Georgia-Carolina Bancshares, Inc - FORM 10-Q

Attached files

file	filename
EX-31.1 - EX-31.1 - Georgia-Carolina Bancshares, Inc	c17046exv31w1.htm
EX-31.2 - EX-31.2 - Georgia-Carolina Bancshares, Inc	c17046exv31w2.htm
EX-32.1 - EX-32.1 - Georgia-Carolina Bancshares, Inc	c17046exv32w1.htm

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, 2011

- 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 0-22981

GEORGIA-CAROLINA BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


Georgia		58-2326075

(State or other Jurisdiction of		(I.R.S. Employer Identification Number)
Incorporation or Organization)

3527 Wheeler Road, Augusta, Georgia 30909

(Address of principal executive offices, including zip code)

(706) 731-6600

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and has posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at May 12, 2011

Common Stock, $.001 Par Value		3,551,780 shares

GEORGIA-CAROLINA BANCSHARES, INC.
Form 10-Q

Index


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		2

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010		3

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010		4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010		5

Notes to Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures about Market Risk		28

Item 4. Controls and Procedures		28

PART II. OTHER INFORMATION

Item 6. Exhibits		29

SIGNATURES		30

EXHIBIT INDEX		31

CERTIFICATIONS

EX-31.1
EX-31.2
EX-32.1

Part I — FINANCIAL INFORMATION


Item 1.		Financial Statements.

GEORGIA-CAROLINA BANCSHARES, INC.

Condensed Consolidated Balance Sheets
(Unaudited)

(dollars in thousands)


	March 31,		December 31,
	2011		2010
ASSETS
Cash and due from banks	$	46,957	$	31,696
Securities available-for-sale		100,984		76,904
Loans, net of allowance for loan losses of $7,398 and $7,866, respectively		316,169		308,943
Loans, held for sale		15,528		46,570
Bank premises and equipment		9,147		9,271
Accrued interest receivable		1,848		1,679
Foreclosed real estate		2,931		2,751
Deferred tax asset, net		2,494		2,475
Federal Home Loan Bank stock		2,527		2,527
Bank-owned life insurance		9,295		9,210
Other assets		2,869		3,267

Total assets	$	510,749	$	495,311


LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits:
Non-interest bearing	$	45,974	$	41,602
Interest-bearing:
NOW accounts		40,620		38,668
Savings		58,112		53,880
Money market accounts		42,751		36,013
Time deposits of $100,000 or more		169,726		171,843
Other time deposits		71,549		72,743

Total deposits		428,732		414,749

Borrowings:
Repurchase agreements		3,068		3,467
Long-term debt		25,000		25,000
Other borrowings		3,625		3,625
Other liabilities		4,032		3,494

Total liabilities		464,457		450,335


Shareholders’ equity:
Preferred stock, par value $.001; 1,000,000 shares authorized; none issued		—		—
Common stock, par value $.001; 9,000,000 shares authorized; 3,546,125 and 3,536,715 shares issued and outstanding		4		4
Additional paid-in-capital		15,927		15,847
Retained earnings		30,280		28,889
Accumulated other comprehensive income		81		236

Total shareholders’ equity		46,292		44,976

Total liabilities and shareholders’ equity	$	510,749	$	495,311

See notes to condensed consolidated financial statements.

GEORGIA-CAROLINA BANCSHARES, INC.

Condensed Consolidated Statements of Income
(Unaudited)

(dollars in thousands, except per share amounts)


	Three Months Ended
	March 31,
	2011		2010
Interest income
Interest and fees on loans	$	5,069	$	5,552
Interest on taxable securities		520		394
Interest on nontaxable securities		103		97
Interest on Federal funds sold and other interest		25		7

Total interest income		5,717		6,050

Interest expense
Interest on time deposits of $100,000 or more		673		936
Interest on other deposits		725		722
Interest on funds purchased and other borrowings		276		223

Total interest expense		1,674		1,881


Net interest income		4,043		4,169

Provision for loan losses		99		1,086


Net interest income after provision for loan losses		3,944		3,083


Non-interest income
Service charges on deposits		385		343
Gain on sale of mortgage loans		2,091		2,419
Other income		384		268

Total non-interest income		2,860		3,030


Non-interest expense
Salaries and employee benefits		2,969		3,052
Occupancy expenses		394		420
Other expenses		1,383		1,613

Total non-interest expense		4,746		5,085

Income before income taxes		2,058		1,028

Income tax expense		667		190

Net income	$	1,391	$	838


Net income per share of common stock
Basic	$	0.39	$	0.24

Diluted	$	0.39	$	0.24

Dividends per share of common stock	$	—	$	—


See notes to condensed consolidated financial statements.

GEORGIA-CAROLINA BANCSHARES, INC.

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

(dollars in thousands)


	Three Months Ended
	March 31,
	2011			2010

Net Income	$	1,391		$	838
Other comprehensive income (loss):

Unrealized holding gain (loss) arising during the period		(204	)		113
Reclassification for gain (loss) included in net income		—			—
Reclassification for other-than-temporary impairment included in net income		(38	)		—
Tax effect		87			(41	)

Total other comprehensive income (loss)		(155	)		72

Comprehensive income	$	1,236		$	910

See notes to the condensed consolidated financial statements.

GEORGIA-CAROLINA BANCSHARES, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited)

(dollars in thousands)


	Three Months Ended March 31,
	2011			2010
Cash flows from operating activities
Net income	$	1,391		$	838
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		155			165
Provision for loan losses		99			1,086
Stock option expense		27			22
Stock compensation		40			45
Increase in cash value of bank-owned life insurance		(85	)		(85	)
Gain on sales of foreclosed real estate		(178	)		(45	)
Loss on sales of premises and equipment		10			—
Other-than-temporary impairment of security		38			—
Gain on loans held for sale		(2,091	)		(2,419	)
Proceeds from sale of loans held for sale		114,029			147,778
Originations of loans held for sale		(80,896	)		(117,398	)
Increase in accrued interest receivable		(151	)		(4	)
Decrease in accrued interest payable		(157	)		(14	)
(Increase) decrease in deferred income tax asset, net		68			(229	)
Decrease in other assets		372			1,060
Increase in other liabilities		695			276

Net cash provided by operating activities		33,366			31,076


Cash flows from investing activities
Decrease in federal funds sold		—			3,175
Loan originations and collections, net		(7,975	)		(4,148	)
Purchases of available-for-sale securities		(27,617	)		(19,252	)
Proceeds from maturities, sales & calls of available-for-sale securities, net		3,257			7,541
Proceeds from sales of foreclosed real estate		648			941
Net additions to bank premises and fixed assets		(15	)		(27	)

Net cash used in investing activities		(31,702	)		(11,770	)


Cash flows from financing activities
Increase (decrease) in deposits		13,983			(1,470	)
Decrease in FHLB borrowings		—			(3,600	)
Increase (decrease) in repurchase agreements and other borrowings		(399	)		199
Proceeds from stock options exercised		13			—

Net cash provided by (used in) financing activities		13,597			(4,871	)


Net increase in cash and due from banks		15,261			14,435
Cash and due from banks at beginning of period		31,696			13,055

Cash and due from banks at end of period	$	46,957		$	27,490

See notes to the condensed consolidated financial statements.

GEORGIA-CAROLINA BANCSHARES, INC.

Notes to Condensed Consolidated Financial Statements
March 31, 2011
(Unaudited)

Note 1 — Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Georgia-Carolina Bancshares, Inc. (the “Company”), its wholly owned subsidiary, First Bank of Georgia (the “Bank”), and the wholly owned subsidiary of the Bank, Willhaven Holdings, LLC. All intercompany transactions and accounts have been eliminated in consolidation of the Company and the Bank.

The financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The financial information included herein reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the financial position and results of operations for interim periods.

Note 2 — Loans

The composition of loans for the periods ended March 31, 2011 and December 31, 2010 is summarized as follows:


	March 31,			December 31,
	2011			2010
	(in thousands)

Commercial and industrial	$	19,827		$	20,298
Real estate — construction		90,233			86,418
Real estate — residential		59,695			61,194
Real estate — commercial		147,387			142,351
Consumer		6,505			6,606

Total loans receivable		323,647			316,867
Deferred loan fees		(80	)		(58	)

Total loans		323,567			316,809
Allowance for loan losses		(7,398	)		(7,866	)


Loans, net of allowance for loan losses	$	316,169		$	308,943

The Company categorizes loans into risk grades based on relevant information about the ability of borrowers to service their debt such as: future repayment ability, financial condition, collateral, administration, management ability of borrower, and history and character of borrower. Grades are assigned at loan origination and may be changed due to the result of a loan review or at the discretion of management. The Company uses the following definitions for risk grades:

Grade 1: Loans classified as Grade 1 are considered the highest quality with borrowers of unquestionable financial strength. Financial standing of the individual is known and the borrower exhibits superior liquidity, net worth, cash flow and leverage.

Grade 2: Loans classified as Grade 2 are considered above average quality and have minimal risk. The borrower has stable and reliable cash flow and above average liquidity.

Grade 3: Loans classified as Grade 3 are considered average quality. The borrower has reliable cash flow and alternate sources of repayment which may require the sale of assets. Financial position has been leveraged to a modest degree; however, the borrower has a relatively strong net worth considering income and debt.

Grade 4: Loans classified as Grade 4 are considered below average quality. The borrower’s sources of income or cash flow have become unstable or may possibly decline given current business or economic conditions. The borrower may also have a highly leveraged financial position or limited capital.

Grade 5: Loans classified as Grade 5 are considered to be special mention assets. These loans have potential weaknesses which may inadequately protect the Bank’s position at some future date. The borrower exhibits some degree of weakness in financial condition that may manifest itself in a reduction of net worth or liquidity. Infrequent delinquencies may occur.

Grade 6: Loans classified as Grade 6 are considered to be substandard. These loans have well defined weaknesses in the primary repayment source and undue reliance is placed on secondary repayment sources such as collateral or guarantors. No loss is currently expected; however there is a distinct possibility that the Bank will sustain some future loss if the credit weaknesses are not corrected. Net worth, repayment ability, management and collateral protection all exhibit weakness.

As of March 31, 2011 and December 31, 2010 the risk grades of loans by loan type are as follows:

Credit Risk Profile by Risk Grade Category:

As of March 31, 2011
(in thousands)


	Commercial
	and			Real Estate –			Real Estate –		Real Estate –
	Industrial			Construction			Residential		Commercial		Consumer		Total

Grade 1	$	277		$	—		$	—	$	—	$	950	$	1,227
Grade 2		133			—			220		803		124		1,280
Grade 3		15,823			18,163			49,161		91,428		5,088		179,663
Grade 4		2,976			64,938			7,373		48,542		111		123,940
Grade 5		—			3,270			566		284		—		4,120
Grade 6		631			3,957			2,374		6,330		115		13,407
In process		(13	)		(95	)		1		—		117		10

Total loans receivable	$	19,827		$	90,233		$	59,695	$	147,387	$	6,505	$	323,647

As of December 31, 2010
(in thousands)


	Commercial
	and		Real Estate –		Real Estate –		Real Estate –
	Industrial		Construction		Residential		Commercial		Consumer		Total

Grade 1	$	251	$	—	$	—	$	—	$	794	$	1,045
Grade 2		133		—		235		1,059		100		1,527
Grade 3		15,939		14,879		48,901		86,109		5,370		171,198
Grade 4		3,338		62,594		7,801		44,126		99		117,958
Grade 5		—		4,375		568		2,862		—		7,805
Grade 6		637		4,348		3,666		8,195		125		16,971
In process		—		222		23		—		118		363

Total loans receivable	$	20,298	$	86,418	$	61,194	$	142,351	$	6,606	$	316,867

The following table presents the activity in the allowance for loan losses by loan type for the three months ended March 31, 2011 and 2010:

Allowance for Loan Losses Activity
For the Three Months Ended March 31, 2011 and 2010
(in thousands)


	Commercial
	and			Real Estate –			Real Estate –			Real Estate –
	Industrial			Construction			Residential			Commercial			Consumer			Unallocated			Total

Three Months Ended March 31, 2011:

Beginning balance	$	227		$	3,908		$	1,070		$	1,617		$	251		$	793		$	7,866
Charge-offs		—			(319	)		(247	)		(116	)		(14	)		—			(696	)
Recoveries		64			—			42			—			23			—			129
Provisions		(170	)		288			100			34			(72	)		(81	)		99

Ending Balance	$	121		$	3,877		$	965		$	1,535		$	188		$	712		$	7,398


Ending Balances:
Individually evaluated for impairment	$	25		$	100		$	179		$	—		$	71		$	—		$	375

Collectively evaluated for impairment	$	96		$	3,777		$	786		$	1,535		$	117		$	712		$	7,023


	Commercial
	and			Real Estate –			Real Estate –			Real Estate –
	Industrial			Construction			Residential			Commercial		Consumer			Unallocated		Total

Three Months Ended March 31, 2010:

Beginning balance	$	259		$	2,364		$	827		$	1,319	$	176		$	127	$	5,072
Charge-offs		(3	)		(810	)		(159	)		—		(68	)		—		(1,040	)
Recoveries		59			—			2			—		66			—		127
Provisions		82			41			90			331		17			525		1,086

Ending Balance	$	397		$	1,595		$	760		$	1,650	$	191		$	652	$	5,245


Ending Balances:
Individually evaluated for impairment	$	170		$	279		$	132		$	500	$	46		$	—	$	1,127

Collectively evaluated for impairment	$	227		$	1,316		$	628		$	1,150	$	145		$	652	$	4,118

The following table presents the recorded investment in loans receivable by loan type as of March 31, 2011 and December 31, 2010:

Recorded Investment in Loans Receivable
As of March 31, 2011 and December 31, 2010
(in thousands)


	Commercial
	and		Real Estate –		Real Estate –		Real Estate –
	Industrial		Construction		Residential		Commercial		Consumer		Unallocated		Total

March 31, 2011:
Ending balance — total	$	19,827	$	90,233	$	59,695	$	147,387	$	6,505	$	—	$	323,647

Ending balances:
Individually evaluated for impairment	$	622	$	4,426	$	1,623	$	6,286	$	115	$	—	$	13,072

Collectively evaluated for impairment	$	19,205	$	85,807	$	58,072	$	141,101	$	6,390	$	—	$	310,575


December 31, 2010:
Ending balance — total	$	20,298	$	86,418	$	61,194	$	142,351	$	6,606	$	—	$	316,867

Ending balances:
Individually evaluated for impairment	$	627	$	4,347	$	3,185	$	8,146	$	122	$	—	$	16,427

Collectively evaluated for impairment	$	19,671	$	82,071	$	58,009	$	134,205	$	6,484	$	—	$	300,440

The following tables present loans individually evaluated for impairment by loan type for the three months ended March 31, 2011 and the year ended December 31, 2010:

Impaired Loans
For the Three Months Ended March 31, 2011
(in thousands)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial and industrial	$	597	$	608	$	—	$	538	$	8
Real estate — construction		4,101		8,008		—		4,883		14
Real estate — residential		1,444		1,547		—		1,272		11
Real estate — commercial		6,286		6,318		—		6,245		99
Consumer		44		62		—		44		—

Total	$	12,472	$	16,543	$	—	$	12,982	$	132


With an allowance recorded:
Commercial and industrial	$	25	$	25	$	25	$	28		—
Real estate — construction		325		325		100		325		6
Real estate — residential		179		179		179		179		3
Real estate — commercial		—		—		—		—		—
Consumer		71		71		71		74		1

Total	$	600	$	600	$	375	$	606	$	10


Total:
Commercial and industrial	$	622	$	633	$	25	$	566	$	8
Real estate — construction		4,426		8,333		100		5,208		20
Real estate — residential		1,623		1,726		179		1,451		14
Real estate — commercial		6,286		6,318		—		6,245		99
Consumer		115		133		71		118		1

Total	$	13,072	$	17,143	$	375	$	13,588	$	142

Impaired Loans
For the Year Ended December 31, 2010
(in thousands)


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Commercial and industrial	$	597	$	608	$	—	$	481	$	30
Real Estate — Construction		3,705		7,330		—		7,341		97
Real Estate — Residential		2,466		2,628		—		2,677		81
Real Estate — Commercial		7,680		8,530		—		8,534		498
Consumer		49		68		—		77		2

Total	$	14,497	$	19,164	$	—	$	19,110	$	708


With an allowance recorded:
Commercial and industrial	$	30	$	30	$	30	$	36	$	2
Real Estate — Construction		642		703		160		703		27
Real Estate — Residential		719		719		271		642		37
Real Estate — Commercial		466		466		149		473		32
Consumer		73		73		73		77		6

Total	$	1,930	$	1,991	$	683	$	1,931	$	104


Total:
Commercial and industrial	$	627	$	638	$	30	$	517	$	32
Real Estate — Construction		4,347		8,033		160		8,044		124
Real Estate — Residential		3,185		3,347		271		3,319		118
Real Estate — Commercial		8,146		8,996		149		9,007		530
Consumer		122		141		73		154		8

Total	$	16,427	$	21,155	$	683	$	21,041	$	812

The following tables present the aging of the recorded investment in past due loans receivable as of March 31, 2011 and December 31, 2010 by loan type of loans:

Age Analysis of Past Due Loans Receivable
As of March 31, 2011
(in thousands)


													Recorded
	30-59												Investment
	Days		60-89		Greater				Current				> 90 Days
	Past		Days		Than 90		Total		and not		Total Loans		and
	Due		Past Due		Days		Past Due		Past Due		Receivable		Accruing
Commercial and industrial	$	136	$	34	$	4	$	174	$	19,653	$	19,827	$	—
Real estate — construction		753		375		2,726		3,854		86,379		90,233		—
Real estate — residential		1,876		71		546		2,493		57,202		59,695		—
Real estate — commercial		3,439		—		—		3,439		143,948		147,387		—
Consumer		46		3		51		100		6,405		6,505		—

Total	$	6,250	$	483	$	3,327	$	10,060	$	313,587	$	323,647	$	—

Age Analysis of Past Due Loans Receivable
As of December, 31, 2010
(in thousands)


													Recorded
	30-59												Investment
	Days		60-89		Greater				Current				> 90 Days
	Past		Days		Than 90		Total		and not		Total Loans		and
	Due		Past Due		Days		Past Due		Past Due		Receivable		Accruing
Commercial and industrial	$	152	$	30	$	9	$	191	$	20,107	$	20,298	$	—
Real estate — construction		675		943		3,618		5,236		81,182		86,418		—
Real estate — residential		1,177		740		691		2,608		58,586		61,194		—
Real estate — commercial		55		217		90		362		141,989		142,351		—
Consumer		16		38		50		104		6,502		6,606		—

Total	$	2,075	$	1,968	$	4,458	$	8,501	$	308,366	$	316,867	$	—

The following table presents the recorded investment in nonaccrual loans by loan type as of March 31, 2011 and December 31, 2010:

Loans Receivable on Nonaccrual Status
As of March 31, 2011 and December 31, 2010


	March 31,		December 31,
	2011		2010
Commercial and industrial	$	36	$	34
Real estate — construction		3,351		3,753
Real estate — residential		1,024		1,979
Real estate — commercial		—		408
Consumer		79		83

Total	$	4,490	$	6,257

The following tables present the Bank’s loans classified as troubled debt restructurings by loan type as of March 31, 2011 and December 31, 2010:

Troubled Debt Restructurings
As of March 31, 2011


					Post-Modification
			Pre-Modification		Outstanding
	Number of		Outstanding Recorded		Recorded
	Contracts		Investment		Investment
Commercial and industrial		1	$	546	$	548
Real estate — construction		4		2,091		1,572
Real estate — residential		3		1,024		1,019
Real estate — commercial		11		7,260		7,260

Total		19	$	10,921	$	10,399

Troubled Debt Restructurings
As of December 31, 2010


					Post-Modification
			Pre-Modification		Outstanding
	Number of		Outstanding Recorded		Recorded
	Contracts		Investment		Investment
Commercial and industrial		1	$	546	$	546
Real estate — construction		3		1,569		1,569
Real estate — residential		2		1,190		1,190
Real estate — commercial		9		5,945		5,945

Total		15	$	9,250	$	9,250

Note 3 — Stock-Based Compensation

The Company follows the fair value recognition provisions of ASC 718, “Compensation-Stock Compensation,” to account for compensation costs under its stock option plans. The provisions of ASC 718 resulted in expense in the first three months of 2011 and 2010 of $26,911 and $21,970, respectively, relating to the expensing of stock options. Future levels of compensation cost recognized related to share-based compensation awards may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards that may occur subsequent to the date of adoption of this standard.

In adopting ASC 718, the Company elected to use the modified prospective method to account for the transition from the intrinsic value method to the fair value recognition method. Under the modified prospective method, compensation cost is recognized from the adoption date forward for all new stock options granted and for any outstanding unvested awards as if the fair value method had been applied to those awards as of the date of grant.

Note 4 — Earnings Per Share

Earnings per share are calculated on the basis of the weighted average number of shares outstanding. As the Company has granted stock options to certain officers and other employees of the Company, diluted earnings per share are presented in the Statements of Income.

The following tables reconcile the numerators and denominators of the basic and diluted earnings per share computations:


	For the Three Months Ended March 31, 2011
			Weighted
			Average Shares-		Per-Share
	Numerator		Denominator		Amount

Basic EPS
Income available to common stockholders	$	1,391,000		3,545,428	$	0.39
Effect of stock options outstanding				—		—


Diluted EPS

Income available to common stockholders	$	1,391,000		3,545,428	$	0.39


	For the Three Months Ended March 31, 2010
			Weighted
			Average Shares-		Per-Share
	Numerator		Denominator		Amount

Basic EPS
Income available to common stockholders	$	838,000		3,504,855	$	0.24
Effect of stock options outstanding				—		—


Diluted EPS

Income available to common stockholders	$	838,000		3,504,855	$	0.24

For the three months ended March 31, 2011 and 2010 there were 15,117 and 9,123 options, respectively, that were antidilutive since the exercise price exceeded the average market price for the year. These antidilutive common stock equivalents have been omitted from the calculation of diluted earnings per common share for the three months ended March 31, 2011 and 2010.

Note 5 — Fair Value Measurement

For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in ASC 820-10, “Fair Value Measurements and Disclosures.” This standard also requires fair value measurements to be separately disclosed by level within the fair value hierarchy.

Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability, and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

The estimated fair values of the Bank’s financial instruments, for those instruments for which the Bank’s management believes estimated fair value does not by nature approximate the instruments’ carrying amount, are as follows at March 31, 2011 and December 31, 2010 (dollars in millions):


	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Loans and loans held for sale	$	339.1	$	367.5	$	363.4	$	400.5

Time deposits	$	241.3	$	243.3	$	244.6	$	246.8

Under ASC 820-10, the Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are as follows:

Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. The Company has no Level 1 assets or liabilities at March 31, 2011.

Level 2 — Valuations are obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal market for these securities is the secondary institutional markets and valuations are based on observable market data in those markets. At March 31, 2011, Level 2 assets include U.S. Government agency obligations, state and municipal bonds, corporate debt securities, mortgage-backed securities, and FHLB stock. Level 2 assets also include impaired loans and foreclosed real estate as discussed below.

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The Company has no Level 3 assets or liabilities at March 31, 2011.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Investment Securities Available-for-Sale

Investment securities available-for-sale, including FHLB stock, are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the securities’ credit rating, prepayment assumptions, and other factors such as credit loss assumptions. At March 31, 2011 and December 31, 2010 the Company classified $101.0 million and $76.9 million, respectively, of investment securities available-for-sale subject to recurring fair value adjustments as Level 2.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subjected to nonrecurring fair value adjustments as Level 2. There were no fair value adjustments related to the $15.5 million and $46.6 million of loans held for sale at March 31, 2011 and December 31, 2010, respectively.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once an individual loan is identified as impaired, management measures the impairment in accordance with ASC 310-10-35, “Receivables-Subsequent Measurements.” The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At March 31, 2011, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. In accordance with ASC 820-10, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans, classified as Level 2, totaled $13.1 million and $16.4 million at March 31, 2011 and December 31, 2010, respectively. Specific loan loss allowances for impaired loans totaled $375,000 and $683,000 at March 31, 2011 and December 31, 2010, respectively.

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed asset as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed assets as nonrecurring Level 3. Foreclosed real estate, classified as Level 2, totaled $2.9 million and $2.8 million at March 31, 2011 and December 31, 2010, respectively.

Below are tables that present information about certain assets and liabilities measured at fair value on a recurring basis (dollars in thousands):

Fair Value Measurements at

March 31, 2011, Using,

Quoted

Prices in

Assets/

Active

Significant

Liabilities

Markets for

Other

Measured at

Identical

Observable

Unobservable

Fair Value

Assets

Inputs

Description

03/31/2011

(Level 1)

(Level 2)

(Level 3)

Available-for-sale securities

100,984

—

100,984

—

Fair Value Measurements at

December 31, 2010, Using,

Quoted

Prices in

Assets/

Active

Significant

Liabilities

Markets for

Other

Measured at

Identical

Observable

Unobservable

Fair Value

Assets

Inputs

Description

12/31/2010

(Level 1)

(Level 2)

(Level 3)

Available-for-sale securities

76,904

—

76,904

—

Note 6 — Impact of Other Recently Issued Accounting Standards

In April 2011, the FASB issued Accounting Standards Update (ASU) 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” which updates ASC 310-40, “Receivables — Troubled Debt Restructurings by Creditors.” The update provides additional guidance to clarify when a loan modification or restructuring is considered a troubled debt restructuring (TDR) in order to address current diversity in practice and lead to more consistent application of U.S. GAAP for debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (1) the restructuring constitutes a concession, and (2) the debtor is experiencing financial difficulties. The amendments to Topic 310 clarify the guidance regarding the evaluation of both considerations above. Additionally, the amendments clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a TDR. This amendment is effective for us July 1, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, we may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011.

In January 2011, the FASB issued ASU 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” which updates ASC 310, “Receivables.” ASU 2011-01 temporarily delayed the effective date of the disclosures regarding troubled debt restructurings in ASU No. 2010-20 for public entities. The effective date is for interim and annual reporting periods ending after June 15, 2011.

In July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310) — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” which requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 was effective for our financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period were effective January 1, 2011.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures About Fair Value Measurements” which requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) company’s should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy is required for us beginning January 1, 2011. The remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for us on January 1, 2010.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies, but not specifically addressed in this report, are not expected to have a material impact on the Company’s financial condition, results of operations, or liquidity.

Note 7 — Commitments and Contingencies

The Bank uses the same credit policies for off-balance-sheet financial instruments as it does for other instruments that are recorded in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. In managing the Bank’s credit and market risk exposure, the Bank may participate these commitments with other institutions when funded. The credit risk involved in issuing these financial instruments is essentially the same as that involved in making loans to customers. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies, but may include real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property. At March 31, 2011, the Bank had outstanding loan commitments approximating $49.0 million.

Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in making loans to customers. The amount of standby letters of credit whose contract amounts represent credit risk totaled approximately $5.0 million as of March 31, 2011.

The Bank, as part of its retail mortgage loan production activities, routinely enters into short-term commitments to originate loans. Most of the loans will be sold to third parties upon closing. For those loans, the Bank enters into best efforts forward sales commitments at the same time the commitments to originate are finalized. While the forward sales commitments function as an economic offset and effectively eliminate the Bank’s financial risk of rate changes during the rate lock period, both the commitment to originate mortgage loans that will be sold and the commitment to sell the mortgage loans are derivatives, the fair values of which are essentially equal and offsetting. The fair values are calculated based on changes in market interest rates after the commitment date. The notional amounts of these mortgage loan origination commitments and the related forward sales commitments were approximately $37.2 million each at March 31, 2011. The net unrealized gains/losses of the origination and sales commitments did not have a material effect on the consolidated financial statements of the Company at March 31, 2011.

The Bank has executed best efforts forward sales commitments related to retail mortgage loans, which are classified as loans held for sale. The forward sales commitments on retail mortgage loans function as an economic offset and mitigate the Bank’s market risk on these loans. The notional value of the forward sales commitments on retail mortgage loans at March 31, 2011 was approximately $18.9 million. The fair value of the sales commitments on retail mortgage loans resulted in no material gains or losses to the Bank at March 31, 2011.

The nature of the business of the Bank is such that it ordinarily results in a certain amount of litigation. In the opinion of management, there are no present litigation matters in which the anticipated outcome will have a material adverse effect on the Company’s financial condition, results of operations or liquidity.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Georgia-Carolina Bancshares, Inc. (the “Company”) was incorporated under the laws of the State of Georgia on January 31, 1997 to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of 1956, as amended. The Company is a one-bank holding company and owns 100% of the issued and outstanding stock of First Bank of Georgia (the “Bank”), an independent, state-chartered commercial bank. The Bank operates three offices in Augusta, Georgia, two offices in Martinez, Georgia and one office in Thomson, Georgia. The Bank also operates two non-depository, mortgage origination offices in Augusta, Georgia and Savannah, Georgia. The Bank is also the parent company of Willhaven Holdings, LLC, which holds certain other real estate of the Bank.

The Bank targets the banking needs of individuals and small to medium-sized businesses by emphasizing personal service. The Bank offers a full range of deposit and lending services and is a member of an electronic banking network that enables its customers to use the automated teller machines of other financial institutions. In addition, the Bank offers commercial and business credit services, as well as various consumer credit services, including home mortgage loans, automobile loans, lines of credit, home equity loans and home improvement loans. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”).

Critical Accounting Policies

The accounting and reporting policies of the Company and Bank are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. Application of these principles requires management to make estimates or judgments that affect the amounts reported in the financial statements and the accompanying notes. These estimates are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates or judgments. Certain policies inherently have a greater reliance on the use of estimates, and as such have a greater possibility of producing results that could be materially different than originally reported.

Estimates or judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record the valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

Management views critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the determination of the allowance for loan losses to be the only critical accounting policy.

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on non-impaired loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated balance sheet. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The allowance for loan losses consists of an allocated component and an unallocated component. The components of the allowance for loan losses represent an estimation made pursuant to either ASC 450-20, “Contingencies: Loss Contingencies,” or ASC 310-10-35, “Receivables: Subsequent Measurement.” The allocated component of the allowance for loan losses reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category. The specific credit allocations are based on regular analyses of all loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The historical loss element is determined using the average of actual losses incurred over prior years for each type of loan. The historical loss experience is adjusted for known changes in economic conditions and credit quality trends such as changes in the amount of past due and nonperforming loans. The resulting loss allocation factors are applied to the balance of each type of loan after removing the balance of impaired loans from each category.

There are many factors affecting the allowance for loan losses; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all possible factors that could potentially result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses could be required that could adversely affect the Bank’s earnings or financial position in future periods.

Results of Operations

Overview

The Company’s net income was $1,391,000 for the quarter ended March 31, 2011, compared to $838,000 for the first quarter of 2010, an increase of 66.0%. The increase in net income was primarily due to a decrease in the loan loss provision and lower noninterest expense, partially offset by lower noninterest income including gain on sale of mortgage loans. Basic and diluted earnings per share were $0.39 for the quarter ended March 31, 2011, compared to basic and diluted earnings per share of $0.24 for the quarter ended March 31, 2010.

The Company’s return on average assets was 1.12% (annualized) for the quarter ended March 31, 2011, compared to 0.72% (annualized) for the quarter ended March 31, 2010. The Company’s return on average equity for the quarter ended March 31, 2011 was 12.20% (annualized) compared to 7.63% (annualized) for the quarter ended March 31, 2010.

Interest Income

Interest income for the quarter ended March 31, 2011 was $5,717,000, a decrease of $333,000 (5.5%) from $6,050,000 for the three months ended March 31, 2010. The decrease in interest income partially resulted from lower yields on both loans and securities. In addition, due to growth in deposits coupled with weakened loan demand, the Bank has had an increase in liquidity, mostly held as cash or lower yielding securities. The overall yield on earning assets decreased from 5.61% to 4.91% from the first quarter of 2010 to the first quarter of 2011. Interest income and fees on loans for the three months ended March 31, 2011 were $5,069,000, a decrease of $483,000 (8.7%) from $5,552,000 for the three months ended March 31, 2010. Interest on taxable securities increased $126,000 (32.0%) to $520,000 for the three months ended March 31, 2011 from $394,000 for the three months ended March 31, 2010.

Interest Expense

Interest expense for the three months ended March 31, 2011 was $1,674,000, a decrease of $207,000 (11.0%) from $1,881,000 for the three months ended March 31, 2010. Although interest-bearing deposits increased from March 2010 to March 2011, the Company has experienced a decline in interest expense, primarily due to the continued drop in interest rates paid on these deposits as well as a shift in the mix of interest-bearing deposits from higher cost time deposits to lower cost accounts such as money market accounts. The Company’s cost of interest-bearing liabilities has declined from 1.97% for the first quarter of 2010 to 1.67% for the first quarter of 2011.

Net Interest Income

Net interest income is the difference between the interest and fees earned on loans, securities and other interest-earning assets (interest income), and the interest paid on deposits and borrowed funds (interest expense).

Net interest income was $4,043,000 for the quarter ended March 31, 2011, a decrease of $126,000 (3.0%) from net interest income of $4,169,000 for the quarter ended March 31, 2010. The decrease in net interest income was primarily the result of the decline in interest income due to weakened loan demand and increased liquidity, partially offset by the lower cost of interest-bearing deposits. Interest-earning assets were $481,382,000 at March 31, 2011 compared to $469,884,000 at December 31, 2010 and $440,489,000 at March 31, 2010, increases of $11,498,000 (2.4%) and $40,893,000 (9.3%), respectively. Loans, including loans held for sale, are the highest yielding component of interest-earning assets. Total loans, net of the allowance for loan losses, were $331,697,000 at March 31, 2011 compared to $355,513,000 at December 31, 2010 and $364,710,000 at March 31, 2010, decreases of $23,816,000 (6.7%) and $33,013,000 (9.1%), respectively. The decline in loans was predominantly due to declines in mortgage loans held for sale. Due to softening loan demand since December 31, 2010, the Company experienced a significant decrease in mortgage loans held for sale in the first quarter of 2011. Mortgage loans held for sale totaled $15,528,000, $46,570,000 and $30,174,000 at March 31, 2011, December 31, 2010 and March 31, 2010, respectively. Due to the increase in liquidity, investments in securities increased significantly. Securities available-for-sale were $100,984,000 at March 31, 2011, compared to $76,904,000 at December 31, 2010 and $56,284,000 at March 31, 2010, increases of $24,080,000 (31.3%) and $44,700,000 (79.4%), respectively. Interest-bearing deposits were $382,758,000 at March 31, 2011, compared to $373,147,000 at December 31, 2010 and $360,612,000 at March 31, 2010, increases of $9,611,000 (2.6%) and $22,146,000 (6.1%), respectively.

Provision for Loan Losses

The provision for loan losses was $99,000 for the three months ended March 31, 2011 compared to $1,086,000 for the three months ended March 31, 2010, a decrease of $987,000 (90.9%). This decrease is the result of improvement in the Bank’s overall asset quality as well as management’s detailed review of the Bank’s loan portfolio and adequacy of the allowance for loan losses, level of the Bank’s non-performing assets, and charge offs and loan delinquencies. As shown in the Asset Quality section below, non-accrual loans have decreased $1,767,000 during the first quarter of 2011, and have decreased $2,092,000 since March 31, 2010. The most significant portion of the Bank’s non-accrual loans originated in the Savannah, Georgia market. Consequently, the ratio of the allowance for loan losses to total loans, excluding loans held for sale, decreased to 2.29% at March 31, 2011 from 2.48% at December 31, 2010. Net charge-offs decreased to $567,000 for the first quarter of 2011 compared to $913,000 for the first quarter of 2010, resulting in annualized charge-off ratios of 0.71% and 1.08%, respectively. Management considers the current allowance for loan losses to be appropriate based upon its detailed analysis of the potential risk in the portfolio; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions will not be required.

Non-interest Income

Non-interest income for the three months ended March 31, 2011 was $2,860,000, a decrease of $170,000 (5.6%) from $3,030,000 for the three months ended March 31, 2010. Service charges on deposit accounts were $385,000 for the three months ended March 31, 2011, an increase of $42,000 (12.2%) from $343,000 for the three months ended March 31, 2010. Gain on sale of mortgage loans originated and sold by the Bank’s mortgage division was $2,091,000 for the three months ended March 31, 2011, a decrease of $328,000 (13.6%) from $2,419,000 for the three months ended March 31, 2010. Loans sold in the secondary market for the first quarter of 2011 were $113,395,000 compared to $144,081,000 for the first quarter of 2010. Substantially all loans originated by the division are sold in the secondary market with servicing rights released. Other income was $384,000 for the three months ended March 31, 2011, an increase of $116,000 (43.3%) from $268,000 for the three months ended March 31, 2010. During the first quarter of 2011, other income included a $183,000 gain on sale of two tracts of land in Augusta, Georgia that had become other real estate owned by the Bank during the fourth quarter of 2008.

Non-interest Expense

Non-interest expense for the three months ended March 31, 2011 was $4,746,000, a decrease of $339,000 (6.7%) from $5,085,000 for the three months ended March 31, 2010. Salary and employee benefit costs were $2,969,000 for the three months ended March 31, 2011, a decrease of $83,000 (2.7%) from $3,052,000 for the three months ended March 31, 2010. The decrease in salary and employee benefit costs was primarily due to lower incentives and group insurance costs partially offset by higher salaries. Other non-interest expense for the three months ended March 31, 2011 decreased by $230,000 (14.3%) to $1,383,000 from $1,613,000 for the three months ended March 31, 2010. The decrease in other non-interest expense was primarily due to decreases in other real estate expense, loan-related expenses and data processing expense. Other real estate expense was $131,000 for the three months ended March 31, 2011 compared to $188,000 for the three months ended March 31, 2010, a decrease of $57,000 (30.3%). Data processing expense decreased $89,000 (31.6%) from $282,000 for the three months ended March 31, 2010 to $193,000 for the three months ended March 31, 2011. Loan-related expense was $37,000 for the three months ended March 31, 2011, a decrease of $72,000 (66.1%) from $109,000 for the three months ended March 31, 2010.

Income Taxes

The Company recorded income tax expense of $667,000 for the three months ended March 31, 2011, resulting from net income before taxes of $2,058,000 for the quarter. For the three months ended March 31, 2010, the Company recorded income tax expense of $190,000, resulting from net income before taxes of $1,028,000 for the quarter. The income tax provision for the three months ended March 31, 2010 reflects a provision reduction of $120,000 related to the Company’s amended tax returns filed for 2006, 2007 and 2008.

Financial Condition

Overview

Total consolidated assets at March 31, 2011 were $510,749,000, an increase of $15,438,000 (3.1%) from December 31, 2010 total consolidated assets of $495,311,000. This increase is primarily due to an increase in loans receivable as well as increased liquidity, resulting in increases in cash and due from and securities available-for-sale, partially offset by a decline in mortgage loans held for sale. At March 31, 2011, gross loans, including loans held for sale, represented 70.0% of interest-earning assets compared to 77.3% at December 31, 2010. Gross loans were $323,567,000 at March 31, 2011, an increase of $6,758,000 (2.1%) from $316,809,000 at December 31, 2010. Investments in securities at March 31, 2011 were $100,984,000, an increase of $24,080,000 (31.3%) from $76,904,000 at December 31, 2010. Cash and due from banks totaled $46,957,000 at March 31, 2011, and $31,696,000 at December 31, 2010, an increase of $15,261,000 (48.1%). Cash and due from banks at March 31, 2011 and December 31, 2010 included $40,175,000 and $22,275,000, respectively, of interest-bearing balances with the Federal Reserve Bank, at a minimal interest rate, that were included in interest-earning assets. Interest-bearing deposits at March 31, 2011 were $382,758,000, an increase of $9,611,000 (2.6%) from the December 31, 2010 balance of $373,147,000. The increase is the result of an increase in NOW, savings, and money market accounts, partially offset by a decrease in time deposits. The Bank’s lines of credit balances with the Federal Home Loan Bank totaled $25,000,000 at March 31, 2011 and December 31, 2010. The Bank’s repurchase agreements totaled $3,068,000 at March 31, 2011, a decrease of $399,000 (11.5%) from the December 31, 2010 balance of $3,467,000.

Management continuously monitors the financial condition of the Bank in order to protect depositors, increase retained earnings and protect current and future earnings. Further discussion of significant items affecting the Bank’s financial condition is presented in detail below.

Asset Quality

A major key to long-term earnings growth is the maintenance of a high-quality loan portfolio. The Bank’s directive in this regard is carried out through its policies and procedures for extending credit to the Bank’s customers. The goal of these policies and procedures is to provide a sound basis for new credit extensions and an early recognition of problem assets to allow the most flexibility in their timely disposition.

Non-performing assets were $7,421,000 at March 31, 2011, compared to $9,008,000 at December 31, 2010 and $10,456,000 at March 31, 2010. The composition of non-performing assets for each date is shown in the table below.


	March 31,		December 31,		March 31,
	2011		2010		2010

Non-accrual loans	$	4,490,000	$	6,257,000	$	6,582,000
OREO, net of valuation allowance		2,931,000		2,751,000		3,874,000


Total non-performing assets	$	7,421,000	$	9,008,000	$	10,456,000

The Bank’s non-accrual loans decreased $1,767,000 (28.2%) during the first three months of 2011. This decline is due various factors including chargeoffs and transfers to OREO as well as paydowns and movement to accrual status. The Bank’s other real estate owned (OREO) increased $180,000 (6.5%) during that same time period. Since March 31, 2010, non-accrual loans have decreased $2,092,000 (31.8%) and OREO has also declined $943,000 (24.3%). The ratio of non-performing assets to total loans and OREO, excluding loans held for sale, was 2.27% at March 31, 2011, 2.82% at December 31, 2010, and 3.04% at March 31, 2010. The continued reduction and disposition of non-performing assets is a management priority.

As of March 31, 2011, the Bank had classified 19 loans totaling $10,399,000 as “troubled debt restructurings” as defined in ASC 310-40. As of December 31, 2010, the Bank had classified 15 loans totaling $9,250,000 as “troubled debt restructurings.”

Additions to the allowance for loan losses are made periodically to maintain the allowance at an appropriate level based upon management’s analysis of potential risk in the loan portfolio, as described above under the heading “Critical Accounting Policies.” During the quarter ended March 31, 2011, management determined that the allowance for loan losses should be increased through a provision for loan losses of $99,000, compared to a loan loss provision of $1,086,000 for the quarter ended March 31, 2010. Net charge-offs during the quarter ended March 31, 2011 were $567,000 or 0.71% of loans annualized, compared to $913,000 or 1.08% of loans annualized for the quarter ended March 31, 2010. Management considers the current allowance for loan losses to be appropriate based upon its detailed analysis of the potential risk in the Bank’s portfolio; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions will not be required.

Management evaluates investment securities for other-than-temporary impairment on a periodic basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuers, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. During the first quarter of 2011, the Bank determined one of its collateralized mortgage obligation securities was impaired due to continued deterioration of the underlying collateral. Based on projected future losses, the Bank impaired the security by $38,000 to a balance of $149,000.

At March 31, 2011, the gross unrealized losses are primarily the result of changes in market interest rates and not related to the credit quality of the underlying issuer. All of the securities are U.S. agency debt securities, mortgage-backed securities, and municipal securities. As the Bank has the ability to hold the securities for the foreseeable future, with the exception of the above mentioned security, no declines are deemed to be other than temporary.

Liquidity and Capital Resources

Liquidity is the ability of an organization to meet its financial commitments and obligations on a timely basis. These commitments and obligations include credit needs of customers, withdrawals by depositors, and payment of operating expenses and dividends. Management does not anticipate any events which would require liquidity beyond that which is available through deposit growth, investment maturities, federal funds lines, and other lines of credit and funding sources. Management actively monitors and manages the levels, types and maturities of earning assets, in relation to the sources available to fund current and future needs, to ensure that adequate funding will be available at all times.

The Bank’s liquidity remains adequate to meet operating and loan funding requirements. The Bank’s liquidity ratio at March 31, 2011 was 29.2%, compared to 28.5% at December 31, 2010.

Management is committed to maintaining capital at a level sufficient to protect depositors, provide for reasonable growth, and fully comply with all regulatory requirements. Management’s strategy to achieve this goal is to retain sufficient earnings while providing a reasonable return on equity. Federal banking regulations establish certain capital adequacy standards required to be maintained by banks.

The table below reflects the Bank’s current regulatory capital ratios, including comparisons to December 31, 2010 and regulatory minimums:


							Minimum Regulatory
	March 31, 2011			December 31, 2010			Requirement
Total risk-based capital ratio		13.40	%		12.91	%		8.00	%
Tier 1 risk-based capital ratio		12.14	%		11.65	%		4.00	%
Tier 1 leverage ratio		9.13	%		9.17	%		4.00	%

In September 2009, the Bank became subject to revised regulations from the State of Georgia Department of Banking and Finance regarding its total aggregate lending limit to a single customer and that customer’s related entities. The new regulation revised the definition of how a single customer is defined. As a result, the Board of Directors approved an increase in the Bank’s statutory capital base in October 2009 by appropriating a portion of retained earnings. At March 31, 2011 and December 31, 2010, the Bank’s statutory capital base totaled $40.0 million and consisted of $3.2 million in capital stock, $16.3 million of surplus and $20.5 million in appropriated retained earnings, allowing for a $10.0 million lending limit (25%).

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) became law. Under the Troubled Asset Relief Program (“TARP”) authorized by EESA, the U.S. Treasury established a Capital Purchase Program (“CPP”) providing for the purchase of senior preferred shares of qualifying U.S. controlled banks, savings associations and certain bank and savings and loan holding companies. The Board of Directors of the Bank decided not to participate in the CPP. The FDIC also established a Temporary Liquidity Guarantee Program (“TLGP”) that gave the FDIC the ability to provide a guarantee for newly-issued senior unsecured debt and non-interest bearing transaction deposit accounts at eligible insured institutions. The Board of Directors of the Bank elected to participate in the TLGP for the purpose of obtaining the guarantee on non-interest bearing transaction deposit accounts.

On March 23, 2009, the U.S. Treasury, in conjunction with the FDIC and Federal Reserve, announced the Public-Private Investment Program (the “PPIP”). Targeting illiquid real estate loans held on the books of financial institutions, referred to as legacy loans, and securities backed by loan portfolios, referred to as legacy securities, the PPIP is designed to open lending channels by facilitating a market for distressed assets. The PPIP has been structured to combine $75 to $100 billion in capital from TARP with capital from the private sector to generate $500 billion in purchasing power that will be used to buy legacy loans and legacy securities. The Bank has not participated in the PPIP as of March 31, 2011.

On November 12, 2009, the FDIC adopted a final rule requiring insured depository institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009, and for all quarters of 2010, 2011, and 2012. The estimates were based on a 5% annual growth rate in its assessment rate and were included on each institution’s third quarter 2009 certified statement invoice. This three-year assessment prepayment was made on December 30, 2009 in addition to the regularly scheduled payment of the third quarter 2009 assessment. The Bank prepaid a total of approximately $2,313,000 for 2010, 2011 and 2012 under the new rule.

On July 21, 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act which, among other provisions, permanently increases the FDIC insurance coverage on bank deposits to $250,000.

Off-Balance Sheet Arrangements

In the ordinary course of business, the Bank may enter into off-balance sheet financial instruments which are not reflected in the financial statements. These instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when funds are disbursed or the instruments become payable.

The following is an analysis of significant off-balance sheet financial instruments at March 31, 2011 and December 31, 2010.


	March 31,		December 31,
	2011		2010
	(in thousands)
Commitments to extend credit	$	49,043	$	49,477
Standby letters of credit		5,013		5,154

Total off-balance sheet financial instruments	$	54,056	$	54,631

Supplemental Consolidated Cash Flow Information

The Bank had the following significant non-cash transactions during the three months ended March 31, 2011 and March 31, 2010.


	March 31,			March 31,
	2011			2010
	(in thousands)
Interest received	$	5,566		$	6,047
Interest paid		1,831			1,895
Real estate acquired by foreclosure		650			303
Unrealized gain/(loss) on securities		(242	)		112
Income taxes paid (refunded)		950			(298	)

	$	8,755		$	8,059

Cautionary Note Regarding Forward-Looking Statements

The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders. Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values and interest rate risk management; the effects of competition in the banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Company’s market area and elsewhere, including institutions operating through the Internet; changes in government regulations relating to the banking industry, including regulations relating to branching and acquisitions; failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans; and other factors detailed from time to time in the Company’s periodic filings with the Commission, including Item 1A. “Risk Factors,” contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. These risks are exacerbated by the continuing effects of the recession which began in 2008 and uncertain economic conditions in the United States and globally, and we are unable to predict with certainty what effects these economic conditions will have on our future operating results and financial condition. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by, or on behalf of, the Company.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company’s quantitative and qualitative disclosures about market risk as of March 31, 2011 from that presented under the heading “Liquidity and Interest Rate Sensitivity” and “Market Risk” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.


Item 4.		Controls and Procedures.

Management has developed and implemented policies and procedures for reviewing disclosure controls and procedures and internal control over financial reporting on a quarterly basis. Management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of disclosure controls and procedures as of March 31, 2011 and, based on such evaluation, has concluded that these controls and procedures are effective. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Part II — OTHER INFORMATION


Item 6.		Exhibits.

The following exhibits are filed with this Report:


Exhibit No.			Description

	3.1	-	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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	GEORGIA-CAROLINA BANCSHARES, INC.
May 12, 2011	By:	/s/ Remer Y. Brinson, III
		Remer Y. Brinson, III
		President and Chief Executive Officer (principal executive officer)

May 12, 2011	By:	/s/ Thomas J. Flournoy
		Thomas J. Flournoy
		Senior Vice President and Chief Financial Officer (principal financial and accounting officer)

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

Exhibit 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.

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Georgia-Carolina Bancshares, Inc Reports

Georgia-Carolina Bancshares, Inc - FORM 10-Q - May 12, 2011

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Georgia-Carolina Bancshares, Inc Reports