
2005.  3




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Comprehensive Income
 For the Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands)
 2006
    
    
    2005
    
    
    2004Net income
    
    $
    2,897
    
    
    $
    3,455
    
    
    $
    3,502Unrealized holding gain (loss) arising during the
period, net of tax
    
    
    271
    
    
    
    (511
    )
    
    
    (215
    )Comprehensive income
    
    $
    3,168
    
    
    $
    2,944
    
    
    $
    3,287
  4




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Shareholders Equity
 For the Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands)
 AccumulatedCommon
    
    
    Common
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    TotalStock
    
    
    Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance at January 1, 2004
    
    
    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
    )
    
    
    28,609SAB 108 adjustment, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177
    )
    
    
    
    
    
    
    (177
    )Balance at January 1, 2006(2)
    
    
    3,354,090
    
    
    
    4
    
    
    
    13,974
    
    
    
    15,006
    
    
    
    (552
    )
    
    
    28,432Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,897
    
    
    
    
    
    
    
    2,897Change in unrealized gain (loss) on securities
available-for-sale, net of deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271
    
    
    
    271Proceeds from exercise of stock options
    
    
    10,400
    
    
    
    
    
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    59Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295Issuance of stock for compensation
    
    
    12,032
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    172Balance at December 31, 2006
    
    
    3,376,522
    
    
    $
    4
    
    
    $
    14,500
    
    
    $
    17,903
    
    
    $
    (281
    )
    
    $
    32,126
 
 (2)
    
    See Note 1  Recent accounting standards  5




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GEORGIA-CAROLINA BANCSHARES, INC.
 Consolidated Statements of Cash Flows
 For the Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands)
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    2,897
    
    
    $
    3,455
    
    
    $
    3,502Adjustments to reconcile net income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    764
    
    
    
    534
    
    
    
    480Provision for loan losses
    
    
    898
    
    
    
    1,022
    
    
    
    808(Gains) losses on sales of foreclosed real estate
    
    
    (21
    )
    
    
    119
    
    
    
    (9
    )Stock-based compensation expense
    
    
    295
    
    
    
    
    
    
    
    Stock compensation
    
    
    172
    
    
    
    191
    
    
    
    176Deferred income tax
    
    
    (172
    )
    
    
    (113
    )
    
    
    (348
    )Net originations, proceeds and gain
on loans originated for sale
    
    
    (16,694
    )
    
    
    16,665
    
    
    
    (24,310
    )(Increase) decrease in accrued interest receivable
    
    
    18
    
    
    
    (402
    )
    
    
    (228
    )Increase in accrued interest payable
    
    
    1,674
    
    
    
    743
    
    
    
    236Net change in other assets and liabilities
    
    
    241
    
    
    
    (1,036
    )
    
    
    109Net cash provided by (used in)
operating activities
    
    
    (9,928
    )
    
    
    21,178
    
    
    
    (19,584
    )Cash flows from investing activities(Increase) decrease in Federal funds sold
    
    
    (1,182
    )
    
    
    
    
    
    
    8,470Loan originations and collections, net
    
    
    (33,619
    )
    
    
    (32,668
    )
    
    
    (41,272
    )Purchases of available-for-sale securities
    
    
    (21,003
    )
    
    
    (7,077
    )
    
    
    (24,279
    )Proceeds from maturities and calls of
available-for-sale securities
    
    
    6,492
    
    
    
    8,895
    
    
    
    18,050Purchases of restricted securities
    
    
    (1,106
    )
    
    
    
    
    
    
    (1,337
    )Proceeds from sales of restricted securities
    
    
    
    
    
    
    1,395
    
    
    
    Proceeds from sale of foreclosed real estate
    
    
    628
    
    
    
    271
    
    
    
    Net additions to premises and equipment
    
    
    (751
    )
    
    
    (2,755
    )
    
    
    (1,673
    )Net cash used in investing activities
    
    
    (50,541
    )
    
    
    (31,939
    )
    
    
    (42,041
    )Cash flows from financing activitiesNet increase in deposits, funds purchased,
and other borrowings
    
    
    33,346
    
    
    
    44,546
    
    
    
    40,694Increase (decrease) in FHLB borrowings
    
    
    23,828
    
    
    
    (32,237
    )
    
    
    21,637Increase (decrease) in repurchase agreements
    
    
    4,847
    
    
    
    706
    
    
    
    (204
    )Proceeds from stock options exercised
    
    
    59
    
    
    
    106
    
    
    
    40Net cash provided by financing activities
    
    
    62,080
    
    
    
    13,121
    
    
    
    62,167Net increase in cash and due from banks
    
    
    1,611
    
    
    
    2,360
    
    
    
    542Cash and due from banks at beginning of the year
    
    
    9,498
    
    
    
    7,138
    
    
    
    6,596Cash and due from banks at end of the year
    
    $
    11,109
    
    
    $
    9,498
    
    
    $
    7,138
  6




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 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, 2006 and 2005
 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, 2006 and 2005
 Note 13⁄4Summary of significant accounting policies
       9




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 13⁄4Summary of significant accounting policies
  Foreclosed real estate
 Bank premises and equipment
 Financial instruments
 Advertising
 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, 2006 and 2005
 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 Share-Based Payment Accounting for Stock Issued to Employees (as amended)
 11




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 13⁄4Summary of significant accounting policies
   2005
    
    2004Net income as reported
    
    $
    3,455
    
    
    $
    3,502Earnings per share as reportedBasic:
    
    
    1.04
    
    
    
    1.06Diluted:
    
    
    0.98
    
    
    
    0.99Stock-based employee compensation cost
based on fair-value method
    
    
    251
    
    
    
    396Proforma net income, including stock-based
compensation cost based on fair-value method
    
    
    3,204
    
    
    
    3,106Proforma earnings per share, including stock-based
compensation cost based on fair-value methodBasic:
    
    
    0.96
    
    
    
    0.94Diluted:
    
    
    0.91
    
    
    
    0.88
 12




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GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 13⁄4Summary of significant accounting policies
 Recently Issued Accounting Standards
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and Hedging
Activities, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement 109, Accounting for Income Taxes.
 Fair Value Measurements.
  13




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 13⁄4Summary of significant accounting policies
  The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 Note 23⁄4Investment securities
  2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(in thousands)Available-for-sale securities:U.S. Government and agency
    
    $
    26,312
    
    
    $
    95
    
    
    $
    (230
    )
    
    $
    26,177Mortgage-backed
    
    
    21,729
    
    
    
    41
    
    
    
    (355
    )
    
    
    21,415State and municipal
    
    
    5,670
    
    
    
    44
    
    
    
    (33
    )
    
    
    5,681$
    53,711
    
    
    $
    180
    
    
    $
    (618
    )
    
    $
    53,273
 14




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 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
  SecuritiesAvailable-for-SaleAmortized
    
    
    FairCost
    
    
    Value(in thousands)One year or less
    
    $
    5,504
    
    
    $
    5,426After one year through five years
    
    
    7,735
    
    
    
    7,585After five years through ten years
    
    
    14,421
    
    
    
    14,510After ten years
    
    
    4,322
    
    
    
    4,337Mortgage-backed securities
    
    
    21,729
    
    
    
    21,415$
    53,711
    
    
    $
    53,273
    15




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 23⁄4Investment securities
 2006Less than
    
    
    OverTwelve Months
    
    
    Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(in thousands)Securities available-for-sale:U. S. agency
    
    $
    7
    
    
    $
    2,991
    
    
    $
    224
    
    
    $
    15,033State and municipal
    
    
    6
    
    
    
    1,153
    
    
    
    26
    
    
    
    731Mortgage-backed
    
    
    8
    
    
    
    2,096
    
    
    
    347
    
    
    
    14,265$
    21
    
    
    $
    6,240
    
    
    $
    597
    
    
    $
    30,029
 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
   16




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 23⁄4Investment securities
  Note 33⁄4Loans
  2006
    
    
    2005(in thousands)Commercial and industrial
    
    $
    27,692
    
    
    $
    29,945Real estate  construction
    
    
    73,502
    
    
    
    55,737Real estate  residential
    
    
    47,319
    
    
    
    46,464Real estate  commercial
    
    
    121,822
    
    
    
    106,033Consumer
    
    
    10,609
    
    
    
    10,189280,944
    
    
    
    248,368Deferred loan fees
    
    
    (61
    )
    
    
    (57
    )280,833
    
    
    
    248,311Allowance for loan losses
    
    
    (4,386
    )
    
    
    (3,756
    )Loans, net
    
    $
    276,497
    
    
    $
    244,555
  2006
    
    
    2005
    
    
    2004Balance at beginning of the year
    
    $
    3,756
    
    
    $
    3,416
    
    
    $
    3,164Provision charged to operations
    
    
    898
    
    
    
    1,022
    
    
    
    808Recoveries
    
    
    31
    
    
    
    41
    
    
    
    144Loans charged off
    
    
    (299
    )
    
    
    (723
    )
    
    
    (700
    )Balance at end of the year
    
    $
    4,386
    
    
    $
    3,756
    
    
    $
    3,416
  17




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 33⁄4Loans
  2006
    
    
    2005(in thousands)Balance at beginning of the year
    
    $
    8,790
    
    
    $
    3,299Advances
    
    
    1,217
    
    
    
    6,588Repayments
    
    
    5,499
    
    
    
    1,097Balance at end of the year
    
    $
    4,508
    
    
    $
    8,790
 Note 43⁄4Foreclosed real estate
  2006
    
    
    2005
    
    
    2004(in thousands)Carrying amount of property
    
    $
    599
    
    
    $
    427
    
    
    $
    414Less valuation allowance
    
    
    
    
    
    
    
    
    
    
    $
    599
    
    
    $
    427
    
    
    $
    414
  18




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 53⁄4Bank premises and equipment
  2006
    
    
    2005(in thousands)Land
    
    $
    3,851
    
    
    $
    3,097Building and improvements
    
    
    6,020
    
    
    
    6,151Equipment, furniture and fixtures
    
    
    4,729
    
    
    
    4,613Construction in progress
    
    
    
    
    
    
    14,600
    
    
    
    13,861Less accumulated depreciation
    
    
    (3,945
    )
    
    
    (3,298
    )Premises and equipment, net
    
    $
    10,655
    
    
    $
    10,563
  Note 63⁄4Deposits
  (in thousands)2007
    
    
    160,6472008
    
    
    21,5492009
    
    
    12,0382010
    
    
    12,4092011 and thereafter
    
    
    76$
    206,719
  19




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 73⁄4Federal home loan bank advances
  Note 83⁄4Line of credit
  Note 93⁄4Employee benefit plan
  20




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 103⁄4Shareholders equity and regulatory requirements
     21




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 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, 2006:Total capital (to risk
weighted assets)Bank
    
    $
    36,981
    
    
    
    10.68
    %
    
    $
    28,033
    
    
    
    8.0
    %
    
    $
    35,041
    
    
    
    10.0
    %Consolidated
    
    $
    36,734
    
    
    
    10.61
    %
    
    $
    28,033
    
    
    
    8.0
    %
    
    $
    
    
    
    
    Tier 1 capital (to risk
weighted assets)Bank
    
    $
    32,653
    
    
    
    9.43
    %
    
    $
    14,016
    
    
    
    4.0
    %
    
    $
    21,025
    
    
    
    6.0
    %Consolidated
    
    $
    32,407
    
    
    
    9.36
    %
    
    $
    14,016
    
    
    
    4.0
    %
    
    $
    
    
    
    
    Tier 1 leverage (to
average assets)Bank
    
    $
    32,653
    
    
    
    8.08
    %
    
    $
    14,901
    
    
    
    4.0
    %
    
    $
    18,626
    
    
    
    5.0
    %Consolidated
    
    $
    32,407
    
    
    
    7.85
    %
    
    $
    14,901
    
    
    
    4.0
    %
    
    $
    
    
    
    
    As 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
    %
    
    $
    
    
    
    
    
 22




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 103⁄4Shareholders equity and regulatory requirements
     Accounting for Stock-Based Compensation Accounting for Stock-Based Compensation Accounting
Principles Board Opinion 25
 23




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 103⁄4Shareholders equity and regulatory requirements
  2006
    
    2005
    
    2004Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility
    
    
    32.7
    %
    
    
    34.3
    %
    
    
    42.2
    %Risk-free rate
    
    
    4.3-5.0
    %
    
    
    3.8-4.5
    %
    
    
    3.3-3.7
    %
     2006
    
    
    2005
    
    
    2004Exercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExercisePrice
    
    
    
    
    
    
    Price
    
    
    
    
    
    
    PricePer
    
    
    
    
    
    
    Per
    
    
    
    
    
    
    PerOptions
    
    
    Share
    
    
    Options
    
    
    Share
    
    
    Options
    
    
    ShareOutstanding at
beginning of year
    
    
    310,569
    
    
    $
    7.09
    
    
    
    301,474
    
    
    $
    5.82
    
    
    
    309,630
    
    
    $
    5.66Granted
    
    
    33,391
    
    
    
    14.60
    
    
    
    33,890
    
    
    
    16.30
    
    
    
    3,844
    
    
    
    16.07Exercised
    
    
    (10,400
    )
    
    
    5.71
    
    
    
    (24,795
    )
    
    
    4.29
    
    
    
    (10,750
    )
    
    
    3.71Forfeited
    
    
    (3,000
    )
    
    
    11.71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,250
    )
    
    
    14.30Outstanding at
end of year
    
    
    330,560
    
    
    $
    7.85
    
    
    
    310,569
    
    
    $
    7.09
    
    
    
    301,474
    
    
    $
    5.82
 24




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 103⁄4Shareholders equity and regulatory requirements
  2006
    
    2005
    
    2004Options
    
    
    269,675
    
    
    
    238,033
    
    
    
    220,898Weighted-average exercise price
    
    $
    6.30
    
    
    $
    5.65
    
    
    $
    4.90
  2006
    
    $
    7.322005
    
    
    8.582004
    
    
    9.63
    2006Income
    
    
    Shares
    
    
    Per(Numerator)
    
    
    (Denominator)
    
    
    Share(dollars in thousands, except per share)Basic EPSIncome available to common stockholders
    
    $
    2,897
    
    
    
    3,370,277
    
    
    $
    0.86Effect of stock options outstanding
    
    
    
    
    
    
    119,287
    
    
    
    0.03Diluted EPSIncome available to common stockholders,
plus conversions
    
    $
    2,897
    
    
    
    3,489,564
    
    
    $
    0.83
 25




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 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
 Note 113⁄4Income taxes
  2006
    
    
    2005
    
    
    2004Current tax
    
    $
    1,632
    
    
    $
    2,231
    
    
    $
    2,515Deferred tax (benefit)
    
    
    (172
    )
    
    
    (289
    )
    
    
    (348
    )$
    1,460
    
    
    $
    1,942
    
    
    $
    2,167
 26




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 113⁄4Income Taxes
  2006
    
    
    2005
    
    
    2004Federal statutory rates
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.0
    %Tax exempt income
    
    
    (2.0
    )
    
    
    
    
    
    
    Nondeductible interest
    
    
    0.5
    
    
    
    
    
    
    
    State tax credits
    
    
    (4.7
    )
    
    
    (3.4
    )
    
    
    Other, including effect of graduated
rate brackets
    
    
    (0.3
    )
    
    
    (0.6
    )
    
    
    (1.8
    )33.5
    %
    
    
    36.0
    %
    
    
    38.2
    %
  2006
    
    
    2005(in thousands)Deferred tax assetsAllowance for loan losses
    
    $
    1,406
    
    
    $
    1,218Unrealized loss on securities available-for-sale
    
    
    158
    
    
    
    311Amortization of GA low-income housing tax credits
    
    
    38
    
    
    
    Valuation allowance on GA low-income housing tax credits
    
    
    (47
    )
    
    
    Deferred income tax assets
    
    
    1,555
    
    
    
    1,529Deferred tax liabilitiesDepreciation
    
    
    195
    
    
    
    188Deferred income tax liabilities
    
    
    195
    
    
    
    188Net deferred income tax assets
    
    $
    1,360
    
    
    $
    1,341
  27




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 123⁄4Commitments and contingencies
    2006
    
    
    2005(in thousands)Commitments to extend credit
    
    $
    79,828
    
    
    $
    66,262Standby letters of credit
    
    
    2,389
    
    
    
    1,947$
    82,217
    
    
    $
    68,209
   28




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 123⁄4Commitments and contingencies
   Note 133⁄4Supplemental consolidated cash flow information
 2006
    
    2005
    
    2004(dollars in thousands)Income taxes paid
    
    $
    1,396
    
    
    $
    1,847
    
    
    $
    2,125Interest paid
    
    $
    10,295
    
    
    $
    7,677
    
    
    $
    4,232
 Note 143⁄4Fair value of financial instruments
  2006
    
    2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueLoans and loans held for
sale, net
    
    $
    333.3
    
    
    $
    384.1
    
    
    $
    284.6
    
    
    $
    294.2Certificates of deposit
    
    $
    206.7
    
    
    $
    208.3
    
    
    $
    156.2
    
    
    $
    160.1
  29




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 153⁄4Other expenses
  2006
    
    
    2005
    
    
    2004(dollars in thousands)Data processing
    
    $
    759
    
    
    $
    720
    
    
    $
    618Legal and accounting
    
    
    367
    
    
    
    393
    
    
    
    318Printing and supplies
    
    
    319
    
    
    
    360
    
    
    
    356Advertising
    
    
    303
    
    
    
    295
    
    
    
    295Telephone
    
    
    174
    
    
    
    167
    
    
    
    194Outside services
    
    
    458
    
    
    
    364
    
    
    
    409Other
    
    
    2,263
    
    
    
    1,931
    
    
    
    2,021$
    4,643
    
    
    $
    4,230
    
    
    $
    4,211
 Note 163⁄4Comprehensive Income
  2006
    
    
    2005
    
    
    2004Unrealized holding losses on
available-for-sale securities
    
    $
    424
    
    
    $
    (863
    )
    
    $
    (356
    )Tax effect
    
    
    (153
    )
    
    
    352
    
    
    
    141Net of tax amount
    
    $
    271
    
    
    $
    (511
    )
    
    $
    (215
    )
 30




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 17  Quarterly Financial Data (Unaudited)
  
 2006
    
    
    20054Q
    
    
    3Q
    
    
    2Q
    
    
    1Q
    
    
    4Q
    
    
    3Q
    
    
    2Q
    
    
    1QInterest income
    
    $
    7,230
    
    
    $
    6,437
    
    
    $
    6,057
    
    
    $
    5,611
    
    
    $
    5,738
    
    
    $
    5,538
    
    
    $
    4,967
    
    
    $
    4,633Interest expense
    
    
    3,693
    
    
    
    3,212
    
    
    
    2,651
    
    
    
    2,413
    
    
    
    2,455
    
    
    
    2,432
    
    
    
    1,915
    
    
    
    1,618Net interest income
    
    
    3,537
    
    
    
    3,225
    
    
    
    3,406
    
    
    
    3,198
    
    
    
    3,283
    
    
    
    3,106
    
    
    
    3,052
    
    
    
    3,015Provision for loan losses
    
    
    198
    
    
    
    242
    
    
    
    275
    
    
    
    183
    
    
    
    (81
    )
    
    
    356
    
    
    
    427
    
    
    
    320Net interest income after
Provision for loan losses
    
    
    3,339
    
    
    
    2,983
    
    
    
    3,131
    
    
    
    3,015
    
    
    
    3,364
    
    
    
    2,750
    
    
    
    2,625
    
    
    
    2,695Non-interest income
    
    
    2,815
    
    
    
    2,435
    
    
    
    2,342
    
    
    
    2,208
    
    
    
    2,553
    
    
    
    2,977
    
    
    
    2,324
    
    
    
    2,476Securities gain (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Non-interest expenses
    
    
    4,606
    
    
    
    4,474
    
    
    
    4,544
    
    
    
    4,287
    
    
    
    4,332
    
    
    
    4,229
    
    
    
    3,916
    
    
    
    3,891Income before income tax
expense
    
    
    1,548
    
    
    
    944
    
    
    
    929
    
    
    
    936
    
    
    
    1,585
    
    
    
    1,498
    
    
    
    1,033
    
    
    
    1,281Income tax expense
    
    
    602
    
    
    
    275
    
    
    
    296
    
    
    
    287
    
    
    
    536
    
    
    
    546
    
    
    
    378
    
    
    
    482Net income
    
    $
    946
    
    
    $
    669
    
    
    $
    633
    
    
    $
    649
    
    
    $
    1,049
    
    
    $
    952
    
    
    $
    655
    
    
    $
    799Basic earnings per common
share
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.31
    
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.24Diluted earnings per
common share
    
    $
    0.27
    
    
    $
    0.19
    
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.30
    
    
    $
    0.27
    
    
    $
    0.19
    
    
    $
    0.23
 31




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 18 3⁄4 Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent
company only)
 Condensed Balance Sheet
December 31, 2006 and 2005  (dollars in thousands)
 2006
    
    
    2005AssetsCash
    
    $
    112
    
    
    $
    81Investment in subsidiary
    
    
    32,373
    
    
    
    29,240Other assets
    
    
    404
    
    
    
    42Deferred tax benefit
    
    
    0
    
    
    
    88Total assets
    
    $
    32,889
    
    
    $
    29,451LiabilitiesNote payable
    
    $
    700
    
    
    $
    800Other Liabilities
    
    
    63
    
    
    
    42Total liabilities
    
    
    763
    
    
    
    842Shareholders equity
    
    
    32,126
    
    
    
    28,609Total liabilities and shareholders equity
    
    $
    32,889
    
    
    $
    29,451
 32




---



##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 18 3⁄4 Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company
only)
 Condensed Statement of Income
Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands)
 2006
    
    
    2005
    
    
    2004Income, dividends from subsidiary
    
    $
    
    
    
    $
    85
    
    
    $
    ExpensesDirector compensation
    
    
    (48
    )
    
    
    (31
    )
    
    
    (112
    )Other
    
    
    (282
    )
    
    
    (206
    )
    
    
    (199
    )Total expenses
    
    
    (330
    )
    
    
    (237
    )
    
    
    (311
    )Loss before income tax benefits and equity in
undistributed earnings of subsidiary
    
    
    (330
    )
    
    
    (152
    )
    
    
    (311
    )Income tax benefits
    
    
    187
    
    
    
    88
    
    
    
    117Loss before equity in undistributed earnings of
subsidiary
    
    
    (143
    )
    
    
    (64
    )
    
    
    (194
    )Equity in undistributed earnings of subsidiary
    
    
    3,040
    
    
    
    3,519
    
    
    
    3,696Net income
    
    $
    2,897
    
    
    $
    3,455
    
    
    $
    3,502
 33




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##### 



GEORGIA-CAROLINA BANCSHARES, INC.
 Notes to Consolidated Financial Statements
 December 31, 2006 and 2005
 Note 18 3⁄4 Condensed financial information on Georgia-Carolina Bancshares, Inc. (parent company
only)
 Condensed Statement of Cash Flows
Years Ended December 31, 2006, 2005 and 2004  (dollars in thousands)
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    2,897
    
    
    $
    3,455
    
    
    $
    3,502Adjustments to reconcile net income to net cash
provided by operating activities:Stock-based compensation expense
    
    
    295
    
    
    
    
    
    
    
    Stock compensation
    
    
    172
    
    
    
    191
    
    
    
    176Equity in undistributed earnings of subsidiary
    
    
    (3,040
    )
    
    
    (3,519
    )
    
    
    (3,696
    )Net change in other assets and liabilities
    
    
    (252
    )
    
    
    (59
    )
    
    
    42Total adjustments
    
    
    (2,825
    )
    
    
    (3,387
    )
    
    
    (3,478
    )Net cash provided by operating activities
    
    
    72
    
    
    
    68
    
    
    
    24Cash flows from financing activitiesPayments on borrowed funds
    
    
    (100
    )
    
    
    (100
    )
    
    
    (100
    )Proceeds from issuance of common stock, and
exercise of stock options
    
    
    59
    
    
    
    106
    
    
    
    40Net cash provided by (used in) financing activities
    
    
    (41
    )
    
    
    6
    
    
    
    (60
    )Net change in cash
    
    
    31
    
    
    
    74
    
    
    
    (36
    )Cash at beginning of the year
    
    
    81
    
    
    
    7
    
    
    
    43Cash at end of the year
    
    $
    112
    
    
    $
    81
    
    
    $
    7
 34