U.
S. SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q








x
            Quarterly Report Under Section 13
      or 15(d) of the Securities Exchange Act of
  1934


For the
quarterly period ended September
30, 2008





 ̈
              Transition Report under Section
      13 or 15(d) of the Securities Exchange Act of
  1934
 For the
transition period from __________ to __________




Commission
File Number: 000-53194





Freedom
      Bancshares,
Inc.


(Exact
name of small business issuer as specified in its charter)





Georgia
                    
                    06-1671382(State
      of Incorporation)
                    
                    (IRS
      Employer Identification
No.)







3165
      Maysville Road, Commerce, GA 30529(Address
      of principal executive
offices)








(706)
      423-2500(Issuer’s
      telephone number)







N/A


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








Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 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 xNO  ̈





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.





Large
      accelerated filer 
              Accelerated
      filer 
              Non-accelerated
      filer 
              Smaller
      reporting company ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).      Yes
   No ý





State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of





November 14, 2008: 1,317,505
shares outstanding, $1.00 par value










FREEDOM
BANCSHARES, INC.


AND
SUBSIDIARY





Index








PagePart
      I.  Financial InformationItem 1.  Financial Statements
      (unaudited)Consolidated Balance Sheets - September 30, 2008 and December
      31, 2007
                          2Consolidated Statements of Operations – Three and Nine Months
      Ended September 30, 2008 and 2007
                          3Consolidated Statements of Comprehensive Income (Loss) – Three
      and Nine Months Ended September 30, 2008 and 2007
                          4Consolidated Statements of Cash Flows - Nine Months Ended
      September 30, 2008 and 2007
                          5Notes to Consolidated Financial
    Statements
                          6 -
      11Item 2.  Management's Discussion and
      Analysis
                          12
      - 21Item 3.  Quantitative and Qualitative Disclosures
      about Market Risk
                          22Item 4(T).  Controls and
    Procedures
                          22Part
      II.  Other InformationItem 1.  Legal Proceedings
                          23Item 1A. Risk Factors
                          23-24Item 2.  Unregistered Sales of Equity Securities and
      Use of Proceeds
                          24Item 3.  Defaults Upon Senior
      Securities
                          24Item 4.  Submission of Matters to a Vote of Security
      Holders
                          24Item 5.  Other Information
                          24Item 6.  Exhibits
                          25Signature Page
                          26Exhibit Index


Index




PART I - FINANCIAL INFORMATION


ITEM I.
            FINANCIAL
      STATEMENTS





FREEDOM
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEETS


(Unaudited)





September
      30,
                                        
                                        
                                        December
      31,Assets
                                        
                                        2008
                                        
                                        
                                        2007Cash
      and due from banks
                                        
                                        $
                                        3,562,114
                                        
                                        
                                        $
                                        3,016,248Interest
      bearing deposits in banks
                                        
                                        
                                        91,120
                                        
                                        
                                        
                                        137,392Federal
      funds sold
                                        
                                        
                                        925,961
                                        
                                        
                                        
                                        1,113,000Securities
      available for sale, at fair value
                                        
                                        
                                        18,153,343
                                        
                                        
                                        
                                        16,322,944Loans,
      less allowance for loan losses of $3,633,783 and $1,616,837,
      respectively
                                        
                                        
                                        107,676,799
                                        
                                        
                                        
                                        116,670,671Property
      and equipment, net
                                        
                                        
                                        5,559,752
                                        
                                        
                                        
                                        5,830,047Federal
      Home Loan Bank stock
                                        
                                        
                                        1,097,600
                                        
                                        
                                        
                                        1,071,100Accrued
      interest receivable
                                        
                                        
                                        888,288
                                        
                                        
                                        
                                        1,418,985Foreclosed
      assets
                                        
                                        
                                        7,986,718
                                        
                                        
                                        
                                        881,579Other
      assets
                                        
                                        
                                        1,325,273
                                        
                                        
                                        
                                        700,117Total
      assets
                                        
                                        $
                                        147,266,968
                                        
                                        
                                        $
                                        147,162,083Liabilities and Stockholders'
      EquityLiabilities:Deposits:Noninterest-bearing
                                        
                                        $
                                        6,826,152
                                        
                                        
                                        $
                                        6,542,891Interest-bearing
                                        
                                        
                                        114,555,864
                                        
                                        
                                        
                                        108,011,123Total
      deposits
                                        
                                        
                                        121,382,016
                                        
                                        
                                        
                                        114,554,014Federal
      Home Loan Bank advances
                                        
                                        
                                        16,500,000
                                        
                                        
                                        
                                        18,500,000Accrued
      interest payable
                                        
                                        
                                        600,218
                                        
                                        
                                        
                                        638,728Other
      liabilities
                                        
                                        
                                        156,548
                                        
                                        
                                        
                                        10,329Total
      liabilities
                                        
                                        
                                        138,638,782
                                        
                                        
                                        
                                        133,703,071Commitments
      and contingenciesStockholders'
      equityPreferred
      stock, no par value; 2,000,000 shares authorized; no shares issued and
      outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, $1.00 par value; 10,000,000 shares authorized; 1,317,505 and
      1,316,005 shares issued and outstanding, respectively
                                        
                                        
                                        1,317,505
                                        
                                        
                                        
                                        1,316,005Additional
      paid-in capital
                                        
                                        
                                        12,865,866
                                        
                                        
                                        
                                        12,807,750Accumulated
      deficit
                                        
                                        
                                        (5,490,699
                                        )
                                        
                                        
                                        (620,327
                                        )Accumulated
      other comprehensive loss
                                        
                                        
                                        (64,486
                                        )
                                        
                                        
                                        (44,416
                                        )Total
      stockholders' equity
                                        
                                        
                                        8,628,186
                                        
                                        
                                        
                                        13,459,012Total
      liabilities and stockholders' equity
                                        
                                        $
                                        147,266,968
                                        
                                        
                                        $
                                        147,162,083








See
Notes to Consolidated Financial Statements


2
 Index


FREEDOM
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF OPERATIONS


THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(Unaudited)





Three
                                  
                                  
                                  Three
                                  
                                  
                                  Nine
                                  
                                  
                                  NineMonths
                                  
                                  
                                  Months
                                  
                                  
                                  Months
                                  
                                  
                                  MonthsEnded
                                  
                                  
                                  Ended
                                  
                                  
                                  Ended
                                  
                                  
                                  EndedSeptember
      30,
                                  
                                  
                                  September
      30,
                                  
                                  
                                  September
      30,
                                  
                                  
                                  September
      30,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2008
                                  
                                  
                                  2007Interest
      income:Loans
                                  
                                  $
                                  1,644,837
                                  
                                  
                                  $
                                  2,777,718
                                  
                                  
                                  $
                                  5,599,470
                                  
                                  
                                  $
                                  7,946,273Taxable
      securities
                                  
                                  
                                  223,140
                                  
                                  
                                  
                                  243,355
                                  
                                  
                                  
                                  637,250
                                  
                                  
                                  
                                  757,366Federal
      funds sold
                                  
                                  
                                  6,790
                                  
                                  
                                  
                                  14,119
                                  
                                  
                                  
                                  40,956
                                  
                                  
                                  
                                  56,493Other
                                  
                                  
                                  8,877
                                  
                                  
                                  
                                  13,899
                                  
                                  
                                  
                                  41,881
                                  
                                  
                                  
                                  56,508Total
      interest income
                                  
                                  
                                  1,883,644
                                  
                                  
                                  
                                  3,049,091
                                  
                                  
                                  
                                  6,319,557
                                  
                                  
                                  
                                  8,816,640Interest
      expense:Deposits
                                  
                                  
                                  1,183,469
                                  
                                  
                                  
                                  1,522,995
                                  
                                  
                                  
                                  3,782,157
                                  
                                  
                                  
                                  4,346,838Other
      borrowings
                                  
                                  
                                  145,279
                                  
                                  
                                  
                                  155,484
                                  
                                  
                                  
                                  469,008
                                  
                                  
                                  
                                  504,177Total
      interest expense
                                  
                                  
                                  1,328,748
                                  
                                  
                                  
                                  1,678,479
                                  
                                  
                                  
                                  4,251,165
                                  
                                  
                                  
                                  4,851,015Net
      interest income
                                  
                                  
                                  554,896
                                  
                                  
                                  
                                  1,370,612
                                  
                                  
                                  
                                  2,068,392
                                  
                                  
                                  
                                  3,965,625Provision
      for loan losses
                                  
                                  
                                  1,000,000
                                  
                                  
                                  
                                  75,000
                                  
                                  
                                  
                                  3,940,000
                                  
                                  
                                  
                                  224,000Net
      interest income (loss) after provision for loan losses
                                  
                                  
                                  (445,104
                                  )
                                  
                                  
                                  1,295,612
                                  
                                  
                                  
                                  (1,871,608
                                  )
                                  
                                  
                                  3,741,625Noninterest
      income (loss):Service
      charges on deposit accounts
                                  
                                  
                                  78,253
                                  
                                  
                                  
                                  47,479
                                  
                                  
                                  
                                  223,765
                                  
                                  
                                  
                                  122,015Gain
      on sale of securities
                                  
                                  
                                  35,647
                                  
                                  
                                  
                                  2,256
                                  
                                  
                                  
                                  35,647
                                  
                                  
                                  
                                  2,256Loss
      on impairment of securities
                                  
                                  
                                  (454,485
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (454,485
                                  )
                                  
                                  
                                  -Other
      operating income (loss)
                                  
                                  
                                  (5,086
                                  )
                                  
                                  
                                  57,762
                                  
                                  
                                  
                                  219,391
                                  
                                  
                                  
                                  136,567Total
      noninterest income (loss)
                                  
                                  
                                  (345,671
                                  )
                                  
                                  
                                  107,497
                                  
                                  
                                  
                                  24,318
                                  
                                  
                                  
                                  260,838Noninterest
      expenses:Salaries
      and other employee benefits
                                  
                                  
                                  572,393
                                  
                                  
                                  
                                  640,401
                                  
                                  
                                  
                                  1,795,255
                                  
                                  
                                  
                                  1,817,195Occupancy
      and equipment expenses
                                  
                                  
                                  163,816
                                  
                                  
                                  
                                  165,696
                                  
                                  
                                  
                                  483,700
                                  
                                  
                                  
                                  480,515Other
      operating expenses
                                  
                                  
                                  457,080
                                  
                                  
                                  
                                  326,870
                                  
                                  
                                  
                                  1,292,185
                                  
                                  
                                  
                                  947,395Total
      noninterest expenses
                                  
                                  
                                  1,193,289
                                  
                                  
                                  
                                  1,132,967
                                  
                                  
                                  
                                  3,571,140
                                  
                                  
                                  
                                  3,245,105Income
      (loss) before income taxes
                                  
                                  
                                  (1,984,064
                                  )
                                  
                                  
                                  270,142
                                  
                                  
                                  
                                  (5,418,430
                                  )
                                  
                                  
                                  757,358Income
      tax (benefit) expense
                                  
                                  
                                  740,443
                                  
                                  
                                  
                                  107,500
                                  
                                  
                                  
                                  (548,057
                                  )
                                  
                                  
                                  299,350Net
      (loss) income
                                  
                                  $
                                  (2,724,507
                                  )
                                  
                                  $
                                  162,642
                                  
                                  
                                  $
                                  (4,870,373
                                  )
                                  
                                  $
                                  458,008Basic
      (losses) earnings per share
                                  
                                  $
                                  (2.07
                                  )
                                  
                                  $
                                  0.12
                                  
                                  
                                  $
                                  (3.57
                                  )
                                  
                                  $
                                  0.36Diluted
      earnings per share
                                  
                                  
                                  
                                  
                                  
                                  $
                                  0.12
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  0.34Cash
      dividends per share
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -








See
Notes to Consolidated Financial Statements


3
 Index


FREEDOM
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(Unaudited)





Three
                
                
                Three
                
                
                Nine
                
                
                NineMonths
                
                
                Months
                
                
                Months
                
                
                MonthsEnded
                
                
                Ended
                
                
                Ended
                
                
                EndedSeptember
      30,
                
                
                September
      30,
                
                
                September
      30,
                
                
                September
      30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      (loss) income
                
                $
                (2,724,507
                )
                
                $
                162,642
                
                
                $
                (4,870,373
                )
                
                $
                458,008Other
      comprehensive income (loss):Unrealized
      gains on securities available for sale, net of tax
                
                
                446,149
                
                
                
                171,480
                
                
                
                260,727
                
                
                
                23,628Realized
      loss on securities available for sale, net of tax
                
                
                (266,796
                )
                
                
                (1,404
                )
                
                
                (288,986
                )
                
                
                (1,404
                )Unrealized
      gain on interest rate floor, net of tax
                
                
                -
                
                
                
                9,929
                
                
                
                8,189
                
                
                
                10,689Other
      comprehensive income (loss)
                
                
                179,353
                
                
                
                180,005
                
                
                
                (20,070
                )
                
                
                32,913Comprehensive
      (loss) income
                
                $
                (2,545,154
                )
                
                $
                342,647
                
                
                $
                (4,890,443
                )
                
                $
                490,921








See
Notes to Consolidated Financial Statements


4
 Index


FREEDOM
BANCSHARES, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(Unaudited)





2008
                      
                      
                      2007OPERATING
      ACTIVITIESNet
      (loss) income
                      
                      $
                      (4,870,373
                      )
                      
                      $
                      458,008Adjustments
      to reconcile net (loss) income to net cash (used) provided by operating
      activities:Amortization
      and accretion on securities
                      
                      
                      (4,794
                      )
                      
                      
                      (3,149
                      )Depreciation
                      
                      
                      272,005
                      
                      
                      
                      258,099Provision
      for loan losses
                      
                      
                      3,940,000
                      
                      
                      
                      224,000Stock
      compensation expense
                      
                      
                      44,617
                      
                      
                      
                      47,691Gain
      on sale of securities available for sale
                      
                      
                      (35,647
                      )
                      
                      
                      (2,256
                      )Loss
      on impairment of securities available for sale
                      
                      
                      454,485
                      
                      
                      
                      -Loss
      on disposal of equipment
                      
                      
                      -
                      
                      
                      
                      639Loss
      (gain) on sale of foreclosed assets
                      
                      
                      16,328
                      
                      
                      
                      (11,273
                      )Increase
      (decrease) in interest receivable
                      
                      
                      530,697
                      
                      
                      
                      (261,001
                      )(Decrease)
      increase in interest payable
                      
                      
                      (38,510
                      )
                      
                      
                      238,821Increase
      in other assets
                      
                      
                      (599,828
                      )
                      
                      
                      (69,514
                      )Increase
      in other liabilities
                      
                      
                      146,219
                      
                      
                      
                      23,452Net
      cash (used) provided by operating activities
                      
                      
                      (144,801
                      )
                      
                      
                      903,517INVESTING
      ACTIVITIESPurchases
      of securities available for sale
                      
                      
                      (8,772,607
                      )
                      
                      
                      (2,372,185
                      )Proceeds
      from sales of securities available for sale
                      
                      
                      -
                      
                      
                      
                      1,639,248Proceeds
      from maturities and paydowns of securities available for
    sale
                      
                      
                      6,482,766
                      
                      
                      
                      2,497,564Purchase
      of Federal Home Loan Bank stock
                      
                      
                      (26,500
                      )
                      
                      
                      (118,500
                      )Net
      increase in loans
                      
                      
                      (3,251,180
                      )
                      
                      
                      (17,324,928
                      )Proceeds
      from sale of premises and equipment
                      
                      
                      -
                      
                      
                      
                      450Purchases
      of premises and equipment
                      
                      
                      (1,710
                      )
                      
                      
                      (2,746,053
                      )Investment
      in foreclosed assets
                      
                      
                      (332,425
                      )
                      
                      
                      -Proceeds
      from sale of foreclosed assets
                      
                      
                      1,516,010
                      
                      
                      
                      180,590Net
      cash used in investing activities
                      
                      
                      (4,385,646
                      )
                      
                      
                      (18,243,814
                      )FINANCING
      ACTIVITIESNet
      increase in deposits
                      
                      
                      6,828,002
                      
                      
                      
                      19,128,884Repayments
      of FHLB advances
                      
                      
                      (2,000,000
                      )
                      
                      
                      (1,000,000
                      )Proceeds
      from sale of common stock, net
                      
                      
                      15,000
                      
                      
                      
                      1,125,447Net
      cash provided by financing activities
                      
                      
                      4,843,002
                      
                      
                      
                      19,254,331Net
      increase in cash and cash equivalents
                      
                      
                      312,555
                      
                      
                      
                      1,914,034Cash
      and cash equivalents at beginning of period
                      
                      
                      4,266,640
                      
                      
                      
                      3,633,957Cash
      and cash equivalents at end of period
                      
                      $
                      4,579,195
                      
                      
                      $
                      5,547,991SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for:Interest
                      
                      $
                      4,289,675
                      
                      
                      $
                      4,612,194Income
      taxes
                      
                      $
                      14,008
                      
                      
                      $
                      276,586NONCASH
      INVESTING ACTIVITIESLoans
      transferred to other real estate owned
                      
                      $
                      8,305,052
                      
                      
                      $
                      668,067Decrease
      (increase) in accumulated other comprehensive income
(loss)
                      
                      $
                      20,070
                      
                      
                      $
                      (32,913
                      )








See
Notes to Consolidated Financial Statements


5
 Index


FREEDOM
BANCSHARES, INC.


AND
SUBSIDIARY








NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2008


(Unaudited)




NOTE 1.
            BASIS OF
      PRESENTATION




The
financial information contained herein is unaudited. Accordingly, the
information does not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements, however, such information reflects all
adjustments (consisting solely of normal recurring adjustments), which are, in
the opinion of management, necessary for a fair statement of results for the
interim periods.





Operating
results for the three- and nine-month periods ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008. These statements should be read in conjunction with the
financial statements and footnotes thereto included in the annual report for the
year ended December 31, 2007.





NOTE 2.
            SUMMARY OF
      ORGANIZATION





Freedom
Bancshares, Inc., Commerce, Georgia (the “Company”), is a one-bank holding
company with respect to its subsidiary bank, Freedom Bank of Georgia, Commerce,
Georgia (the “Bank”). The Company’s articles of incorporation authorize its
Board of Directors, without further action by the shareholders, to issue up to
10.0 million shares of its $1.00 par value per share common stock (“Common
Stock”). Each share entitles its owners to one vote and shareholders have no
preemptive, cumulative voting or conversion rights. As of September 30, 2008,
there were 1,317,505 shares of the Company’s Common Stock issued and
outstanding.





The
Company’s articles of incorporation also authorize its Board of Directors to
issue up to 2.0 million shares of its no par value preferred stock (“Preferred
Stock”). The Company’s Board of Directors may, without further action by the
shareholders, direct the issuance of Preferred Stock for any proper corporate
purpose with preferences, voting powers, conversion rights, qualifications,
special or relative rights and privileges which could adversely affect the
voting power or other rights of shareholders of Common Stock. As of September
30, 2008, no shares of the Company’s Preferred Stock were issued or
outstanding.





In
connection with the Company’s formation and initial offering, 184,140 stock
warrants were awarded to the Company’s organizers. Each warrant entitles its
owner to purchase one share of Common Stock for a price of $10.00. The warrants
vested in one-third annual increments over a three-year period beginning on the
one-year anniversary of the date that the Company first issued its common stock.
Warrants are exercisable for a period of no more than ten years from February
17, 2004, or no more than ninety days after a warrant holder ceases to be either
a director or senior executive of the Company, whichever period is
shorter.





As of
September 30, 2008, the Company has 13,000 non-qualified stock options
outstanding.





The
Company originally reserved up to 80,000 shares of Common Stock for issuance
under a stock incentive option plan (the “plan”).  On May 20, 2004 the
shareholders of the Company approved an amendment to the plan increasing the
number of shares of Common Stock available under the plan to 160,000 shares. The
plan is administered by the Company’s Personnel and Compensation Committee (the
“Committee”). The Committee has the authority to award stock options to eligible
persons, to determine exercise price, expiration date, forfeiture or termination
provisions, and all other administrative responsibilities.  As of
September 30, 2008, the Company had 108,300 incentive stock options
outstanding.


6
 Index


NOTE 3.
            SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES





Basis of Accounting.The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, shareholders’ equity
and net income. Actual results may differ significantly from those estimates.
The Company uses the accrual basis of accounting by recognizing revenues when
they are earned and expenses in the period incurred, without regard to the time
of receipt or payment of cash.





Cash and Cash Equivalents.Cash refers to cash on hand and cash that is held at an unrelated
financial institution. Cash equivalents refers to financial instruments that are
almost as liquid as cash, such as federal funds sold. At September 30, 2008
and December 31, 2007, cash and cash equivalents amounted to $4,579,195 and
$4,266,640, respectively.





Allowance for Loan
Losses:  Arriving at an appropriate level of allowance for loan
losses involves a high degree of judgment.  The Company’s allowance
for loan losses provides for probable losses based upon evaluations of known and
inherent risks in the loan portfolio.  Management uses historical
information of the Company and of similar banks to assess the adequacy of the
allowance for loan losses as well as the prevailing business environment; as it
is affected by changing economic conditions and various external factors, which
may impact the portfolio in ways currently unforeseen.  The allowance
for loan losses is increased by provisions for loan losses and by recoveries of
loans previously charged-off and reduced by loans charged-off.





The
process of reviewing the adequacy of the allowance for loan losses requires
management to make numerous assumptions  and subjective judgments,
including the likelihood of loan repayment, risk evaluation, extrapolation of
historical losses of similar banks, and similar judgments and
assumptions.  If these assumptions prove to be incorrect, charge-offs
in future periods could exceed the allowance for loan losses.





Property and Equipment.Furniture and equipment are stated at cost, net of accumulated
depreciation. Land is carried at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and gain or loss is included in operations. The Company had no
capitalized lease obligations at September 30, 2008 and December 31,
2007.





Income Taxes.Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. In
the event the future tax consequences of difference between the financial
reporting bases and the tax bases of the assets and liabilities result in
deferred tax assets, an evaluation of the probability of being able to realize
the future benefits indicated by such asset is required. A valuation allowance
is provided for the portion of the deferred tax asset when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.





In
assessing the realizability of the deferred tax assets, management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies.  Management has calculated a
deferred tax asset of $2.0 million; however, based on projections of future
taxable income a valuation allowance of $1.34 million has been recorded as of
September 30, 2008. The Company had no valuation allowance as of December 31,
2007.





Stock-Based Compensation.At
September 30, 2008, the Company had two stock-based employee/director
compensation plans which are more fully described in Note 11 of the consolidated
financial statements in the Annual Report on Form 10-K for the year ended
December 31, 2007. Effective January 1, 2006, the Company adopted the fair value
recognition provisions of Financial Accounting Standards Board (FASB) Statement
No. 123(R), Share-Based
Payment, using the modified-prospective-transition
method.  Under that transition method, compensation cost recognized in
the first nine months of 2008 and 2007 includes: (a) compensation cost for all
share-based payments granted prior to, but not yet vested as of December 31,
2005, based on the grant date fair value estimated in accordance with the
original provisions of Statement 123, and (b) compensation cost for all
share-based payments granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the provisions of Statement
123(R). The Company recorded stock-based compensation expense of $15,036 and
$24,541 for the three months ended September 30, 2008 and 2007,
respectively and $44,617 and $47,691 for the nine months ended
September 30, 2008 and 2007, respectively.


7
 Index


At
September 30, 2008, there was $47 thousand of unrecognized compensation
cost related to stock-based payments, which is expected to be recognized over a
weighted-average period of one year.





Statement of Cash Flows.The
statement of cash flows was prepared using the indirect method. Under this
method, net income was reconciled to net cash flows from operating activities by
adjusting for the effects of short-term assets and liabilities.





NOTE 4.
            EARNINGS  PER
      SHARE





Basic
earnings (losses) per share are computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding. Diluted earnings
per share are computed by dividing net income by the sum of the weighted average
number of shares of common stock outstanding and potential common shares.
Potential common shares consist of stock options and stock warrants that are
dilutive and none were included in the calculations for the three and nine month
periods ended September 30, 2008.  Weighted average shares outstanding
including potential common shares were 1,317,505 and 1,408,140 for the three
months ended September 30, 2008 and 2007, respectively, and 1,317,027 and
1,363,964 for the nine months ended September  30, 2008 and 2007,
respectively.





NOTE
      5.
            FAIR
      VALUE MEASUREMENTS




On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value
Measurements.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements.  SFAS No. 157 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.





SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.  Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability.  As a basis for considering market
participant assumptions in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).





Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.


8
 Index


The table
below presents the Company’s assets and liabilities measured at fair value on a
recurring basis as of September 30, 2008, aggregated by the level in the fair
value hierarchy within which those measurements fall (dollars in
thousands).





Fair
      Value Measurements at September 30, 2008Total
                                                                    
                                                                    Quoted Prices inActive Markets forIdentical Securities
                                                                      Level
      1
                                                                    
                                                                    Significant Other
      Observable Inputs
                                                                      Level
      2
                                                                    
                                                                    Significant
      Unobservable Inputs
                                                                      Level
      3Investment
      securities available-for-sale
                                                                    $
                                                                    18,153
                                                                    
                                                                    $
                                                                    42
                                                                    
                                                                    $
                                                                    18,111
                                                                    
                                                                    $
                                                                    -Total
      assets at fair value
                                                                    $
                                                                    18,153
                                                                    
                                                                    $
                                                                    42
                                                                    
                                                                    $
                                                                    18,111
                                                                    
                                                                    $
                                                                    -








Securities
classified as available-for-sale are reported at fair value utilizing Level 1 or
2 inputs. For Level 1 securities, the Company obtains market prices in an active
market for securities identical to the above-mentioned securities. 
For Level 2 securities, the Company obtains fair value measurements
from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the
U.S. Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and the bond’s terms and
conditions, among other things. The investments in the Company’s portfolio are
generally not quoted on an exchange but are actively traded in the secondary
institutional markets.





The
following table presents the assets that are measured at fair value on a
non-recurring basis by level within the fair value hierarchy as reported on the
consolidated statements of financial position at September 30, 2008
(dollars in thousands).








Fair
      Value Measurements at September 30, 2008Total
                        
                        
                        Quoted Prices inActive Markets forIdentical Securities
                          Level
      1
                        
                        
                        Significant Other
      Observable Inputs
                          Level
      2
                        
                        
                        Significant
      Unobservable Inputs
                          Level
      3Impaired
      loans
                        
                        $
                        16,253
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        16,253Other
      real estate owned
                        
                        
                        7,910
                        
                        
                        
                        -
                        
                        
                        
                        7,910
                        
                        
                        
                        -Total
      assets at fair value
                        
                        $
                        24,163
                        
                        
                        $
                        -
                        
                        
                        $
                        7,910
                        
                        
                        $
                        16,253








Impaired
loans are evaluated and valued at the time the loan is identified as impaired,
at the lower of cost or fair value. Fair value is measured based on the value of
the collateral securing these loans and is classified at a Level 3 in the fair
value hierarchy. Collateral may include real estate, or business assets
including equipment, inventory and accounts receivable. The value of real estate
collateral is determined based on an appraisal by qualified licensed appraisers
hired by the Company. The value of business equipment is based on an appraisal
by qualified licensed appraisers hired by the Company if significant, or the
equipment’s net book value on the business’ financial statements. Inventory and
accounts receivable collateral are valued based on independent field examiner
review or aging reports. Appraised and reported values may be discounted based
on management’s historical knowledge, changes in market conditions from the time
of the valuation, and management’s expertise and knowledge of the client and
client’s business. Impaired loans are evaluated on at least a quarterly basis
for additional impairment and adjusted accordingly.





Foreclosed
assets are adjusted to fair value upon transfer of the loans to other real
estate. Subsequently, foreclosed assets are carried at the lower of carrying
value or fair value. Fair value is based upon independent market prices or
appraised values of the collateral. The fair value of the collateral is based on
an observable market price or a current appraised value, and therefore the
foreclosed asset is recorded 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 asset as nonrecurring Level
3.


9
 Index


NOTE
      6.
            OPERATING
      MATTERS





Liquidity





Our
sources of funds include deposits, payments of loans, income from investments
and advances from Federal Home Loan Bank (FHLB) and other borrowings. Interest
rates, real estate sales activity and general economic conditions significantly
affect loan repayments and deposit flows.





The
Company’s primary source of borrowings is the FHLB. At September 30, 2008, the
Company’s borrowings totaled $16.5 million, representing 11.2% of total assets.
The Company currently is approved to borrow up to a maximum of  $22.1
million, to the extent it provides qualifying collateral, providing the Company
with an additional $5.6 million of borrowing capacity from the FHLB as of
September 30, 2008. The amount the FHLB is willing to advance differs based on
the quality and character of qualifying collateral offered by the
Bank.





The
Company has $2 million in federal fund lines available. This line is fully
secured with investments and the borrowing amount is based on the fair market
value of those investments.  The Company is approved to borrow funds
on an overnight basis from the Federal Reserve Bank of Atlanta subject to the
amount of qualifying collateral it pledges. As of September 30, 2008, no
collateral had been pledged to the Federal Reserve Bank of Atlanta.





Should
deposit renewals and deposit growth not be sufficient to fund maturing and
withdrawable deposits, repay maturing borrowings, fund existing and future loans
and otherwise fund working capital needs and expenditures, the Company may
utilize additional borrowing capacity from its FHLB and Federal Reserve Bank
borrowing agreements. If elevated levels of net deposit outflows occur, the
Bank’s usual sources of liquidity could become depleted and the Bank would be
required to raise additional capital or enter into new financing arrangements to
satisfy liquidity needs. In the current economic environment, there are no
assurances these measures would be available. In addition, as a result of being
“under-capitalized” rather than “well capitalized,” the Company is subject to
restrictions on accepting brokered deposits, which the Company has not
previously utilized, and upper limits on interest rates the Company may pay on
deposits.





Capital
Adequacy





As of
September 30, 2008 the Bank had total equity capital of $8.6 million and a total
risk-based capital ratio of 7.57% which is below the “adequately capitalized”
ratio of 8.0%. The Company must raise capital on of before December 31, 2008 to
return to an “adequately capitalized “ position. The Board of Directors has
passed a Resolution requiring management to prepare a capital plan which
restores the Company to a “well capitalized” position by June 30, 2009. In the
current economic environment, there is a significant risk the Company will not
be able to raise sufficient additional capital as needed. For a more detailed
explanation of our capital plans, refer to “Ability to Continue as Going
Concern” in Management’s Discussion and Analysis.





Going
Concern





The
financial statements contained herein have been prepared assuming the Company
and the Bank will continue as a going concern. However, the circumstances
mentioned above raise doubt concerning the ability of the Company to continue as
a going concern for the next twelve months. The ability of the Company to
continue as a going concern is dependent on its success in raising additional
capital.





NOTE 7.
            RECENT ACCOUNTING
      PRONOUNCEMENTS





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations,which
replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how
the acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company believes
the adoption of SFAS 141(R) will not have a material impact on its financial
statements.


10
 Index


In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. In addition to the amendments to ARB
51, SFAS 160 amends SFAS No. 128, Earnings per Share; so that
earnings-per-share data will continue to be calculated the same way those data
were calculated before SFAS 160 was issued. SFAS 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company believes the adoption of SFAS 160 will not have a
material impact on its financial statements.





In March
2008, the FASB issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment to SFAS 133, intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures.Entities
are required to provide enhanced disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company believes the adoption
of SFAS 161 will not have a material impact on its financial
statements.




11
 Index




Part
      I.
            Financial
      Information


Item 2.
            Management's
      Discussion and Analysis





The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company’s results of
operations and financial condition. This discussion should be read in
conjunction with the financial statements and accompanying notes.





SPECIAL
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS





This
Report contains statements which constitute forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and the Securities
Exchange Act of 1934. These statements are based on many assumptions and
estimates and are not guarantees of future performance. Our actual results may
differ materially from those projected in any forward-looking statements, as
they will depend on many factors about which we are unsure, including many
factors which are beyond our control. The words “may,” “would,” “could,” “will,”
“expect,” “anticipate,” “believe,” “intend,” “plan,” and “estimate,” as well as
similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties include, but are not limited to:





·
            significant
      increases in competitive pressure in the banking and financial services
      industries;





·
            changes
      in the interest rate environment which could reduce anticipated or actual
      margins;





·
            changes
      in political conditions or the legislative or regulatory
      environment;





·
            general
      economic conditions, either nationally or regionally and especially in our
      primary service area, becoming less favorable than expected resulting in,
      among other things, a deterioration in credit
  quality;





·
            changes
      occurring in business conditions and
inflation;





·
            changes
      in technology;





·
            changes
      in monetary and tax policies;





·
            the
      level of allowance for loan loss;





·
            the
      rate of delinquencies and amounts of
  charge-offs;





·
            the
      rates of loan growth;





·
            adverse
      changes in asset quality and resulting credit risk-related losses and
      expenses;





·
            changes
      in the securities markets; and





·
            other
      risks and uncertainties detailed from time to time in our filings with the
      Securities and Exchange Commission.





Critical
Accounting Policies





We have
adopted various accounting policies which govern the application of accounting
principles generally accepted in the U.S. in the preparation of financial
statements. The Company’s significant accounting policies are described in Note
1 to the Company’s consolidated financial statements as of and for the year
ended December 31, 2007. Certain accounting policies require the Company to make
significant assumptions and estimates, the use of which has a material impact on
the carrying value of certain assets and liabilities, and could potentially
result in materially different results under different assumptions and
conditions. Management believes that the allowance for loan losses, the
valuation of foreclosed assets, the accounting for deferred income taxes and
stock-based compensation are the most critical accounting policies upon which
the Company’s financial condition depends. The allowance for loan losses, the
valuation of foreclosed aseets,  the recognition of deferred taxes,
and the assumptions related to stock-based compensation involve the most complex
and subjective decisions and assessments that management must
make.


12
 Index


Allowance for Loan Losses:
Arriving at an appropriate level of allowance for loan losses involves a high
degree of judgment. The Company’s allowance for loan losses provides for
probable losses based upon evaluations of known and inherent risks in the loan
portfolio. The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries).  Loans are charged
against the allowance for loan losses when management believes the collection of
the principal is unlikely.  The Company’s allowance for loan and lease
losses is the amount considered adequate to absorb probable losses within the
portfolio based on management’s evaluation of the size and current risk
characteristics of the loan portfolio. Such evaluation considers prior loss
experience, the risk rating distribution of the portfolios, the impact of
current internal and external influences on credit loss and the levels of
nonperforming loans. Specific allowances for loan and lease losses are
established for large impaired loans and leases on an individual basis. The
specific allowance established for these loans and leases is based on a thorough
analysis of the most probable source of repayment, including the present value
of the loan’s expected future cash flows, the loan’s estimated market value, or
the estimated fair value of the underlying collateral. General allowances are
established for loans that are classified as either special mention,
substandard, or doubtful. These loans are assigned a risk rating, and the
allocated allowance for loan losses is determined based upon the loss percentage
factors that correspond to each risk rating. Loss percentage factors are based
on the probable loss including qualitative factors. The qualitative factors
consider credit concentrations, recent levels and trends in delinquencies and
nonaccrual, and growth in the loan portfolio. The occurrence of certain events
could result in changes to the loss factors. Accordingly, these loss factors are
reviewed periodically and modified as necessary.




General
allowances are established for loans and leases that can be grouped into pools
based on similar characteristics. In this process, general allowance factors are
based on an analysis of historical charge-off experience and expected losses
given default derived from the Company’s internal risk rating process. These
factors are developed and applied to the portfolio in terms of line of business
and loan type. Adjustments are also made to the allowance for the pools after an
assessment of internal and external influences on credit quality that have not
yet been reflected in the historical loss or risk rating data. Unallocated
allowances relate to inherent losses that are not otherwise evaluated in the
first two elements. The qualitative factors associated with unallocated
allowances are subjective and require a high degree of management judgment.
These factors include the inherent imprecisions in mathematical models and
credit quality statistics, recent economic uncertainty, losses incurred from
recent events, and lagging or incomplete data.





The
process of reviewing the adequacy of the allowance for loan losses requires
management to make numerous judgments and assumptions about current events and
subjective judgments, including the likelihood of loan repayment, risk
evaluation, extrapolation of historical losses of similar banks, and similar
judgments and assumptions. If these assumptions prove to be incorrect,
charge-offs in future periods could exceed the allowance for loan
losses.





Management
considers the allowance for loan losses to be adequate and sufficient to absorb
possible future losses; however, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.





Deferred Income Taxes:
Deferred income tax assets and liabilities are determined using the liability
(or balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the differences between the
book and tax bases of the various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws.





A
valuation allowance for deferred tax assets is required when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realization of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income (in the near-term based on current projections), and tax planning
strategies. As of September 30, 2008, deferred income taxes of $775
thousand are included in other assets.  Changes in the estimate about
future taxable income could significantly affect the determination of the
necessity for a valuation allowance for deferred tax assets.





Foreclosed Assets:Assets acquired through, or
in lieu of, loan foreclosure are held for sale and are initially recorded at the
lower of cost or fair value at the date of foreclosure, establishing a new cost
basis.  Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair
value less cost to sell.  Revenue and expenses from operations and changes
in the valuation allowance are included in net expenses from foreclosed
assets.





Stock-based
compensation:  The assumptions used in the determination of the
fair value of stock options granted ultimately determine the recognition of
stock-based compensation expense. The short-cut method is used to determine the
expected life of the options.  This method, as prescribed by Staff
Accounting Bulletin (SAB) Topic 14.D.2, calculates the expected term based on
the midpoint between the vesting date of the option and the end of the
contractual term. Expected volatility is determined by using a combination of a
calculated value based upon expected volatility of similar entities and on the
historical volatility of the Company’s stock. Risk-free interest rates for
periods within the contractual life of the option are based upon the U.S.
Treasury yield curve in effect at the time of the grant. Because of the need to
retain capital for expected growth and past history, the expected dividend rate
is 0%. These assumptions have a significant impact on the amount of expense
recognized for stock-based compensation.


13
 Index


Overview





We
commenced banking operations on February 17, 2004 in our primary location of
Commerce, Georgia. We have subsequently expanded geographically by adding
branches in Jefferson, Homer and Winder, Georgia.





Recent
Industry Developments





The
global and U.S. economies are experiencing significantly reduced business
activity as a result of, among other factors, disruptions in the financial
system in the past year. Dramatic declines in the housing market during the past
year, with falling home prices and increasing foreclosures and unemployment,
have resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities and major commercial and
investment banks. These write-downs, initially of mortgage-backed securities but
spreading to credit default swaps and other derivative securities, have caused
many financial institutions to seek additional capital, to merge with larger and
stronger institutions and, in some cases, to fail.





Because
of this crisis, the governments of major world economic powers, including the
United States, have taken extraordinary steps to stabilize the financial system.
For example, the U.S. government has passed the Emergency Economic Stabilization
Act, which provides the U.S. Treasury Department the ability to purchase or
insure up to $700 billion in troubled assets held by financial institutions. In
addition, the Treasury Department has the ability to purchase equity stakes in
financial institutions. Other extraordinary measures taken by U.S. governmental
agencies include: increasing deposit insurance limits, providing financing to
money market mutual funds, and purchasing commercial paper. It is not clear at
this time what impact these measures, as well as other extraordinary measures
previously announced or announced in the future, will have on us or the
financial markets as a whole. Management will continue to monitor the effects of
these programs as they relate to Freedom Bancshares, Inc. and its future
operations.





Financial
Condition





At
September 30, 2008, total assets of Freedom Bancshares, Inc. were $147.3
million, which included loans totaling $111.3 million and securities with a fair
market value of $18.1 million.  Deposits at September 30, 2008
totaled $121.4 million and other borrowings totaled $16.5 million and consisted
solely of advances from the Federal Home Loan Bank of Atlanta.





Investment
securities available-for-sale totaled $18.2 million at September 30, 2008.
These investments consisted of $3.6 million in US government-sponsored agency
securities and $14.6 million in mortgage-backed securities issued by US
government-sponsored agencies. Of the $3.5 million in government-sponsored
agency securities, approximately $42 thousand was equity securities with the
remaining balance consisting of debt securities. Generally, we purchase
mortgage-backed securities because we believe they will provide good income
yields as well as a consistent cash flow from the monthly mortgage payments.
These cash flows are then reinvested in new loans or additional purchases of
similar securities, depending on loan demand and market conditions. These cash
flows also allow us to regularly invest at current market rates. While we invest
in traditional government-sponsored agency securities on occasion, recent market
conditions have resulted in historically low yields on those securities, so we
have chosen to maximize our yields by investing in other segments of the market.
It is generally our policy to designate our marketable investment securities as
available-for-sale, and all securities were so designated at September 30,
2008.





Gross
loans totaled $111.3 million at September 30, 2008.  Net loans
totaled $107.7 million at September 30, 2008.  The majority of
our loans are secured by real estate. Balances within the major loan categories
as of September 30, 2008 are as follows:


14
 Index


Composition
of Loan Portfolio


September
30, 2008





Category
                  
                  Amount
                    (in
      thousands)
                  
                  
                  Percent
      of
                    TotalConstruction
      loans
                  
                  $
                  47,356
                  
                  
                  
                  42.54
                  %Other
      real estate loans
                  
                  
                  49,185
                  
                  
                  
                  44.19
                  %Commercial
      loans
                  
                  
                  10,077
                  
                  
                  
                  9.05
                  %Other
      loans
                  
                  
                  4,693
                  
                  
                  
                  4.22
                  %111,311
                  
                  
                  
                  100.00
                  %Allowance
      for loan losses
                  
                  
                  (3,634
                  )$
                  107,677





Management
expects loan growth to be extremely minimal over the next twelve months and any
growth will be funded by growth in deposits.  We will also hold funds
in federal funds sold and purchase investment securities as conditions warrant
and as we identify opportunities appropriate to our overall asset and liability
strategies and goals. We expect no growth in total assets and liabilities during
the remainder of 2008.





Our total
equity was $8.6 million at September 30, 2008.  Equity consisted
of common stock and surplus of $14.2 million, an accumulated deficit at December
31, 2007 of $620 thousand; net loss for the nine months ended September 30, 2008
of $4.9 million; and unrealized losses on securities available-for-sale, net of
tax, of $64 thousand.





Results
of Operations for the Nine Months Ended September 30, 2008 and 2007




The
results of operations are determined by our ability to effectively manage net
interest income, control non-interest expenses, generate non-interest income and
minimize loan losses. In order for us to become cumulatively profitable and to
remain profitable in the future, we must increase the amount of earning assets
so that net interest income along with non-interest income will be sufficient to
cover normal operating expenses incurred in a banking operation and the Bank’s
provision for loan losses.





Net
losses for the first nine months of 2008 amounted to $4.9 million, or $(3.57)
per basic share.  Net income for the first nine months of 2007
amounted to $458 thousand, or $0.36 per basic share and $0.34 per diluted
share.  Following is a brief discussion concerning our operational
results for the nine-month periods ended September 30, 2008 and
2007.





Interest
income, which represents interest received on interest earning assets, was $6.3
million for the first nine months of 2008 and $8.8 million for the first nine
months of 2007. The decrease in interest income is indicative of the decrease in
interest rates during the year and the reduction of income on non-accrual
loans.  The cost of funds, which represents interest paid on deposits
and borrowings, was $4.3 million for the first nine months of 2008 and $4.9
million for the first nine months of 2007.


15
 Index


Net yield
on earning assets, defined as net interest income annualized divided by average
interest earning assets, was 2.01% for the first nine months of
2008.








Description
                  
                  Avg
                    Assets/Liabilities
                  
                  
                  Interest
                    Income/Expense
                  
                  
                  Yield/CostFederal
      funds sold
                  
                  $
                  2,052
                  
                  
                  $
                  41
                  
                  
                  
                  2.66
                  %Securities
                  
                  
                  17,865
                  
                  
                  
                  637
                  
                  
                  
                  4.75
                  %Loans
                  
                  
                  115,940
                  
                  
                  
                  5,599
                  
                  
                  
                  6.44
                  %Other
                  
                  
                  1,211
                  
                  
                  
                  42
                  
                  
                  
                  4.62
                  %Total
                  
                  $
                  137,068
                  
                  
                  
                  6,319
                  
                  
                  
                  6.15
                  %Transactional
      accounts
                  
                  $
                  16,519
                  
                  
                  
                  369
                  
                  
                  
                  2.98
                  %Savings
                  
                  
                  918
                  
                  
                  
                  10
                  
                  
                  
                  1.45
                  %CDs
                  
                  
                  95,613
                  
                  
                  
                  3,403
                  
                  
                  
                  4.75
                  %Other
      borrowings
                  
                  
                  17,013
                  
                  
                  
                  469
                  
                  
                  
                  3.68
                  %Total
                  
                  $
                  130,063
                  
                  
                  
                  4,251
                  
                  
                  
                  4.36
                  %Net
      interest income
                  
                  
                  
                  
                  
                  $
                  2,068Net
      yield on earning assets
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2.01
                  %





Net yield
on earning assets  was 3.93% for the first nine months of
2007.





(Dollars
in thousands)





Description
                  
                  Avg
                    Assets/Liabilities
                  
                  
                  Interest
                    Income/Expense
                  
                  
                  Yield/CostFederal
      funds sold
                  
                  $
                  1,484
                  
                  
                  $
                  56
                  
                  
                  
                  5.09
                  %Securities
                  
                  
                  21,210
                  
                  
                  
                  757
                  
                  
                  
                  4.77
                  %Loans
                  
                  
                  111,248
                  
                  
                  
                  7,946
                  
                  
                  
                  9.55
                  %Other
                  
                  
                  1,040
                  
                  
                  
                  57
                  
                  
                  
                  7.26
                  %Total
                  
                  $
                  134,982
                  
                  
                  
                  8,816
                  
                  
                  
                  8.73
                  %Money
      market/NOW accounts
                  
                  $
                  10,001
                  
                  
                  
                  279
                  
                  
                  
                  3.74
                  %Savings
                  
                  
                  794
                  
                  
                  
                  9
                  
                  
                  
                  1.45
                  %CDs
                  
                  
                  100,176
                  
                  
                  
                  4,059
                  
                  
                  
                  5.42
                  %Other
      borrowings
                  
                  
                  12,404
                  
                  
                  
                  504
                  
                  
                  
                  5.43
                  %Total
                  
                  $
                  123,375
                  
                  
                  
                  4,851
                  
                  
                  
                  5.26
                  %Net
      interest income
                  
                  
                  
                  
                  
                  $
                  3,965Net
      yield on earning assets
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3.93
                  %





For the
first nine months of 2008, non-interest income amounted to $24 thousand, or
0.02% of average assets.  For the first nine months of 2007,
non-interest income amounted to $261 thousand or 0.24% of average assets.
Because the Bank is in a competitive market, it prices its services very
competitively in order to maintain and grow deposits. The Bank recognized a loss
of $454 thousand due to the impairment of preferred shares issued by the Federal
National Mortgage Association and held by the Bank. The Bank recorded this loss
because management determined the decrease in market value to be an other than
temporary impairment.  Other major components of non-interest income
were service charges on deposit accounts which totaled $224 thousand for the
nine-month period and mortgage origination revenue totaling $101 thousand for
the nine-month period. For the same period in 2007, service charges on deposit
accounts totaled $122 thousand and mortgage origination revenue totaled $54
thousand.


16
 Index


The
Company adopted the fair value recognition provisions of FASB Statement No. 123
(R), Share Based
Payment effective January 1, 2006, using the modified-
prospective-transition method. The Company did not grant any options in the
first nine months of 2008 or 2007.  No modifications were made to
outstanding options and warrants and there have been no significant changes to
valuation methodologies or assumptions. There have not been any significant
changes in the quantity, types or terms of instruments used in share-based
payment programs.  At September 30, 2008, total compensation cost
related to nonvested awards not yet recognized is $46,799 which is expected to
be recognized over a weighted average period of 1.0 year.





The
income tax benefit recognized for the first nine months of 2008 was $548
thousand as compared to an expense of $299 thousand for first nine months of
2007. Based on management’s projection of future taxable income, the Company
recognized the tax benefit and recorded a deferred tax asset. The amounts
provided take into account all share-based compensation expense recognized for
which an income tax benefit will not be received.





Results
of Operations for the Three Months Ended September 30, 2008 and
2007




Net
losses for the three month period ended September 30, 2008 amounted to $2.7
million, or $(2.07) per basic share.  Net income for the three month
period ended September 30, 2007 amounted to $162,642, or $0.12 per basic and
diluted share.  Following is a brief discussion concerning our
operational results for the three month periods ended September 30, 2008 and
2007.





Interest
income was $1.9 million for the three month period ended September 30, 2008 and
$3.0 million for the three month period ended September 30,
2007.  The cost of funds was $1.3 million for the three month period
ended September 30, 2008 and $1.7 million for the three month period ended
September 30, 2007.





Net yield
on earning assets, defined as net interest income annualized, divided by average
interest earning assets, was at 1.66% during the three month period ended
September 30, 2008.





(Dollars
in thousands)





Description
                  
                  Avg
                    Assets/Liabilities
                  
                  
                  Interest
                    Income/Expense
                  
                  
                  Yield/CostFederal
      funds sold
                  
                  $
                  1,384
                  
                  
                  $
                  7
                  
                  
                  
                  2.02
                  %Securities
                  
                  
                  18,301
                  
                  
                  
                  223
                  
                  
                  
                  4.87
                  %Loans
                  
                  
                  113,246
                  
                  
                  
                  1,645
                  
                  
                  
                  5.81
                  %Other
                  
                  
                  1,121
                  
                  
                  
                  9
                  
                  
                  
                  3.21
                  %Total
                  
                  $
                  134,052
                  
                  
                  
                  1,884
                  
                  
                  
                  5.62
                  %Transactional
      accounts
                  
                  $
                  17,569
                  
                  
                  
                  115
                  
                  
                  
                  2.62
                  %Savings
                  
                  
                  950
                  
                  
                  
                  4
                  
                  
                  
                  1.68
                  %CDs
                  
                  
                  95,342
                  
                  
                  
                  1,065
                  
                  
                  
                  4.47
                  %Other
      borrowings
                  
                  
                  16,960
                  
                  
                  
                  145
                  
                  
                  
                  3.42
                  %Total
                  
                  $
                  130,821
                  
                  
                  
                  1,329
                  
                  
                  
                  4.06
                  %Net
      interest income
                  
                  
                  
                  
                  
                  $
                  555Net
      yield on earning assets
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1.66
                  %


17
 Index




Net yield
on earning assets  was at 3.91% during the three month period ended
September 30, 2007.





(Dollars
in thousands)





Description
                      
                      Avg
                        Assets/Liabilities
                      
                      
                      Interest
                        Income/Expense
                      
                      
                      Yield/CostFederal
      funds sold
                      
                      $
                      1,231
                      
                      
                      $
                      14
                      
                      
                      
                      4.55
                      %Securities
                      
                      
                      20,874
                      
                      
                      
                      243
                      
                      
                      
                      4.63
                      %Loans
                      
                      
                      116,111
                      
                      
                      
                      2,778
                      
                      
                      
                      9.49
                      %Other
                      
                      
                      1,027
                      
                      
                      
                      14
                      
                      
                      
                      5.37
                      %Total
                      
                      $
                      139,243
                      
                      
                      
                      3,049
                      
                      
                      
                      8.69
                      %Transactional
      accounts
                      
                      $
                      12,568
                      
                      
                      
                      126
                      
                      
                      
                      3.98
                      %Savings
                      
                      
                      752
                      
                      
                      
                      3
                      
                      
                      
                      1.44
                      %CDs
                      
                      
                      102,216
                      
                      
                      
                      1,394
                      
                      
                      
                      5.41
                      %Other
      borrowings
                      
                      
                      11,472
                      
                      
                      
                      155
                      
                      
                      
                      5.38
                      %Total
                      
                      $
                      127,008
                      
                      
                      
                      1,678
                      
                      
                      
                      5.24
                      %Net
      interest income
                      
                      
                      
                      
                      
                      $
                      1,371Net
      yield on earning assets
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.91
                      %





For the
three month period ended September 30, 2008, non-interest loss amounted to $346
thousand, or -.93% of average assets. For the three month period ended September
30, 2007, non-interest income amounted to $107 thousand, or 0.29% of average
assets.





The
income tax expense for the three months ended September 30, 2008 was $740
thousand as compared to an expense of $108 thousand for the three months ended
September 30, 2007.  As of September 30, 2008,  management
calculated a valuation allowance of $1.3 million causing an income tax expense
of $843 thousand to be recorded in the third quarter.   The
amounts provided take into account all shared-based compensation expense for
which an income tax benefit will not be received.





Ability
to Continue as Going Concern





In
connection with the preparation of the Company’s third quarter Form 10-Q,
management has assessed whether the Company has the ability to continue as a
going concern. In making this assessment, management has considered several
negative trends currently experienced by the Bank including recurring operating
losses, declines in asset quality and reduced liquidity. Recurring operating
losses and increases to the loan loss reserve necessary for the decline in asset
quality have led to diminished capital reserves.




Management
has begun preparing projections to determine the Company’s ability to continue
as a going concern. The Company’s ability to continue as a going concern is
dependent on its success in raising additional capital. In efforts to raise
capital, the Company has approved a subordinated debt offering and is in
negotiations with an investment firm to assist the Company in raising capital.
Based on these measures, management believes the Company can raise approximately
$4 million in capital over the next 90 days. In addition to securing the capital
position of the Bank, this would provide additional liquidity to the
Company.





In
considering these items, management has made significant judgments and estimates
with respect to the potentially adverse financial and liquidity effects of the
Company’s risks and uncertainties.  Management believes that it will
have adequate liquidity and resources to operate and continue as a going concern
for at least the next twelve months.





It is
possible that the actual outcome of one or more of management’s plans could be
materially different or that one or more of management’s significant judgments
or estimates about the potential effects of the risks and uncertainties could be
prove to be materially incorrect. Each of the factors considered by management
are discussed in more detail below.


18
 Index


Asset
Quality





The
allowance for loan losses at September 30, 2008 was $3.6 million, or 3.26% of
total loans compared to $1.6 million, or 1.37% at December 31, 2007 and $1.3
million or 1.05% at September 30, 2007. For the first nine months of 2008, the
provision for loan losses was $3.9 million as compared to $224 thousand for the
first nine months of 2007. The significant increase is relative to the increase
in non-accrual loans and loan concentrations within the portfolio. Management
has closely monitored the Company’s asset quality and has been proactive in
working problem assets. The loan portfolio is monitored on a weekly basis by
management and the allowance is analyzed quarterly. Management considers the
allowance for loan losses to be adequate and sufficient to absorb possible
future losses; however, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required.





Net
charge-offs totaled $1.9 million for the first nine months of 2008 as compared
to $167 thousand for the first nine months of 2007. The increased provision and
net charge-off amounts reflect a deterioration in credit conditions as a result
of the slowing residential real estate market. Should real estate conditions
continue to worsen, the Company may experience additional
charge-offs.





The
following table summarizes the allowance for loan losses for the nine months
ended September 30, 2008 and 2007.




Nine
      months ended
                    September
      30,2008
                  
                  
                  2007(Dollars
      in thousands)Average
      amount of loans outstanding
                  
                  $
                  115,940
                  
                  
                  $
                  111,248Allowance
      for loan losses, beginning of period
                  
                  $
                  1,617
                  
                  
                  $
                  1,195Less
      charge-offs:Real
      estate
                  
                  
                  1,894
                  
                  
                  
                  125Consumer
                  
                  
                  47
                  
                  
                  
                  48Total
      charge-offs
                  
                  
                  1,941
                  
                  
                  
                  173Plus
      recoveriesReal
      estate
                  
                  
                  9
                  
                  
                  
                  --Consumer
                  
                  
                  9
                  
                  
                  
                  6Total
      recoveries
                  
                  
                  18
                  
                  
                  
                  6Net
      charge-offs
                  
                  
                  1,923
                  
                  
                  
                  167Plus
      provision for loan losses
                  
                  
                  3,940
                  
                  
                  
                  224Allowance
      for loan losses, end of period
                  
                  $
                  3,634
                  
                  
                  $
                  1,252Net
      charge-offs to average loans
                  
                  
                  1.66
                  %
                  
                  
                  0.15
                  %





The
accrual of interest on impaired loans is discontinued when, in management’s
opinion, the borrower may be unable to meet payments as they become
due.  When interest accrual is discontinued, all unpaid accrued
interest is reversed.  Interest income is subsequently recognized only
to the extent cash payments are received.  Loans are returned to
accrual status when all the principal and interest amounts contractually due are
reasonably assured of repayment within a reasonable time frame.





The
following table is a summary of the Company’s nonaccrual loans at September 30,
2008 and September 30, 2007. The table shows an increase in nonaccrual loans
from $334 thousand at September 30, 2007 to $12.1 million at September 30,
2008.





September
      30, 2008Nonaccrual
                      Loans
                    
                    
                    Past
      Due 90 Days – Still AccruingReal
      estate loans
                    
                    $
                    11,817
                    
                    
                    $
                    169Commercial
      loans
                    
                    
                    215
                    
                    
                    
                    --Consumer
      loans
                    
                    
                    29
                    
                    
                    
                    3Total
                    
                    $
                    12,061
                    
                    
                    $
                    172


19
 Index




September
      30, 2007Nonaccrual
                      Loans
                    
                    
                    Past
      Due 90 Days – Still AccruingReal
      estate loans
                    
                    $
                    334
                    
                    
                    $
                    --Commercial
      loans
                    
                    
                    --
                    
                    
                    
                    --Consumer
      loans
                    
                    
                    --
                    
                    
                    
                    --Total
                    
                    $
                    334
                    
                    
                    $
                    --





Management
meets weekly to discuss various plans for the reduction of nonaccrual loans. In
addition to nonaccrual loans, the Company has foreclosed assets which are also
considered non-performing assets. As of September 30, 2008, the Company had $8.0
million in foreclosed assets compared to $882 thousand at December 31, 2007.
Foreclosed assets are written down to the lower of the carrying principal amount
or the fair market value as determined by an appraisal when transferred to
foreclosed assets. At September 30, 2008, nonaccrual loans and foreclosed assets
totaled $20.0 million, which is 13.5% of total assets.





Liquidity





Liquidity
is our ability to meet current and future obligations through liquidation or
maturity of existing assets or the acquisition of additional liabilities. Most
importantly, liquidity provides the means to fund all deposit withdrawals
immediately, while also providing for the credit needs of customers. Cash and
cash equivalents, which include cash on hand and in correspondent banks, as well
as federal funds sold to correspondent banks, are our primary sources of
liquidity.  The September 30, 2008 financial statements evidence
a satisfactory liquidity position as total cash and cash equivalents amounted to
approximately $4.6 million, representing 3.1% of total assets.





Investment
securities available-for-sale, which amounted to $18.2 million, or 12.2% of
total assets at September 30, 2008, provide a secondary source of liquidity
because they can be converted into cash in a timely manner. We also have lines
of credit available with correspondent banks. These lines of credit can be
accessed to meet temporary funding needs.  At September 30, 2008,
we had access to unused lines of credit totaling $2.0 million.





We draw
deposits primarily from our local market area. However, when we deem it
necessary and prudent we will access deposit markets other than the local market
for sources of funds. These deposits can include “brokered” deposits and
deposits generated from other sources, including internet sources. The Company
has dropped below the “well capitalized” threshold which limits its ability to
utilize brokered deposits. Historically, the Company has not utilized brokered
deposits and carried none at September 30, 2008.





Freedom
Bank of Georgia is a member of the Federal Home Loan Bank (FHLB) of Atlanta. The
FHLB provides funds for real estate-related lending and to promote home
ownership. We use advances from the FHLB to fund loans and as a tool to manage
our interest rate risk.  At September 30, 2008 we had advances
outstanding of $16.5 million.  To the extent we provide qualifying
collateral, we have access to additional advances up to $5.8
million.





Freedom
Bank of Georgia has submitted an application to the Federal Reserve Bank of
Atlanta in order to be able to borrow at the discount window. If established,
this line of credit will provide increased liquidity to the Company to the
extent of qualifying collateral provided to Federal Reserve Bank of
Atlanta.





We
closely monitor our balance sheet and liquidity in order to maintain appropriate
levels of interest earning assets and interest bearing liabilities, so that
maturities of assets can provide adequate funds to meet customer withdrawals and
loan demand. Due to recent economic developments and the current capital
position of the Company, management monitors liquidity on a daily basis to
ensure the Company maintains adequate liquidity to service our
customers.


20
 Index


Capital
Resources





Total
shareholders’ equity decreased from $13.5 million at December 31, 2007 to $8.6
million at September 30, 2008.  The decrease is due to net loss
for the first nine months of 2008 of $4.9 million, an after-tax decrease of $28
thousand in the fair value of securities available-for-sale, an after tax
increase in the fair value of an interest rate floor of $8 thousand, an increase
in surplus from the recognition of stock compensation expense of $44 thousand,
and net proceeds of $15 thousand received from the sale of 1,500 shares of
common stock due to the exercise of stock options.





The
Federal Reserve Board and bank regulatory agencies require bank holding
companies and financial institutions to maintain capital at adequate levels
based on a percentage of assets and off-balance sheet exposures, adjusted for
risk-weights ranging from 0% to 100%. Under the risk-based standard, capital is
classified into two tiers: Tier 1 capital consists of common shareholders’
equity, excluding the unrealized gain (loss) on available-for-sale securities,
minus certain intangible assets. Tier 2 capital consists of the general reserve
for loan losses subject to certain limitations. An institution’s qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital. The regulatory minimum requirements for
adequately capitalized banks are 4% for Tier 1 and 8% for total risk-based
capital.





Banks and
bank holding companies are also required to maintain capital at a minimum level
based on total assets, which is known as the leverage ratio. The minimum
requirement for the leverage ratio is 3%, but all but the highest-rated
institutions are required to maintain ratios that are 100 to 200 basis points
above the minimum.





The
following table summarizes our risk-based capital ratios at September 30,
2008:





Freedom
      Bank
                        September
      30, 2008
                      
                      Freedom
                        Bancshares,
      Inc.
                        September
      30, 2008
                      
                      Regulatory
                        RequirementLeverage
      ratio
                      
                      5.32%
                      
                      5.51%
                      
                      4.0%Tier
      1 Risk weighted ratio
                      
                      6.29%
                      
                      6.47%
                      
                      4.0%Total
      Risk weighted ratio
                      
                      7.57%
                      
                      7.76%
                      
                      8.0%




Management
has accelerated its process of attempting to raise capital in an effort to
return to a well capitalized position. The Board of Directors has approved a
subordinated debt offering and is exploring other potential sources for capital
injection.





Legislation





Effective
October 3, 2008, the FDIC increased deposit insurance coverage limits.
Generally, FDIC insurance limits for single accounts, joint accounts, and trust
accounts have increased from $100,000 to $250,000. This increase in coverage is
in effect through December 31, 2009 and does not in itself increase our Deposit
Insurance Fund assessment.





Effective
October 14, 2008, the FDIC eliminated the deposit insurance coverage limits for
all non-interest bearing transaction deposit accounts, including all personal
and business checking deposit accounts that do not earn interest. Thus, all
money in these accounts are fully insured by the FDIC regardless of dollar
amount. This second increase to coverage is in effect through December 31, 2009.
The cost to us for participating in this expanded deposit insurance coverage
program is a 10-basis point surcharge to our current insurance assessment rate
with respect to the portions of the non-interest-bearing transaction deposit
accounts not otherwise covered by the existing deposit insurance limit of
$250,000.





Finally,
the FDIC has proposed to increase the Deposit Insurance Fund assessment rates as
part of the FDIC’s Deposit Insurance Fund restoration plan. Currently, banks pay
anywhere from five basis points to 43 basis points for deposit insurance. Under
the proposal, the assessment rate schedule would be raised uniformly by 7 basis
points (annualized) beginning on January 1, 2009. Further, beginning with the
second quarter of 2009, changes would be made to the deposit insurance
assessment system to make the increase in assessments fairer by requiring
riskier institutions to pay a larger share.




21
 Index




Part
      I.
            Financial
      Information


Item 3.
            Quantitative
      and Qualitative Disclosures about Market
Risk





Pursuant
to the revised disclosure requirements for smaller reporting companies effective
February 4, 2008, no disclosure under this Item is required.





Part
      I.
            Financial
      Information


Item 4(T).
            Controls
      and Procedures




The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
Company’s disclosure controls and procedures as of the end of the period
reported, and concluded that these controls and procedures are
effective.  There have been no significant changes in internal
controls or in other factors that could significantly affect these controls
subsequent to the date of this evaluation.





Disclosure
controls and procedures are the Company’s controls and other procedures that are
designed to ensure that information it is required to disclose in the reports it
files under 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 the
Company is required to disclose in the reports that it files under the Exchange
Act is accumulated and communicated to management, including the principal
executive and financial officers, as appropriate, to allow timely decisions
regarding required disclosure.





The
design of any system of controls and procedures is based in part upon certain
assumptions about the likelihood of future events.  There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.





There
have been no changes in our internal control over financial reporting during our
third quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




22
 Index




FREEDOM
BANCSHARES, INC.


AND
SUBSIDIARY





Part II.
            Other
      Information




Item1.
            Legal
      Proceedings





None.





Item
      1A.
            Risk
    Factors





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed below, as well as those included in “Part I, Item
1A.  Risk Factors” in our Annual Report on Form 10-K for the year
ended December 31, 2007, which could materially affect our business, financial
condition or future results.  The risks described in our Annual Report
on Form 10-K are not the only risks facing our Company.  Additional
risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial
condition and/or operating results.





Weakness
in the economy and in the real estate market, including specific weakness within
our geographic footprint, has adversely affected us and may continue to
adversely affect us.





Declines
in the U.S. economy and our local real estate markets contributed to our
increasing provisions for loan losses during 2008, and may result in additional
loan losses and loss provisions for the remainder of 2008 and
2009.   These factors could result in further increases in loan
loss provisions, delinquencies and/or charge-offs in future periods, which may
adversely affect our financial condition and results of
operations.  If the strength of the U.S. economy in general and the
strength of the local economies in which we conduct operations continue to
decline, this could result in, among other things, further deterioration in
credit quality or a reduced demand for credit, including a resultant adverse
effect on our loan portfolio and allowance for loan and lease
losses.





In
addition, deterioration of the U.S. economy may adversely impact our banking
business more generally. Economic declines may be accompanied by a decrease in
demand for consumer or commercial credit and declining real estate and other
asset values. Declining real estate and other asset values may reduce the
ability of borrowers to use such equity to support borrowings. Delinquencies,
foreclosures and losses generally increase during economic slowdowns or
recessions. Additionally, our servicing costs, collection costs and credit
losses may also increase in periods of economic slowdown or recessions. Effects
of the current real estate slowdown have not been limited to those directly
involved in the real estate construction industry (such as builders and
developers). Rather, it has impacted a number of related businesses such as
building materials suppliers, equipment leasing firms, and real estate
attorneys, among others. All of these affected businesses have banking
relationships, and when their businesses suffer from recession, the banking
relationship suffers as well.




We are subject to
liquidity risk in our operations.





Liquidity
risk is the possibility of being unable to obligations as they come due,
capitalize on growth opportunities as they arise, or pay regular dividends
because of an inability to liquidate assets or obtain adequate funding on a
timely basis, at a reasonable cost and within acceptable risk
tolerances.  Liquidity is required to fund various obligations,
including credit obligations to borrowers, mortgage originations, withdrawals by
depositors, repayment of debt, dividends to shareholders, operating expenses and
capital expenditures.  Liquidity is derived primarily from retail
deposit growth and retention, principal and interest payments on loans and
investment securities, net cash provided from operation and access to other
funding sources.  Our access to funding sources in amounts adequate to
finance our activities could be impaired by factors that affect us specifically
or the financial services industry in general.  Factors that could
detrimentally affect our access to liquidity sources include a decrease in the
level of our business activity due to a market downturn or adverse regulatory
action against us.  Our ability to borrow could also be impaired by
factors that are not specific to us, such as a severe disruption in the
financial markets or negative views and expectations about the prospects for the
financial services industry as a whole, given the recent turmoil faced by
banking organizations in the domestic and worldwide credit
markets.


23
 Index


Our ability to
raise capital could be limited, could affect our liquidity and could be dilutive
to existing shareholders.





Current
capital markets conditions are such that traditional sources of capital may not
be available to us on reasonable terms if we need to raise such
capital.  In such a case, there is no guarantee that we will be able
to borrow funds or successfully raise additional capital at all or on terms that
are favorable or otherwise not dilutive to existing shareholders.





The
impact of the current economic downturn on the performance of other financial
institutions in our geographic  area, actions taken by our competitors
to address the current economic downturn, and the public perception of and
confidence in the economy generally, and the banking industry
specifically, could negatively impact our performance and
operations.





All
financial institutions are subject to the same risks resulting from a weakening
economy such as increased charge-offs and levels of past due loans and
nonperforming assets. As troubled institutions in our market area continue to
dispose of problem assets, the already excess inventory of residential homes and
lots will continue to negatively affect home values and increase the time it
takes us or our borrowers to sell existing inventory. The perception that
troubled banking institutions (and smaller banking institutions that are not “in
trouble”) are risky institutions for purposes of regulatory compliance or
safeguarding deposits may cause depositors nonetheless to move their funds to
larger institutions. If our depositors should move their funds based on events
happening at other financial institutions, our operating results would
suffer.





Volatility
in the capital and credit markets, together with the current real estate
slowdown, have resulted in significant pressure on the financial services
industry.





We have
experienced a higher level of foreclosures and losses upon foreclosure during
recent periods than we have historically.  If current volatility and
market conditions continue or worse, our business, financial condition and
results of operations could be materially adversely affected.  We may
therefore experience further increases in loan losses, deterioration of capital
or limitations on our access to funding or capital.





The Emergency
Economic Stabilization Act of 2008 (“EESA”) may not stabilize the financial
services industry.





The EESA,
which was signed into law on October 3, 2008, is intended to alleviate the
financial crisis affecting the U.S. banking system.  A number of
programs are being developed and implemented under EESA.  The EESA may
not have the intended effect, however, and as a result, the condition of the
financial services industry could decline instead of improve.  The
failure of the EESA to improve the condition of the U.S. banking system could
significantly adversely affect our access to funding or capital, the trading
price of our stock, and other elements of our business, financial condition, and
results of operations.





Item2.
            Unregistered Sales of Equity
      Securities and Use of
Proceeds





None.





Item3.
            Defaults Upon Senior
      Securities





None.





Item4.
            Submission of Matters to a Vote
      of Security Holders





None.





Item5.
            Other
      Information





None.


24
 Index




Item6.
            Exhibits





Number
                    Description31.1
                    Certification
      of the Chief Executive Officer, pursuant to Rule 15d-14(a) under the
      Securities Exchange Act of 1934.31.2
                    Certification
      of the Chief Financial Officer, pursuant to Rule 15d-14(a) under the
      Securities Exchange Act of 1934.32.1
                    Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Rule 15d-14(b) under the Securities Exchange Act of
      1934.32.2
                    Certification
      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Rule 15d-14(b) under the Securities Exchange Act of
      1934.


25
 Index




FREEDOM BANCSHARES, INC.


AND
SUBSIDIARY




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




Freedom
      Bancshares, Inc.(Registrant)November
      14, 2008
              /s/
      Vincent D. CaterPresident
      and Chief Executive Officer(Principal
      Executive Officer)November
      14, 2008
              /s/
      Jennifer S. WethingtonChief
      Financial Officer(Principal
      Accounting Officer)






26